If only companies did pay taxes, eh?

I am we\’ll aware that we have a government resistant to tax change in the UK right now, but governments always react to change in society and rarely create it. The demand for corporate tax reform is growing now to the point where change will have to happen: that\’s the key issue here. That, and the fax that the resentment at a government creating 5.5% tax rates for multinational companies will be considerable, and it is such things that persuade people of the commitment of a government to fairness, or not, when voting.

If only all these people campaigning about corporate taxation would tell everyone what we all know about corporate taxation.

That whatever the rate, whatever the system, it\’s not actually the companies that pay it. Once everyone understood that then we\’d be able to have an adult conversation about how and where in the economy we should be raising the tax necessary.

But given that we\’ve got entire armies of NGOs insistent on lying to the public on this point we can\’t have that adult conversation, can we?

Companies don\’t pay taxes. No, not never.

33 thoughts on “If only companies did pay taxes, eh?”

  1. “What we all know” being an argument made by an obscure American economist a century ago.

    Companies don’t pay taxes, their workers and customers do. Right, so tax the worker… and now he’s not paying it, the company and the customer are. So, er, tax the customer then… but now, oh bollocks, the company and the workers are.

    It doesn’t matter where you tax the system, the people the taxpayer transacts with always end up footing the bill, simply because everyone is economically connected to everyone else. The same special pleading argument can be made on behalf of any class of economic agent.

  2. In the short term at least, the incidence of Corporation Tax appears to be on shareholders. Given that, as per your earlier post today, we can’t tax Lady Green of Monaco on her shareholdings, isn’t it more sensible to tax what we can (i.e. the company)?

    (Some of the incidence falls on employees, but exactly how much is a matter of great debate.)

  3. ….What we all know” being an argument made by an obscure American economist a century ago…..

    Please describe to us how it is possible for corporation taxes to fall on the company and NOT some combination of shareholders, workers and employees?

  4. Companies do _pay_ taxes – you can see the figures in the accounts and, if you run one, you send the money off. However, the incidence of the tax isn’t on the company because, except in the short term, the companies earnings are all disbursed.

    It is interesting that Arnald, who still insists that the point of country-by-country reporting isn’t to enable country-by-country taxation, also insists that companies form an actual point of taxation, rather than a convenient means for collection.

  5. How about:
    – corporation tax cut to 5%
    – dividends taxed at source at the same rates as earned income, irrespective of the place of residence of the shareholder.

    Any objections?

    Tim adds: Yes.

    1) At 5% there’s no point in having corporation tax. The distortions it causes aren’t worth that revenue. Just abolish it rather than have that rate.

    2) Why do you want to tax foreigners on their income? We like foreigners investing in the UK. Makes us richer. So why dissuade them?

    Tax all UK residents straight and full income tax rates on their dividends, after you’ve abolished corporation tax? Sure. You can even raise CGT at that point (with an inflation adjustment) if you wish.

  6. “The point of CbC reporting is CbC reporting and I insist nothing.”
    So it just a make-work scheme for accountants!

  7. The point of CbC reporting is CbC reporting and I insist nothing.

    But you just did? You just, again, insisted that the point of CbC reporting isn’t to enable CbC taxation. Which shows that you are just as bad at reading your own and Murphy’s writing as you are at reading posts here.

    Do you have a three year old correcting your basic reading and logic errors at work?

  8. SE
    If saying something one and a half times is “insisting” then you’re Savile’s wingman.

    The clue is in the what it is, though, I’m not sure what your problem is. I could speculate though.

  9. “2) Why do you want to tax foreigners on their income? We like foreigners investing in the UK. Makes us richer. So why dissuade them?”

    Because, if we scrap corporation tax because we think there’s a better place to raise that revenue (i.e. on the distributions) and then hand overseas people an even bigger ‘advantage’ over UK residents in terms of the return they can get from ‘investing’ in the UK.. then doesn’t it follow that UK investors will be (further) priced/crowded out of the market.. meaning that an increasingly lower share of corporate earnings will taxed at any point?

    This is just me thinking aloud.

    I’m interested in the argument for scrapping corporation tax (because corporate profits are, as folk on all sides are seeing, a rubbish thing to tax) but do believe that business earnings should be taxes somewhere, and don’t think that we should be implementing any system whereby foreigners get to make profits in the UK and contribute nothing back into the society which provides the platform upon which they can do so.

  10. If saying something one and a half times is “insisting” then you’re Savile’s wingman.

    This isn’t the only thread you’ve commented on, you know. And disagreeing with you is morally equivalent to raping minors? Wow, take yourself seriously, don’t you.

    The clue is in the what it is, though, I’m not sure what your problem is. I could speculate though.

    The purpose of a hammer is not “to be a hammer”. It is for driving in and, for some examples of the breed, removing nails. Go read Murphy. We can explain all the long words to you.

  11. Serf-

    Please describe to us how it is possible for corporation taxes to fall on the company and NOT some combination of shareholders, workers and employees?

    That’s the wrong question to ask. The right question to ask is whether this is unique to corporation tax, or whether it applies to all taxes.

    Can you tax an employee without taxing anyone else? No. The company pays £400, the employee receives £300. Who paid it? If there were no tax, the company could have paid a wage of £300. So, who is “paying the tax”? Is it the employee, or the company?

    The same argument is universal. The dishonest part is claiming that it only applies to companies, and thus to argue from that that companies should not be taxed.

  12. @ IanB

    “The same argument is universal. The dishonest part is claiming that it only applies to companies, and thus to argue from that that companies should not be taxed.”

    A company isn’t a ‘thing’ that can bear a cost. It is an arrangement whereby people collaborate to do things which, most probably, will include bearing a cost.

    The point of the ‘companies don’t pay tax, people do’ thing is that, well, you can always follow the cost through the paperchain and find a person. That’s, obviously, not the case when the starting point is already a person.

  13. TTG,

    Not “obviously”. The conclusion drawn from such ponderings ought to be the more general and useful one that “you can’t tax anybody without taxing everybody”.

  14. Could see certain governments reducing corporation tax, can’t see them dropping them too low – the media and the financial illiterate would kick off even more of a fuss than they do now.

  15. @ Ian B

    That, I can agree with. But ‘everybody’ is still made of people.. which is why I think that the distinction made for companies (and other things that are not people) is valid… even though it my often be a fairly useless one on the grounds that identifying the various pockets that will be lightened is impossible (and that’s the ‘bit’ of the argument most commonly abused.. usually to ‘prove’ that the incidence always falls on the workers).

  16. Tim: thanks for your comments
    1) I have in mind that there should be some cost to incorporation. What’s the distortion you’re concerned about?
    2) We tax foreigners on income earned in this country, however much we value their labour. Why should we treat dividends differently?

    Tim adds: Distortions: the vast industry that exists trying to dodge said tax for a start. Accountants and lawyers would have top go and do something productive. So sad, eh?

    As to costs to incorporation: why? Cost recovery, running Companies House, sure. Over that? Why? We don’t charge people for other forms of association. There’s no tax or fee for being a union (whether labour or Mothers’), a partnership.

  17. someone should do a thread on the ratio of pages in the tax code v tax raised by said tax.

    I expect that corporation tax would have the lowest ratio of tax per page of any tax. Closely followed by capital gains tax….and then by inheritance tax, then VAT.

    The winner will, probably, be Business rates – a tax that is very hard to avoid.

  18. 2) We tax foreigners on income earned in this country, however much we value their labour. Why should we treat dividends differently?

    Because the justification for taxes is that people should pay for services which can only be provided collectively. If people are not resident in a country, they are in most cases not using these services and hence should not be paying for them. Sure, there is an argument that foreigners benefit from the UK’s stable regime, but it is a very weak argument. And I really don’t think setting a precedent whereby a country can tax non-residents and non-citizens is very clever, as you can be sure we’ll not be the only country which does it and you could find yourself facing a tax bill from France.

  19. @IanB: “so tax the worker… and now he’s not paying it, the company and the customer are. ”

    What?

    Sure, using labour increases costs, and that cost goes to pay tax. But the worker pays it. No transfer.

  20. “Tim adds: Yes.

    1) At 5% there’s no point in having corporation tax. The distortions it causes aren’t worth that revenue. Just abolish it rather than have that rate.”

    Quite so. Abolish it completely.

  21. @ Tim Newman

    “Sure, there is an argument that foreigners benefit from the UK’s stable regime, but it is a very weak argument”

    When said foreigner owns a business that is incorporated and operating in the UK, and is making money from UK consumers… how is that a weak argument?

    Tim adds: It’s a weak argument because it’s an ignorant one. How do you make a profit? By providing the consumer with something they value more than it costs to make. By creating wealth, by definition.

    So, your argument becomes “How dare you come to our country and make us all richer, produce what we desire, without paying taxes, you bastard?”

    That is a pretty weak argument.

  22. Thanks Tim (W), but that’s a different branch of the debate. That we benefit from foreigners doing business in our country does not change the fact that foreigners benefit from the environment we create, into which they can do that business. It would be ignorant not to recognise that there is mutual benefit, but nobody suggested otherwise. And it cuts both ways.

    You say it yourself.. “How dare you come to our country and make us all richer”.. ‘us all’ includes the person providing that which is desirable. They aren’t doing it for shits’n’giggles.

    As desirable as it may be that we all get richer, if we must have taxation then aren’t we going to have to keep taxing that desirable thing somewhere along the line?

  23. MellorSJ-

    Sure, using labour increases costs, and that cost goes to pay tax. But the worker pays it. No transfer.

    The company has to pay a net of £400 to pay a wage of £300 (or whatever) to the worker. PAYE employees never even hold, for a nanosecond, the tax they are supposedly paying. That is the most clear case where the company itself is paying a £100 tax on £300 of labour it has purchased.

    The point is, when you tax any transaction, it is arbitrary to say who paid it, because it is caught by the exchequer “in flight” so to speak. This is where the Seligman “companies don’t pay tax” argument fails; it applies a general principle to one particular case, and then circularly argues that that one case is special.

  24. When said foreigner owns a business that is incorporated and operating in the UK, and is making money from UK consumers… how is that a weak argument?

    In addition to what Tim W. is saying, the purpose of taxation is to pay for services provided collectively. If somebody is almost by definition not using those services, then he should not be taxed (which is generally why people are taxed on their residency).

    If the UK shifts to a system whereby anybody who is able to be taxed is taxed simply because he is a convenient source of funds, regardless of whether he uses any collective services, then you can expect a free-for-all as other countries wade in and tax the shit out of everyone they can on the most spurious of pretexts. This is not likely to bode well for the UK.

  25. That we benefit from foreigners doing business in our country does not change the fact that foreigners benefit from the environment we create, into which they can do that business.

    Right. And once we open the can of worms that a foreigner who has not set foot in the UK is, via financial links alone, benefiting from an environment “we” create, then we can expect British citizens to start getting taxed on the basis that foreign governments believe they (Brits) are “benefiting from an environment” that they (foreigners) have created. And trust me, foreigners will be a lot more imaginative in how they tax Brits than we will of them.

  26. Regarding the 5%: I was thinking that one should have to pay something for (a) the opportunity to put your family on the payroll (b) the right to default without undergoing personal bankruptcy. And that 5% is low enough to put a fair few accountants and lawyers out of business.

    The arguments offered against taxing dividends paid to foreigners are roughly (a) companies don’t benefit from collective services (b) foreign governments will retaliate (c) we want to encourage investment from overseas. To which I say (a) come off it (b) good luck to them (c) yes we do, we want to encourage lots of things that we tax – including trade, employment, and investment by whomever. I can’t see why this should be a privileged case.

  27. Tim

    When you say ‘via financial links alone’ you insinuate that this is about finding some tenuous link in order to justify dipping into the pockets of people who don’t live here.

    We’re talking about a witholding tax on dividends from UK companies, which is witheld irrespective of where the recipient lives. The company is here, the activity is here, and the money being paid out is here. It’s not just some convenient fantasy that the UK environment is helpful to the arrangement. This is where it’s all going on… and we have sovereignty. If any foreign governments who have sovereignty over any of my assets wish to tax them somehow then they’re free to do so. The market will decide where people are willing to do business. The UK should still be every bit as attractive as it is today.

  28. If any foreign governments who have sovereignty over any of my assets wish to tax them somehow then they’re free to do so.

    Somehow I think you’d be squawking pretty loudly if you found your pension fund taxed away to nothing by a dozen governments on the grounds that the invested shares were in companies over which they had sovereignty.

  29. The arguments offered against taxing dividends paid to foreigners are roughly (a) companies don’t benefit from collective services

    To which I say (a) come off it…

    Presumably that’s what the corporation tax and business rates are for?

  30. When you say ‘via financial links alone’ you insinuate that this is about finding some tenuous link in order to justify dipping into the pockets of people who don’t live here.

    Yes, because this is exactly how it would be interpreted by a lot of the world. Just because the UK might play fair, it doesn’t mean that the rest of the world does. I’ve been expatriated long enough to know that.

  31. Presumably that’s what the corporation tax and business rates are for?

    You’ll recall that I was proposing to reduce corporation tax to near zero.

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