Booker’s really not quite got it on tax

Certainly, the sums lost to the Treasury are mind-boggling. Google, based for tax purposes in Dublin, earned £11 billion from Britain between 2006 and 2011, but paid only £10 million in tax. Starbucks, based in Holland, in 2011 earned £395 million in the UK, but paid only £6 million in tax. Amazon, based in Luxembourg, had UK sales of £3.35 billion in 2011 but paid only £1.8 million in tax. Equally clever at avoiding UK tax are our largely foreign-owned water companies, such as Thames, which in 2011 made a £550  million profit and paid no tax at all. Ever longer grows the list of leading companies avoiding UK tax in this way, from Apple and Vodafone to BHS and Pizza Express – so that estimates of what the Treasury is losing are as much as £120 billion a year, equal to a fifth of the Government’s entire income.

Astonishingly, however, entirely missing from all the outrage is the simple explanation of how and why this racket has come into being. It all stems from the “four freedoms” laid down in the founding treaty of the European Union, especially the freedoms of “capital” and “establishment”, which entitle firms to move all their income to the country where they want their tax base to be, to give them the smallest tax liability. This has completely destroyed the sovereign right of national governments to levy tax in a country where income is earned. Google, Amazon, Apple and the rest can thus quite legally channel all their earnings wherever tax rates are lowest.

There’s any number of errors in there. Starbucks is not based in Holland for example, the reason it doesn’t pay UK taxes is because it doesn’t make a profit here. And pretty much none of these cases hinge particularly on EU law. Vodafone did, because EU law meant that the UK’s CFC rules did not apply to EU subsidiaries. But the others? Amazon? Google? The rules that allow them to do what they do pre-date the EU by some decades. They’re using the League of Nations’ rules on permanent establishments. The EU really doesn’t have all that much to do with it.

It is however true that all of the various ways by which this could be changed would run up against EU rules. That’s the bit that the Murphmeister doesn’t tell us all. But it’s not EU rules that cover most of what is going on at all. It’s the concept of permanent establishment which is pre-WWII in its definition.

15 comments on “Booker’s really not quite got it on tax

  1. Well, it certainly proves how successful the ‘narrative’ style of political campaign is. It’s now hard to find anyone who’s not discussing the issue in the terms of the narrative.

  2. The narrative is also strong when the excerpt quoted above uses the same wrong figures — like Amazon’s revenues and not its profits — to contrast with the tax paid.

  3. The narrative is certainly wrong. It should be about tax competition between states. Of course it’s in politicians’ interests for the discussion to be about the ‘morals’ of these companies and/or how the rules should be fixed for states’ own benefits. That, rather than the reduction in the amount of money they’d have available to spunk up the wall if rates were cut, or the complete mental meltdown that would occur in the Treasury if it were realised/admitted just how far on the right of the Laffer Curve we actually are.

    I’m as Euro-sceptic as most on here, but this is one principle the EU (and probably EFTA, if we went back to it) is preserving and rightly so. For how long, of course, is another matter…

  4. Vir Cantium,

    “I’m as Euro-sceptic as most on here, but this is one principle the EU (and probably EFTA, if we went back to it) is preserving and rightly so. For how long, of course, is another matter…”

    Probably until the member states ‘losing out’ on the tax competition stakes get large enough in number to propose harmonising corporation taxes, or going further by having it as a direct revenue raiser for the EU. Cutting spending to better match revenues won’t be an acceptable choice. Raising taxes that tax voters directly won’t be an acceptable choice either.

  5. @ The Sage

    As technically correct as you are, the view of the campaigners is that these companies are structuring to lower their UK profits so as to pay less tax. And they are.. the debate points are around whether there’s anything wrong with that, who is to blame what should be done etc etc.

    However, with all being agreed that profits are low because of the tax structuring* it makes no sense to use tax paid on profits to illustrate the issue.

    * excepting, of course, those companies that really just don’t make profits at all.

  6. I note these companies are not moving to high tax areas of the EU. Perhaps they need reasons to move from where they are, though quite why a company would choose to move its base of operations to the UK I have no idea. Other countries seem to have this idea of charging the tax legally due, we have politicians, media and idiotic campaign groups who also want a moral tax on top, decided by someone other than the company owners!

  7. “the debate points are around whether there’s anything wrong with that”

    The key point here is what is meant by “wrong”.

    Timbo has established that the companies are not legally in the wrong and therefore the campaigners should be targeting the government and the law.

    The obfuscation and inaccuracies are created deliberately because the campaigners can only fight on the “morally wrong” issue, this is a moot point coming as it does from those who happily tax poor people into further poverty (and then complain that too many people are in poverty).

    The entire article is laden with weasel words, a good indication of inaccuracy. “Mind boggling” is what you apply to the debt run up by the government, the interest payments on which would siphon off a good percentage of that uncollected tax should it ever end up in government coffers.

    The word “robs” in the title is more correctly applied to the tax rates that cause corporations to restructure away from the UK in the first place, how you can view “failure to forcibly take money” as “being robbed” is beyond me.

    Another word “racket” is more correctly applied to the concept of corporation tax as whole – if you make a profit then it is taxed, if you make a loss, there’s no money back, zero risk heads I win, tails you lose, a classic scam.

  8. @ Gareth
    “Probably until the member states ‘losing out’ on the tax competition stakes get large enough in number to propose harmonising corporation taxes, or going further by having it as a direct revenue raiser for the EU.”

    That’s all quite believable, and of course all in the name of The Level Playing Field (pbui).

  9. @ Runcie

    “therefore the campaigners should be targeting the government and the law.”

    And how much traction do you think they’d have gotten by shouting ‘boo government’? How does that compare to what they’ve got from shouting ‘boo Starbucks’?

    I’m playing devils advocate to an extent. Most of them are ignorant of the underlying issues, happy to lie, and are just angry lefties doing what angry lefties do. However, they are campaigners with objectives and they, just like most angry righties (boo immigrants, boo welfare state etc etc) are doing what it takes to get noticed. Some of them might even think that what they’re doing will lead to a better world.

  10. I could be wrong but I thought that this was a combination of the permanent establishment rules (League of Nations) and the single EU market (which does stem from the four freedoms doesn’t it?). After all the fact that Google is based in Ireland does allow it to treat the EU as a single market from a sales point of view.

    After all there is no way that the UK can stop Amazon EU Sarl from selling into the UK, which combined with the fact that a neither a logistics chain or an internet server create a permanent establishment.

    Unfortunately to support his Murphyness there is a good case for adopting the US style unitary taxation (or formulary apportionment) within the EU creating a single market for goods services and taxation.

  11. I don’t think Richie would be happy having to deal with German tax authorities if he sold his services or books into Germany. Yet he wishes to inflict this on amazon.

  12. It is also interesting that nobody seems to realise that companies do not really pay tax, the customers/employees and shareholders do.

    When people complain about thames water, I am glad that it doesnt pay much tax, as that would otherwise come from my bill which I pay out of the already taxed salary.

    Or the bank tax. Where do people think the money would be coming from.

    There is this genral stupidity about this, which in the age of internet where knowledge is available to anyone, does not reflect well on the intellectual level of the masses.

  13. tax incidence!

    if a “company” pays tax, who ends up paying the tax? Customers, employees, or investors? Even DBC Reed knows that. Corporate tax is not the problem. The Gov should try to maximise corporate profits

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>