So, the argument about corporate tax avoidance rolls on. As it does, the fact that the leaders of the three (or four) main political parties are entirely out of step with the businesses that they want to see change their fiscal behaviour is increasingly obvious.
Repeatedly, I hear career politicians decry the ‘immorality’ of corporations paying less than their ‘fair share.’ However, this argument is inherently flawed – almost all of the high-profile tax avoidance stories have proven to be entirely legal tax arrangements. In fact, the very definition of tax ‘avoidance’ as opposed to ‘evasion’ is that the mechanism is a legal way to minimise payments to HMRC.
If, in business of all areas, we can’t use the law as an indication to accepted morals, where can we look? In an increasingly globalised and digital world, where it is less and less clear which countries revenues were even earned in, who is to say what the ‘fair share’ is anyway and who it is owed to?
I am writing this article from a flat in Dublin, within sight of Google’s EMEA headquarters. This area of the Irish capital is buzzing with young techies – not only Google, but Facebook, Linked In and Yahoo! all have large regional offices here.
None of these companies would deny that the reason that they are based in Dublin is the national corporation tax rate of 12.5% (actually, I have heard that the ‘mild’ Irish weather also provides the best temperature for them to keep their servers at, but that surely can’t be the swinging factor…). If paying tax here as opposed to the UK is immoral, who is the villain here? The Irish treasury for setting such a rate or the internet giants for legitimately taking advantage of this opportunity to pay less by choosing to work in a country that has an educated, English-speaking workforce in close proximity to the European mainland?
The internet industry is, by its nature, quite neutral as to its location – most of these companies began in Ivy League dorm rooms, and the offices still don’t seem to be a million miles away from the frat house in spirit, with Google providing three free meals a day, a gym and many other activities to its employees. Although I can’t profess to be an intimate of their specific tax arrangements or to have worked for them myself, from a keen observer’s perspective they don’t seem to be neglecting their motto of ‘Don’t be Evil’ too badly when it comes to employee relations.
Just as it is human nature to want the best reward for the work that you do (however hard, long or useful), it is inherent in business to want to raise the maximum profits from any revenue generated. The after tax profit is the amount that these businesses can use to expand or pay out as dividends to their shareholders. The maximisation of shareholder wealth is often the key promise made by companies to the individuals that own their stock, and what auditors check the accounts to protect.
If the government don’t like what they’re getting then it is within their own power to change the rules – feeling swindled by professionals who are simply obeying the law in the most advantageous way for their companies is a sign of immaturity and an unfamiliarity with the real world of business in our political elite.
This remoteness is demonstrated not just in behaviour but in the social make-up of our political leaders. We have (in the main) the choice of voting for parties led by four white, middle-class fortysomething males who broke their teeth in Westminster as opposed to the City or family firm. Yahoo! is now being run by Marissa Mayer, a new mother. Facebook’s CEO Mark Zuckerberg has only just turned 29. His COO, Sheryl Sandberg is another mother of small children and has just written a best-selling book in the US, Lean In: Women, Work and the Will to Lead about female leadership in business. Both Mayer and Sandberg moved to their current roles from Google.
The main point here is that our leaders should be looking to these internet giants for inspiration and ideas, rather than demonising them. The home-working, youthful and more-gender balanced workplace appears to be the future of this industry, and internet technology will continue to be the driving force in innovation for the foreseeable future.
Rather than sulking about being caught out with outdated taxation laws, someone needs to take this issue by the horns and start to develop an international tax treaty that means that money earned in the UK is taxed in the UK. In the meantime, Cameron, Clegg & Osbourne need to look forward rather than back and keep an open, informed mind about the changes in the business world so that tax structures can be adapted to keep up.