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CORPORATE RESPONSIBILITY: Don't be evil, tech giants. Pay your taxes
[October 25, 2014]

CORPORATE RESPONSIBILITY: Don't be evil, tech giants. Pay your taxes


(Observer (UK) Via Acquire Media NewsEdge) Michael Sandel, the internationally acclaimed American philosopher, gave a lecture in London last Thursday, based on his bestseller, What Money Can't Buy. He warned that "incentivising", a verb that only came into use around the millennium, has transformed us from having a market economy to being a market society. If a monetary reward is attached to losing weight, or stopping smoking, or providing a diagnosis of dementia, does it matter? He argued that it does, because once everything has a price tag it undermines the impulse to do something for moral or ethical reasons.



He was speaking on the same day it was announced that Facebook, with 33 million British users in 2013, had paid no UK corporation tax for the second year in a row. At a time of deep financial discomfort for many, Facebook employees received shares in the company worth tens of millions of pounds. The world's largest social media company reported a pre-tax loss of pounds 11.6m in Britain last year, even though revenues rose from pounds 34.6m to pounds 49.8m and its parent company in the US reported a net profit of pounds 900m. Facebook classifies its turnover as "marketing and engineering services" and much of its advertising revenue is passed through Ireland to take advantage of that country's lower tax rates. This is entirely within the law. An analysis by the Financial Times of seven US technology giants found they only paid pounds 54m in UK corporation tax in 2012 even though their overall sales to British customers totalled $15bn.

In part, this is because the tax authority in Britain cannot levy tax on profits that are generated from the sales that are booked offshore, even if they are clearly engineered and secured in the UK, before they are processed in Ireland. It is entirely legal. It is also entirely wrong. Companies such as Facebook and Google earn enormous sums of money from UK consumers - and then avoid paying tax on that revenue by processing the sale in Ireland.


They benefit in myriad ways from the UK's infrastructure, culture and rule of law and yet do everything in their considerable power to cheat the British exchequer out of monies that would help sustain those virtues of British life. It is no wonder that the cool and edgy ambience that once surrounded tech companies has dulled. And not content with the Irish tax swerve, many technology companies that do business in the UK also drive down their tax rate further - below 5% in some cases - by holding key intellectual property in tax havens such as Luxembourg. Royalty payments for the use of intellectual property (IP) are sent to a company that is in Ireland but has its headquarters in a tax haven.

Tax avoidance that allows multinationals to grow ever richer also damages the fabric of democracy. In the US, as the midterm elections approach, the tech companies are spending billions of dollars to protect their interests, exercising undue influence on legislators. Last year, Google spent more money on political donations in America than Goldman Sachs. There was a time when we believed that the cultures of a Google differed considerably from that of a Goldman Sachs. Not any more. Don't be evil? Don't be gullible, more like.

But there is a wider, more fundamental point. The perception, particularly in America, that Congress is overly influenced by major business interests that can bend legislation in their favour, erodes trust in an already enfeebled political institution. As David Simon, creator of The Wire, noted in the Observer recently, Congress is the most loathed institution in America (with approval ratings of 7%). "It has to change. When capital also is entitled to buy the government, that same government that might in some way create the basic standards of behaviour, everything from child labour to environmental protection, to workplace safety, to minimum wages that are consistent with the cost of living. . . Eventually it's going to get to the point where it's so fuckin' bad that people are going to throw a brick." It hasn't got to the stage of throwing bricks, but the British don't like tax avoidance. Amazon and Starbucks found that out to their cost. In 2013, Starbucks made two voluntary pounds 5m payments to the Treasury - its first corporation tax payment since 2009 despite pounds 400m in sales in 2012. In 2013, a poll by Christian Aid found that one in three adults in the UK had boycotted a company because of its attitude to tax.

There is some good news. Last week, the OECD hailed the Irish government's decision to abolish this controversial tax avoidance scheme, known as a "double Irish", within six years. However, the Irish government's new "knowledge box" initiative, aimed at attracting "big data" technology, in return for a lower corporate tax rate, could set the rate as low as 6.5%.

Also under way, across 44 countries, is the base erosion and profit shifting (BEPS) project. Co-ordinated by the G20 and the OECD, it is modernising international tax rules for the first time since they were created in the 1920s. It is intended to ensure greater transparency and better exchange of information to stop the use of artificial transactions and structures. Improved international co-operation and regulation is vital. David Cameron has vowed to "knock down the walls of corporate secrecy". George Osborne will also announce in his autumn statement ways to stop technology companies "that go to extraordinary lengths" to cut their tax bills. He plans to raise "hundreds of millions".

Last Monday, SSE, one of the big six energy companies, became the first FTSE 100 company to be awarded the Fair Tax Mark, a scheme launched in February that holds companies to account over their tax affairs. SSE has nine million customers. Last year, SSE was fined pounds 10.5m by the regulator Ofgem for misleading customers with false statements about the gas and electricity charges of rivals. Now, the company sees a commercial advantage in rejecting tax avoidance schemes and the use of tax havens.

Even as international regulations tighten, some multinationals will be devising new ways to pay less tax. In the UK, corporation tax, levied on the profits a company makes, is set at 21%, one of the lowest in the world. Yet, still, many global corporations exploit loopholes. The public, however, has a potentially lethal tool in its hands - its consumer power.

Taxes matter. They build schools, hospitals and roads and finance public services. They also indicate a society's commitment to fairness. As Sandel writes in What Money Can't Buy: "Democracy does not require perfect equality but it does require that citizens share in a common life. . . for this is how we come to care for the common good." (c) 2014 Guardian Newspapers Limited.

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