Richard Brooks

Oh dearie me. My comment left there:

Oh dear me, a total logical and economic fail here.

Corporations do not pay tax: they might hand over the cheque but the economic burden must be carried by some group of people.

As both Larry Elliott and Vince Cable have pointed out in the pages of this very newspaper, those groups are, shareholders in the form of lower capital returns, customers in htye form of higher prices or workers in the form of lower wages.

This is not arguable, is not in dispute, it\’s a simple fact of the world we live in. Absolutely standard part of the economics of taxation.

Where we do start to argue is which group carries what amount of that corporation tax? The general rule of thumb is that the smaller and more open the economy the more it is the workers who carry it, not capital (customers don\’t normally come into this).

Reasonable estimates are that 70% of the US corporate income tax is paid by the workers in those lower wages. Other estimates say that for the UK it\’s over 100% (we are a much more open economy than the US)….yes, that workers\’ wages fall by more than the amount raised in corporation tax.

When you get to a small open economy like Ghana this will be even more extreme. It\’s entirely possible that the workers lose more in lower wages than the government gains in revenues.

Which is why all this \”make the bastard companies pay tax\” nonsense is indeed nonsense. Absolutely none of you seem to know the absolute basics of tax incidence or the economics of taxation.

It would be vastly better for the poor countries to have no corporation tax at all (although there certainly should be royalties on minerals etc).

Why is it that these campaigners to change the world don\’t bother to find out how the world works before trying to change it?

Richard Brooks is the bloke at Private Eye who has cooked up the codbollocks estimate that Vodafone avoided £6 billion in tax. He is, I believe, an ex-tax inspector. But one who doesn\’t seem to understand either the economics of tax incidence (as above) or even how to calculate a tax bill. Vodafone will have had to pay German dividend tax on profits going into the Luxembourg company: and Luxembourg tax on the iinterest received. Tax lawyers and accountants who do know what they\’re talking about have said that the likely full tax bill was, umm, around £1.25 billion, the amount actually paid.

You\’ll note that neither Brooks (nor Ritchie!) have deigned to give us a calculation of how much tax Vodafone should have actually paid. Even though we know the sum going in, the tax rates in hte different countries and…..well, should be simple enough, so whay haven\’t they?

Me, I think it\’s because they\’re lying through their teeth but opinion can of course differ.

3 thoughts on “Richard Brooks”

  1. Hm… just to be difficult, I think I’ll bring up second order effects.

    Nigeria is in two parts (stylised fact warning), an inland bit, and a coastal bit. The coastal bit traded more than the inland bit. The coastal developed institutions to tax these transactions whereas the inland bit didn’t.

    Adam Smith says trade good, Adam Smith Institute says Tax bad! What happens.

    Well as you’d expect the coastal bit developed an infrastructure which could deliver public goods and the inland bit did a much worse job because the administrative infrastructure wasn’t there. So, Tax can be a useful precursor to the provision of public goods vital for growth.

    (Of course, a land tax would be better than a corporation tax in the circumstances.)

  2. In his defense (boy that hurts!), the village idiot from Norfolk never entirely defended the £6 billion figure that was produced in PE out of very thin air. His problem was more around the fact that HMRC settled for £1.25 billion whilst Vodafone had allegedly made a provision ofr £2.2 billion for the dispute.

  3. Ted: yezbut (and I know you know this, but just for the benefit of any readers who are Richie fans) in the current environment, post-Enron and GFC, companies have to make provisions for the worst outcomes they think are plausible.

    So Voda thinks it owes gbp1.25bn, but might get stung for gbp2.2bn if the taxman decides to totally shaft it, which would be a massive pain but not worth moving to Ireland for.

    It says in its statement to the City “this tax dispute won’t cost more than gbp2.2bn”, and writes that against profits. Then, if it manages to get what it’s expecting, it claims a gbp1bn extraordinary profit, and shareholders are happy.

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