Do some global corporations behave “immorally” when they set
out to reduce their tax bill to a minimum through a variety of dodgy but
apparently legal devices? Or are they simply acting out their own morality
play?
We ask the question in the light of the accusation made by
the Commons public accounts committee against transnationals like Starbucks and
Amazon. A PAC
report launched today accuses corporations that minimise tax of
“outrageous” and “immoral” behaviour.
Chair Margaret Hodge said its report showed that
corporations had been allowed to get away with "ripping off"
taxpayers because of a weak tax authority, poor legislation and a lack of
international co-operation.
"The inescapable conclusion is that multinationals are
using structures and exploiting current tax legislation to move offshore
profits that are clearly generated from economic activity in the UK ."
Is this former Labour minister Hodge genuinely surprised?
This has been going on for years. She bemoans the fact that the revenue from
corporation tax has fallen. Two things account for this: the recession and the
fact that during the 13 years of New Labour, corporation tax rates fell sharply
from 33% to 28%.
New Labour cheered the fact that they had reduced the tax on
corporations to among the lowest of the developed economies. It made Britain an
attractive place to invest in, so the argument went.
Naturally, the ConDems have pushed on and the rate is
heading for 23% next year. At the same time, the burden on taxpayers and
consumers has of necessity risen to finance public spending at central and
local level.
In 2010-11, corporation tax accounted for just 8% of the UK government’s
tax revenue. By contrast, national insurance and income tax accounted for a
massive 49% while VAT – a tax on consumption – brought in another 17%.
Those who do the work, who labour to create commodities and
services (and profits), also carry the greatest tax burden. So where, you may
ask, is the “morality” in this arrangement? Search as hard as you want and
“morality” doesn’t figure anywhere. Nor will you hear Hodge or any other MP
complaining about this totally immoral situation.
Which brings us to our main point: absolute morality is
conditional, evolving with successive periods of history. And within this
absolute is the relative morality of different social classes. For capitalism
and the global corporations, the moral imperative can only be the bottom line.
Corporate-driven globalisation of the world economy freed the
transnationals from territorial jurisdictions and facilitated the creation of
subsidiaries, joint ventures, special purpose entities and trusts to benefit
from low taxes and subsidies.
Professor Prem Sika, of the Centre for Global
Accountability, Essex University, points out that “taxation is targeted by financial
engineers who regard it as an avoidable cost, rather than a return to society
on the investment of social capital (education, security, healthcare, legal
system, etc.).”
In other words, for the corporations the whole issue of
taxation (or how to avoid it) is an essential aspect of capitalist accumulation
itself and not some form of aberrant, “immoral” behaviour.
Take the case of food and drinks giant Cadbury-Schweppes. It
set up a shell company in Ireland
with no office and no employees but with £500 million in cash, which was
allocated to different parts of the group. The incentive was a simple one.
Corporation tax in Ireland
is 12.5% - less than half the rate in Britain .
Under what are known as the Controlled Foreign Company rules (CFC), HMRC tried to collect the missing taxes. But after a series of cases, the European Court of Justice found in favour of the company on the grounds that member states could not block corporations from operating in different parts of the European Union.
Appealing to corporations to behave more “responsibly”, to pay more tax will produce a few, marginal concessions. But it will leave the main issues unchallenged and unquestioned. This because the argument about their morals and ours is in reality about class and power.
Under what are known as the Controlled Foreign Company rules (CFC), HMRC tried to collect the missing taxes. But after a series of cases, the European Court of Justice found in favour of the company on the grounds that member states could not block corporations from operating in different parts of the European Union.
Appealing to corporations to behave more “responsibly”, to pay more tax will produce a few, marginal concessions. But it will leave the main issues unchallenged and unquestioned. This because the argument about their morals and ours is in reality about class and power.
Paul Feldman
Communications editor
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