Serious debate about taxation of the multinationals should examine the system’s underlying principles and involve stakeholders representing a wide range of opinions, ActionAid’s former tax justice campaign manager has suggested. Martin Hearson said campaigners and journalists had made some mistakes, but he told Tax Journal that it would be wrong for tax professionals to ‘put every allegation against a company down to misunderstanding’.
► MPs urged to probe international tax avoidance |
Chris Morgan, head of tax policy at KPMG in the UK, said yesterday in response to recent press reports: ‘It’s good that there is a debate on tax going on but it’s a shame that much of it is partial or even ill-informed; corporation tax is paid on profits, not sales, for a start.’
Major companies ‘can and do exercise a choice over where they locate their businesses with tax often being an important, but not the sole, consideration as acknowledged by HMRC in their paper Taxing the profits of multinationals,’ Morgan added. ‘The important area for the UK to focus on is making sure that our tax system is competitive and that we attract businesses here. It’s extremely encouraging that there has been real progress on this in the form of the foreign profits reforms and the reductions in the corporate tax rate.’
Clarity
Hearson conceded that tax campaigners, and occasionally journalists, have tended to do two things that ‘perhaps undermine their case a little’. ‘The first is to jump on every case that suits their argument – or in some cases, that is consistent with how they know companies tend to behave – without checking the facts,’ he wrote on his personal blog.
‘The second mistake that I think campaigners make is not to clarify terms well enough. In particular, “tax avoidance” has a very specific meaning to tax professionals, which is different to how it’s understood by the lay person. For most people, the important distinction is between illegal tax evasion and legal tax avoidance; to them, any tax practice that “smells bad” fits into one of those two categories.
‘But technically, to qualify as “tax avoidance” a practice generally has to fall into a space bounded on one side by the letter of the law, and on the other side by the intention of parliament. I’m still not sure whether NGOs’ tendency to use “tax dodging” as a vague term to get round the definitional (and legal) issues has helped or not.’
Stakeholders
Hearson is now a doctoral researcher at the London School of Economics, focusing on the political economy of international taxation in developing countries. The ‘serious debate’, he said, should be ‘an interesting dialogue in which many stakeholders [including those representing any of three normative viewpoints] have something interesting to say’. The three normative viewpoints were:
‘1. The system is full of loopholes that allow companies to dodge tax. Companies deserve to be criticised for taking advantage of those loopholes, and governments and tax authorities should work harder to close them. These exposés play an important role in exposing the situation and pushing all of those actors to change it.
‘2. There are real problems with the system, but this is an issue that requires a more fundamental shift in the way companies are taxed. There’s no point criticising companies for acting rationally within the framework set by the law.
‘3. This is how the system is supposed to work. It may look wrong to the lay person, but that’s because they don’t appreciate the way a modern business is structured nor their obligation to minimise their tax liability. Yes, the tax system needs to keep pace with the development of more aggressive tax planning techniques, but it already does this. These attacks on companies are fundamentally misconceived.’
Hearson told Tax Journal today: ‘Tax professionals seem to put every allegation against a company down to misunderstanding on the part of campaigners and journalists. Mistakes do occur, but in a lot of cases what's actually going on is a more fundamental disagreement about the aims and objectives of corporate tax.’
He added: ‘The public reaction to tax scandals shows that our tax system, both explicit tax rules and corporate behaviour within them, is out of step with public opinion.’
‘Minimum tax rule’
Charlie Elphicke, Conservative MP for Dover and Deal and a former tax lawyer, has called on George Osborne to ‘force companies such as Google, Coca-Cola and Apple to have to state the effective rate of tax they pay on their UK revenues,’ according to The Times.
Elphicke said the chancellor ‘should look at a minimum tax rule for corporations so there was a limit to the level of deductions they could claim against profits’.
The paper reported: ‘Elphicke has analysed company returns in the US and Britain from 19 global companies with headquarters in America and which trade in Britain. He said their most recent UK revenues were more than £89bn a year, with profits of more than £12bn. Yet between them they paid only £377m in corporation tax. That equates to an average effective rate of 3%. Had they paid the 26% headline rate of corporation tax, the Treasury would have received a total of £3.3bn in revenue.’
Roland Watson, the paper’s political editor, wrote: ‘None of the multinationals is doing anything illegal, and Mr Elphicke’s calculations are not precise because he had to estimate profit margins.’
Serious debate about taxation of the multinationals should examine the system’s underlying principles and involve stakeholders representing a wide range of opinions, ActionAid’s former tax justice campaign manager has suggested. Martin Hearson said campaigners and journalists had made some mistakes, but he told Tax Journal that it would be wrong for tax professionals to ‘put every allegation against a company down to misunderstanding’.
► MPs urged to probe international tax avoidance |
Chris Morgan, head of tax policy at KPMG in the UK, said yesterday in response to recent press reports: ‘It’s good that there is a debate on tax going on but it’s a shame that much of it is partial or even ill-informed; corporation tax is paid on profits, not sales, for a start.’
Major companies ‘can and do exercise a choice over where they locate their businesses with tax often being an important, but not the sole, consideration as acknowledged by HMRC in their paper Taxing the profits of multinationals,’ Morgan added. ‘The important area for the UK to focus on is making sure that our tax system is competitive and that we attract businesses here. It’s extremely encouraging that there has been real progress on this in the form of the foreign profits reforms and the reductions in the corporate tax rate.’
Clarity
Hearson conceded that tax campaigners, and occasionally journalists, have tended to do two things that ‘perhaps undermine their case a little’. ‘The first is to jump on every case that suits their argument – or in some cases, that is consistent with how they know companies tend to behave – without checking the facts,’ he wrote on his personal blog.
‘The second mistake that I think campaigners make is not to clarify terms well enough. In particular, “tax avoidance” has a very specific meaning to tax professionals, which is different to how it’s understood by the lay person. For most people, the important distinction is between illegal tax evasion and legal tax avoidance; to them, any tax practice that “smells bad” fits into one of those two categories.
‘But technically, to qualify as “tax avoidance” a practice generally has to fall into a space bounded on one side by the letter of the law, and on the other side by the intention of parliament. I’m still not sure whether NGOs’ tendency to use “tax dodging” as a vague term to get round the definitional (and legal) issues has helped or not.’
Stakeholders
Hearson is now a doctoral researcher at the London School of Economics, focusing on the political economy of international taxation in developing countries. The ‘serious debate’, he said, should be ‘an interesting dialogue in which many stakeholders [including those representing any of three normative viewpoints] have something interesting to say’. The three normative viewpoints were:
‘1. The system is full of loopholes that allow companies to dodge tax. Companies deserve to be criticised for taking advantage of those loopholes, and governments and tax authorities should work harder to close them. These exposés play an important role in exposing the situation and pushing all of those actors to change it.
‘2. There are real problems with the system, but this is an issue that requires a more fundamental shift in the way companies are taxed. There’s no point criticising companies for acting rationally within the framework set by the law.
‘3. This is how the system is supposed to work. It may look wrong to the lay person, but that’s because they don’t appreciate the way a modern business is structured nor their obligation to minimise their tax liability. Yes, the tax system needs to keep pace with the development of more aggressive tax planning techniques, but it already does this. These attacks on companies are fundamentally misconceived.’
Hearson told Tax Journal today: ‘Tax professionals seem to put every allegation against a company down to misunderstanding on the part of campaigners and journalists. Mistakes do occur, but in a lot of cases what's actually going on is a more fundamental disagreement about the aims and objectives of corporate tax.’
He added: ‘The public reaction to tax scandals shows that our tax system, both explicit tax rules and corporate behaviour within them, is out of step with public opinion.’
‘Minimum tax rule’
Charlie Elphicke, Conservative MP for Dover and Deal and a former tax lawyer, has called on George Osborne to ‘force companies such as Google, Coca-Cola and Apple to have to state the effective rate of tax they pay on their UK revenues,’ according to The Times.
Elphicke said the chancellor ‘should look at a minimum tax rule for corporations so there was a limit to the level of deductions they could claim against profits’.
The paper reported: ‘Elphicke has analysed company returns in the US and Britain from 19 global companies with headquarters in America and which trade in Britain. He said their most recent UK revenues were more than £89bn a year, with profits of more than £12bn. Yet between them they paid only £377m in corporation tax. That equates to an average effective rate of 3%. Had they paid the 26% headline rate of corporation tax, the Treasury would have received a total of £3.3bn in revenue.’
Roland Watson, the paper’s political editor, wrote: ‘None of the multinationals is doing anything illegal, and Mr Elphicke’s calculations are not precise because he had to estimate profit margins.’
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