Why so tax-shy, big tech firms? – Bank of England governor The governor of the Bank of England, Mark Carney, has singled out technology companies as being among the worst offenders for tax avoidance. Speaking at a panel session at the World Economic Forum Annual Meeting in Davos, Carney said: "It should be recognised that some of the biggest firms to take the most advantage of …
Perhaps not, but the company is owned by the shareholders, meaning if nothing else, the CEO and the board that agreed to pay more tax than the absolue legal minimum is likely to find themselves down the job centre about 20 nanoseconds after agreeing to do so (If you can afford to pay extra tax then you can afford to give it to us [shareholders].)
Regardless of whether it's right or not, and whether there's a legal basis or not, there would also be lawsuits.
" is likely to find themselves down the job centre about 20 nanoseconds after agreeing to do so"
Bullshit. For decades, company after company has senior executives visibly lining their own pockets instead of paying more to shareholders. The shareholders sit there and take it, time after time after time.
Shareholders *are* the company, in the sense of owning it. Thus they can't have any obligation to themselves. It is the corporate officers and directors who have a fiduciary duty to act in the best interests of the owners (the shareholders). Maximizing the value of the company is part of that duty, although over what time period is a matter of judgement.
Volunteering to pay more in taxes than is necessary would be considered not acting in the best interest of the shareholders.
The best interests of a company are not always maximizing profit. There is infrastructure, training, employee well being. All of these go toward the longevity and CONTINUED profitability of a company. Too many North American and Western European corps are being (have been) stripped to the bone over the last twenty or thirty years.
It won't be foreign brain power that beats us, it'll be our avarice (Snake in Suits scenarios playing out in a boardroom near you) that's destroying our corporations and economic system.
"It is the corporate officers and directors who have a fiduciary duty to act in the best interests of the owners (the shareholders). Maximizing the value of the company is part of that duty, although over what time period is a matter of judgement."
Exactly. "...is part of...". Shareholders mostly seem to think that profits, and hence dividends + share value are the be all and end all of fiduciary duty. They forget that keeping the company afloat is probably the most important duty of the board, even if that mean cutting profits at times.
For example, the gas suppliers all whinging that they can't drop prices in line with wholesale prices because they hedged and bought gas futures. Well, they should take that hit because "the value of your investment can go down as well as up" and gas went down after they bought. Luckily, they don't all buy the same futures at the same time so one blinked and the rest were forced to follow.
Shareholders mostly seem to think that profits, and hence dividends + share value are the be all and end all of fiduciary duty.
Why do you buy shares?
I buy them to make money, mostly in my pension to pay for my retirement, but still, making money is the only reason I buy them. I have other small investments in stuff like wind farms for affecting socially useful change (or not, depending on your view, but there's nothing wrong with a hedge ;-) My charitable donations are how I achieve any altruistic good that I might do, not by buying equities.
If I think I can make more money selling my shares in company X and buying them in company Y, then that's what I do. The timescales I consider are next quarter, next year, and next decade. I have investments made for each time horizon, but all of them are based solely upon what I think will pay out the most over that term.
Paying significantly more taxes than legally required would tend to limit the ability of an investment to perform in the next quarter, and probably the next year. So I'd probably sell the stock or vote to change the leadership.
keeping the company afloat is probably the most important duty of the board
I've seen some efficient ways of doing this, and some creative ways of doing this, but what I've never seen is a way of doing this by paying more tax than required. If the company has surplus capital then that should rightly be returned to the shareholders via dividends.
We are all shareholders either directly in terms of stock holding or indirectly through Pension Scheme's, ISA's and so. So the Board of Directors answer to us..... get that point? right next one.
Corporate Social Responsibility, that its new name after an expensive rebrand. Historically we could more readily rely on companies to pay taxes as in my opinion there was less greed and self interest and more of an understanding that Companies needed to contribute if they were to benefit from the output from the education system as a minimum.....
What I mean by this is if Companies along with individuals do not pay their "fair share" in taxes then in effect society will breakdown.. We will have no schools, police, healthcare, transport (in some cases), utilities (in some cases) as these need to be funded and the funding raised from individuals via taxation cannot sustain such services which we all derive benefit from; yes including companies.
So without schooling, healthcare, transport and utilities for example there is no infrastructure to provide the necessary resources to sustain an organisation, its business goals, its revenue and profit generation and finally its ability to pay taxes.
So lets all wise up and stop bitching about our taxes always going up. Corporations exploit increasingly questionable tax laws to minimise their tax bill and serve their selfish interests; no doubt by design they are shifting the tax liability to the individual without a consequential increase in individual earnings.
How about this for a question. Do we think Boards of companies exploit increasingly questionable tax laws because of Shareholder pressure or are they driven by greed and personal incentive plans?
Personally I think it is the latter...................... you decide.
What I mean by this is if Companies along with individuals do not pay their "fair share" in taxes then in effect society will breakdown.. We will have no schools, police, healthcare, transport....
UK companies are in global competition for revenues with other companies located in China, America, India, etc etc... The whole world, in fact. If a company in the UK goes bust, or is bought out by another entity held in another jurisdiction (Lets say Apple or Facebook buy out a smaller UK company) then the tax paid in the UK drops to zero.
It is not the job, remit, or entitlement of companies located abroad to give the least little care to the funding of social spending within the UK. Companies within the UK are competing with that fact every day, so they follow the law and pay the taxes that are due, but no more.
CSR is about branding. It is not about social responsibility, sadly.
Do we think Boards of companies exploit increasingly questionable tax laws because of Shareholder pressure or are they driven by greed and personal incentive plans?
I'm not sure any board is driven by only one thing. I'm sure you're right and each of the things you state play a part. However, I'd say the overwhelming desire of the board is to keep the company profitable, competetive, and independant (most critically of all), because without that they won't be governing and so any other change they wish to make will be impossible, regardless of its motive being greed, shareholder pressure etc.
Under what law? A company doesn't have any legal obligation to maximise shareholder value.
Company law. Directors have a fiduciary duty to the company, loosely meaning that they have to act in the company's best financial interests. If the Directors breach this responsibility, then any shareholder (even with one share) can take out a derivative action. This is where the shareholder forces the company to sue the Directors for losses caused by their breach of duty.
I suspect handing over company money to the taxman (or anyone else for that matter) when it is not owed could likely be a breach of fiduciary duty.
The overriding duty is to promote the company's success. Which by no means is to be taken as "as much money as possible given to shareholders". There are a lot more stakeholders than just the shareholders.
Here is some reading to get started with.
http://www.out-law.com/page-11109
The chaps at OutLaw have a lot more where that comes from. It certainly is not all about maximising money for the company and giving it to shareholders.
"I suspect handing over company money to the taxman (or anyone else for that matter) when it is not owed could likely be a breach of fiduciary duty."
Didn't Starbucks voluntarily had over some £10sM tax? Presumably the hope was that we would forget about the billions that had been double Dutch sandwiched or Luxembourg pork pied away and any small boycott forgotten, thus increasing shareholder value.
Clearly shareholders do not, or no companies would even pretend to support "charity" or "the community". Senior staff would not accept bonuses in addition to handsome pay and expenses, particularly in the financial world where these people are distinguished by general failure, negligence and refusal to take the responsibility for which they are paid.
As for applicable law: I would remind you that that varies with each country. Register readers seem to have a tendency to conflate British and American law and ignore countries that may be richer, bigger and equally or better educated, such as Germany, France and Italy (that with all its problems has got more real industry than modern GB).
Of course, no government trusts you and I to pay taxes according to our conscience. So it is baffling that they, directly or indirectly, expect the people running firms to arrange for those firms to do so. But then, it is curious that companies, that have not got votes, seem to outweigh the electorate.
As for those supporters of current, international, business practices: believe me. These are, for the most part, not deserving underdogs needing your supine support.
If companies are not paying as much tax as people think they should then the politicians have failed. It is their responsibly to write laws to ensure that people and companies are charged the appropriate amounts of tax. It is then people and companies responsibility to abide by these laws. You can not blame someone for obeying the laws you wrote just because you don't like the result, you wrote the rules.
Clearly the international taxation system is no longer fit for purpose when the laws in place allow companies to avoid paying taxes that others have to pay.
During the session Carney also expressed concerns over artificial intelligence and its "ability to displace cognitive jobs."
No one seemed to complain, or at least no one who really mattered, when computers/robot tools displaced humans performing manual tasks. Why should the world care if computers are allowed to displace bankers?
Get used to it.
If some programmer can work out how to do your job they'll find a way of getting a computer to do it and you can bet that some company will pay them to take you out.
Believe me, I chose those words very carefully. I wasn't trying to be tactful there. If you think of people as human resourses and you can see that an alternative cheaper resource can be used instead, then the business decision has to be to take out the costs. This has been being done for years, firstly it was people who used to do calculations by hand. Later we saw many people on assembly lines being replaced by automated equipment and if that didn't work, well there are cheaper people in another countries. But many tradishional "white collar" jobs have thought themselves safe. What Mark Carney was warning about was that those types of jobs will be in the firing line next and he finds the thought too close to home for comfort. Others have been in the firing line for years.
Perhaps they will programme these devices to be able to spell correctly when they write to comment columns.
However, we need to work out the purpose of business, government and work. Are we content that these exist for their own perpetuation, with the implication that people are just a "resource", disposable and at best removed? Or do we view these things as a way of providing a sustainable way of providing the means to sustain our life and being in securtiy and freedom?
As a software engineer who delights in automation of the daily trivia (that most SAs seem to love doing by hand), I still believe that business and government are tools to serve people, not vice versa. I do not mean to serve just a privileged few in a position to get large rewards while the workers upon whom they depend get "austerity".
It may be fun, while you are gainfully employed, to dismiss the loss of a means of making their living for those whom, I assume, you believe to be less able or important than yourself. But it is an interesting reflection on your attitude and, indeed you are far more vulnerable than you realise, if only because you probably depend upon the work of these "lesser" workers more than they do on yours and the stability of society is far more dependent on the majority than on the privileged minority.
But many tradishional "white collar" jobs have thought themselves safe. What Mark Carney was warning about was that those types of jobs will be in the firing line
Agreed. I don't think Carneys warning was about bankers, only that he viewed senior roles to not be immune. I'll take a punt that the first programmer clever enough to get AI working such that it can replace humans with cognitive jobs will be clever enough to realise they have written their final program. We'll all be gone before the guys at the top, on that I'll give you a cast iron guarantee.
Because it will affect people at the higher end of the ladder, like lawyers, doctors, engineers, bankers, etc. The same people who end up becoming politicians, and get most of their campaign contributions and support from that group.
But there's not much they can do about it. They can delay it by using the ABA, AMA, etc. to make laws preventing use of expert systems or require human lawyers and doctors to oversee/validate their output. Basically the white collar equivalent of union shop rules that required a certain number of people to be involved in the process of painting a car, removing the savings from automation for US automakers because they still still had to pay people to stand around and watch the robots do their job!
As the shop rules in the US did, all it will do is disadvantage countries following that plan against others that won't. The result will be that a lot of people will see not-lawyers and not-doctors like paralegals and NPs for as much as they can, and only see real lawyers and real doctors when they can't avoid it.
It's not a question of "getting used to it".
Currently, youth unemployment is 50% in Greece and 25% in Spain. Machines making that situation worse is going to create massive social problems.
The last time large scale social unrest occurred in Europe resulted a world war. There won't be any "getting over" WW3. Even the 1%ers will be affected.
Currently, youth unemployment is 50% in Greece and 25% in Spain.
This will be as unpopular as herpes, but if the current situation persists such that it is the new normal, then the only logical choice is to cease child related benefits such that the birth rate drops. Producing something that you have a surplus of, and which costs you a lot of money in social provision, would seem illogical.
"Over the next decades the challenge will be for people to develop skills that cannot be displaced by machines", he said.
"The world we are creating is an opportunity for mass creativity. Those are the sorts of jobs that we need," he said.
Or, the challenge will be for societies to get over this notion that everyone should HAVE to work. If machines can do all the work, people should be freed from work not pushed into doing something new for the sake of it. Why bother using labour-saving technology in the first place if we don't want to save people from labour?
Labour-saving technology is not to save people from labour, JDX. It's to save companies money on their labour bills.
You can tell this by the way our government reacts to people not having a job - first try to starve them to death and then sell them as slaves to Poundland.
Labour-saving technology is not to save people from labour, JDX. It's to save companies money on their labour bills.
And this is why you can make retarded comments on the Internet on a machine that costs less than 130'000 GBP.
"Or, the challenge will be for societies to get over this notion that everyone should HAVE to work"
Indeed. You have spotted what the governor has not, which is that "mass creativity" is an unlikely dream. The majority of us don't have vast-yet-latent creative talents, and there are many people, sometimes highly intelligent people, who actually enjoy a simple, productive manual job.
However, I think the idea of freeing people from work also needs examination. Those who are averse to work are (certainly in Europe) already catered for. The majority of the population I suspect would actually want to work, certainly after six months "leisure", and the question needs to be asked "Why would the people want to be saved from labour?"
Short of an Iain M Banks style Culture existence (ie a super-wealthy society) I don't want to be "saved" from work. I suppose the issue here is that the cunts at Davos are already in the super-wealthy, don't-have-to-work world.
"Why bother using labour-saving technology in the first place if we don't want to save people from labour?"
The problem then is how to distribute the products of the technology. The employment route achieves this by paying employees who use the payments to buy the products and services which they and other employees produced.
In the long run, we're going to have shorten the work week so everyone still has work. I don't think human society would be able to work if 90% of the population is idle, at least not until we have robots and AIs that can basically take care of all our needs.
What is the point of human existence then, given that the highest pursuit most seem capable of these days is Trivia Crack and following the exploits of the Kardashians? How do you divide the resources in a world where no one works? Does Honey Boo Boo's mom get an equal share to Elon Musk?
"How do you divide the resources in a world where no one works?"
Without thinking too deeply of the ramifications, give adults a stipend enough to live on, eg can rent a small flat inclusive of energy, non-premiem TV and basic BB internet access. Adults who live together get to pool their resource and can upgrade their services or afford a holiday or go out more often. No one under 18 gets anything. They have to be supported by their parents. If you choose to work to have a better life, your stipend drops by 0.5 units for every unit you earn. You get paid 0.5 stipend to go to schooll/college/university while under 18, 0.2 stipend from 18 to 24 and 0.1 stipend if over 25.
Whoops, I'm starting to think too deeply now.
If you choose to work to have a better life, your stipend drops by 0.5 units for every unit you earn.
The difficulty with that is, once AI passes your level of IQ, there will be progressively fewer paid opportunities. Eventually none. You'll not have the choice to work for a better life.
Obviously, your views on the likelihood of AI surpassing an average human IQ at a similar price point will inform how concerned or not you are by that prospect.
Woah there oldster. Next you will recommend 0 tax rates, forceful culling (by agreed nurses of course) of civil servants until state makes up only 1% of the workforce, interdiction for any politician to take the mike more than 5 minutes per week under penalty of death and an immediate retreat from wars of choice abroad. Also, linking the GDP to gold and no way to do debt financing. Did I mention exposure of banks to the risks of fractional reserve banking?
Why, the economy would COLLAPSE.
If the tax take was anywhere reasonable, then I think more people would have a sense of responsibility in this area.
But since a large wadge of it goes straight to that cesspool of iniquity, the EU, and another large wadge goes into fighting other people's wars, the "common good" is fast becoming a long forgotten dream.
There's nothing remotely "good" about the tax systems of the West these days.
We need to return to smaller state government, and more local devolution + taxes which would at least give people the feeling that they were paying for stuff for them rather than the Whitehall wonks' holidays and bureaucratic pipe dreams.
I'm just a damned yank but you have spoken eloquently of the problem on both sides of the pond.
It is the separation of the benefit from the cost that alienates everyone. Not at all sarcastically, let's hie back to the smaller fiefdoms. If the peasants don't like their petty lord, zap 'em. Of course, I guess we'll still need some Darth Vader types to maintain overall order but that can be handled by robots and AI (I'm a programmer.)
And you say that like it's a BAD thing?
You might see it as a bad thing when you get to the end of the month, and the company you work for cannot pay you, because all of its cash disappeared when the bank it uses collapsed. Meanwhile, the bank who you owe your mortgage to, despite suffering similar woes still expects you to make your payment.
Companies do not pay taxes, these are in every case paid in full by the end buyer as are all the costs incurred in supply. Taxes on the supply chain simply inflate prices to the end consumer. That companies are using current international legislation to minimize the amount of consumers' money being passed on to tax authorities is to be welcomed as otherwise consumer prices would have to rise. No one in the supply chain pays tax as they only act as unpaid collection and transfer intermediaries for government.
But the great majority of the public are under the delusion that these corporations are committing if not heinous tax evasion certainly "willful avoidance". Those who say this must be under the same delusion or possibly somewhat disingenuous.
Except corporations are "people" now, so along with all the perks that offers, they have to pay taxes on PROFITS. IE, on the money they made on the product. It doesn't change the price of producing the product, just how much profit the corporation can make on it. (you make more, you pay more taxes)
It's a way of redirecting wealth concentration for the greater good. In theory, that is what taxes are supposed to do. You make those with more money pay more so you're taking the money where it will hurt less people to produce value for all in the form of public infrastructure and services. This then profits those who have more money because the lower classes can get more done. That's the theory anyway.
In practice, it's now turning a lot more into a way for the rich to get richer and keep others poor.
You know that's bad when even a BANK BOSS says so.
"Except corporations are "people" now"
Err, no.
Companies have always been "legal persons". Because that's what a company is, a legal person. Some fiction that can sue and be sued.
A human being on the other hand is a "natural person".
All that malarkey in the US courts about companies being people was in fact a discussion of which rights of being a natural person also apply to legal persons. And it was decided that free speech, and thus the ability to contribute to election expenses, was a right that legal persons did enjoy as did all natural ones.
None of which changes the fact that all taxes are ultimately paid by natural persons. A tax simply must mean that the wallet of some live human being gets lighter. There's no one else out there who could possibly pay taxes.
> ...otherwise consumer prices would have to rise...
Only in a monopoly. If $COFFEESHOP or $ONLINERETAILER raise their prices to keep the profit after taxes the same, consumers may* go elsewhere.
* If price is the most important factor for the consumer. They may prefer $COFFEESHOP for other reasons. Personally, I find Amazon to be far more convenient than e.g. Play.com, so the fact that they often have the best prices is a bonus.
"Companies do not pay taxes, these are in every case paid in full by the end buyer" blah, blah, blah.
Speaking of disingenuous...
This tired old canard again? The same argument can be applied to me: all my taxes are paid by my employer(s). If I was taxed at a lower rate I could work for less rather than inflating the prices to the end consumer. Your argument applies to ALL taxation.
Carney previously spent 13 years at the investment bank Goldman Sachs.
"Everything I did at Goldman Sachs could be replaced by technology - which tells you everything and why I had to leave,"
I didn't realize that the processes of leveraging paper gold 100-to-one, selling mortgages on million-dollar homes owned by McDonald's employees as tripple-A assets, illegally sharing information with the FED and doing everything possible to bankrupt every large institution in the Western world had been completely automated.
What an age we live in.
Not completely automated, but take the actual monthly mortgage payments for example. In the past, the homeowner would have gone to the bank counter with a pile of cash, it would be counted and put in the safe, and all the ledger cards would be updated manually and new balances added up. Now a computer requests payment from another computer, and those computers update the ledger tables in the database automatically. Things like working out the interest were really complicated for a human to do, but no trouble at all for a computer.
This might be a useful analogy. When you are trying move charge from one place to another , you encounter resistive losses, so you get less charge than when you started. Since charge accumulation induces a potential difference, broadly speaking can we model society as an electrical circuit?
In this model, the people are very small charge generators. Depending on where they get their charge from (e.g. growing fruit vs working for $CORPS), the resistive losses occur at different stages.
Giant $CORPS are composed of many charge collectors, but the law is written they don't lose "charge" according to all the charge they hold, but only the charge they use to run the company. So charge to employees, and other companies.
Just as with real world electronics, charge can be stored in capacitors (or charge banks if you like). It takes work to move charge into a capacitor, but in the charge analogy we assume the bank is infinite in size. Of course this is not possible, and it is why banks get charge from the govt, so essentially the potential stored charge needs to be a certain ratio (this is the fractional banking thing).
So taxes are resistive losses, and the reason why corporations do not pay taxes is because resistive losses only occur when charge is moved between places that are not part of the same charge store.
If we are modelling as a circuit then a huge potential difference then represents something in the market called "supply and demand". Essentially this is "how much charge is available to buy/change a certain piece of work". Note that this "price charge" is dependent on a number of things. The resistive losses (i.e. how much tax to acquire the work), and the actually work required to produce the item (net cost).
The point is, any time you have a pressure difference the natural thing to occur is to equalise the pressure.
In short, the only thing in the economy capable of generating charge is the people that support the corporations. If you look as taxes as the resistive losses, you quickly see that high taxes impede the flow of charge, and depending on the proportion of charge a person has in the bank (remember, only when charge moves does it get exposed to resistive losses) the ratio of charge in the market to charge in the bank clearly indicates the limits of "supply and demand".
In part 2 we will look at the role of feedback.
P.
Of course governments are to blame for not picking up taxes. World wide the tax systems have to change to taxing money transfers, not taxing profits. A low tax at both the credit and debit side of all transfers would also share tax evenly between countries and cover internet purchases. The tax would be collected at banks when any money transfer occurs. Taking cash out of a bank would be taxed at a high rate and some tax returned for returning cash to the system.
Companies are responsible to their stockholders; governments are responsible to the society as a whole. So asking for a "sense of responsibility" from corporations is a waste of air. But it may well be difficult to draft appropriate legislation that won't prevent foreign companies, operating in the UK, from taking their profits home without an extra burden of taxation - which is basically the point of investing in the UK, isn't it?
Of course, perhaps the onus should be on the home nation to forego taxation on profits which have already been taxed where they were earned... but that's a radical idea.
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