Silicon Valley Scrooges sidestep debt to society through tax avoidance to the tune of $100bn Fair Tax Mark, a UK-based civic advocacy group, has accused Apple, Amazon, Facebook, Google, Microsoft, and Netflix of depriving public coffers of more than $100bn in taxes since 2010 through aggressive tax avoidance schemes. On Monday, the non-profit group said it plans to release a report this week titled, "The Silicon Six …
this has a lot more to do with economics as a whole rather than just the tax from source.
Consider the majority of shit-jobs (low pay, boring) they provide, now adversely consider the small businesses which just can not compete as it is not a level playing field anymore.
Check your high streets people...
LDS,
He can be wrong. But this group have a history of talking bollocks on tax. And also love their 100bn tax gaps, as that was the amount of the tax gap in the UK when they did a big report about it 3 or 4 years ago. And it turns out that they included things like companies investing in machinery and knocking it off their tax as part of the "tax gap".
In general whenever someone comes up with a report that talks about huge massive headline figures - it's bollocks done for campaigning purposes and to get shock headlines. When you look closer you find that it's all dodgy adding up and/or dodgy selective use of statistics.
We all know that these companies are under-taxed - and over-use loopholes. So it's not that I disagree that they're a legitimate target. But there's often this pretence of something-for-nothing, that we can spend loads more on services without paying any more tax. And Tax Justice have been guilty fo that. This idea that we can have £100bn extra of spending, and someone else will pay. And that's just not true. People pay taxes, not companies.
We all know that these companies are under-taxed - and over-use loopholes
Y'know, I am in general in favor of a strong regulatory state, and of relatively high tax rates for individuals.1 And I'm not fond of laissez-faire treatment of business, nor inclined to preach the virtues of the market.
However, I've spent a fair bit of time reviewing the economic arguments around business taxation, and I'm really not convinced corporations are under-taxed. Corporate taxes eventually have to fall on customers, employees, shareholders, and/or capital investment; there's no where else for that money to have gone.2 If it's not diverted by corporate tax, it will get taxed elsewhere,3 and in the meantime it will contribute to economic activity as it passes through more hands.
Frankly, I'm much more interested in seeing regulatory pressure for raising wages than regulatory pressure for increasing corporate tax enforcement. Put more money directly in the hands of the lower-paid employees. There's ample evidence to show that helps encourage economic activity broadly across a country in a fashion that reduces wealth inequity and immediately helps the people who need it the most.
As for loopholes, corporations arguably have a fiduciary duty to their shareholders to seek them; and even if they don't, they will have competitive pressure to do so - if their competitors find loopholes and retain additional working capital, those competitors can beat them on price. In my opinion, the real problem with tax loopholes isn't the moral hazard but that they're regressive: they're much easier for large organizations to use than for small ones to, and so they grant a competitive advantage to the existing large players.
1Here in the US, my wife and I pay a ridiculously small amount of income tax. Even when you add all taxes from all sources, taxation on people in our economic bracket is really low relative to other industrialized nations, and actually regressive, thanks to the cap on FICA.
2It can be stashed temporarily in tax havens, as many of the big-corp villains are criticized for doing, though the Trump tax changes made that less feasible for US corporations. But eventually that money has to go to one of the sinks, and in the meantime it loses value to inflation unless it's invested in something that returns better than investment, in which case it's really being invested, not hoarded.
3Of course not necessarily at the same rate. Here e.g. the difference between the nominal corporate rate (35%) and the long-term capital gains rate (12%) in the US is a striking example of this discrepancy. But that doesn't imply that more-aggressive taxation of corporations is the solution.
Michael Wojcik,
My comment about under-taxed was more as a comparison to other companies. I think that the way things are going, reducing corporation taxes and collecting revenues directly from dividends and capital gains tax may be the way to go. But it's important that companies face as much of a level playing field as possible - or you get monopolies. And at the moment, multi-nationals get an advantage over companies that only operate in one country, and so don't have access to such tax minimisation shennanigans.
Also, taxes are easier to collect at lower rates, as it's not worth the effort to evade them.
Replying to myself now the report's come out. They list Amazon as the worst tax avoider because it's paid the least tax over the years on very high turnover. Ignoring the fact that only started making profits a couple of years ago. For twenty years Amazon has made tens of millions (with the odd loss) because it's been re-investing almost all of its profits. It's only in the last couple of years that it's started to make billions - as the AWS money firehose has kicked into full flow.
However, the degree of irresponsibility and the relative tax contribution made does vary. Amazon has paid just $3.4bn in income taxes this decade, whilst Apple has paid $93.8bn and Microsoft has paid $46.9bn. This is a staggering variance, especially as Amazon’s revenue over this period exceeded that of Microsoft’s by almost $80bn.
from pg 4 of their report here
So they've quoted Amazon's income tax (US speak for Corporation tax) against their revenue (turnover) and not earnings (profits) - even though corporation tax is levied on profits and not turnover.
How can anyone be this ignorant?
I contend that they aren't - which leaves that they're lying. That staggering level of ignorance means I won't bother taking their report seriously though.
Actually, it's not "just his opinion". It's his formulation of certain well-known arguments from various economists, which have been debated at length by other economists and tested to some extent by various empirical studies.
That doesn't mean Worstall is right, but his argument is far stronger than just his opinion. Or, for that matter, than your response.
The reg really lost out when they lost Tim
They did. I still read his blog, but it's all gone a bit culture-wars-y. He's a much better writer on economics than all that other stuff. In his Register pieces Tim was usually very good at separating the economics from his opinion, telling you which was which and also saying which bits of economics were more mainstream and which were controversial.
Actually the same has happened to Paul Krugman. His blog on the New York Times used to be an interesting read of an economist's take on politics and news. But now it's 20 articles on how all Republicans are evil liars and the odd one where he actually talks about economics. Which is a real shame.
"Governments write the tax laws and Amazon is doing the very thing they encourage companies to do – paying all taxes due while also investing many billions in creating jobs and infrastructure. Coupled with low margins, this investment will naturally result in a lower cash tax rate."
But this is a lie, since the original article talked about tax rates on profits, and investment is subtracted from revenues to arrive at profits.
"Amazon is primarily a retailer where profit margins are low, so comparisons to technology companies with operating profit margins of closer to 50 per cent is not rational."
Also seems to be a lie, as AWS provides most of their profits.
e.g. https://www.theregister.co.uk/2019/07/26/amazon_intel_google_q2/
and https://www.zdnet.com/article/in-2018-aws-delivered-most-of-amazons-operating-income/
and https://www.businessinsider.com/amazon-web-services-cloud-online-shopping-profits-chart-2017-5?op=1&r=US&IR=T
Where to allocate profits and costs is quite difficult however. Lets take AWS, and assume that all AWS service development and operation happens in Seattle (I know it isn't accurate, but just as an example). If they sell £1bn of AWS services in eu-west-1 (Ireland) to customers in the UK, the direct costs of selling and supporting those services in the UK is minimal, so how much of that £1bn should be counted as profit in the UK?
Obviously some of it should be, but most of it would be costs to Amazon Ireland for operating eu-west-1, some of it should also be costs to the US business for developing and maintaining those services, and how do you calculate those proportions?
Well, there are two things that you could do. First is that we could endlessly discuss it while paid activists confuse the issue with the public beyond any reason and suggest that these things must be done on a multinational basis while the same companies drag out any decision made on a multinational basis by every trick in the book, not excluding offering to pay more money in particular countries if they just derail/delay talks etc.
Second is that we could all just say "screw it" and just charge selected multinational companies using advanced trickery punitively on a percentage of revenue and let the companies concerned deal with the outcome. If doing so puts them out of business then too bad, i'm sure that competitors will fill their market share, hopefully having taken note that creative accountancy is no longer a good idea.
The ongoing failure to deal with these shenanigans just encourages other companies to creatively not pay any tax which is destructive to public finances and results in raised public debt and reduced public services. Enough already.
Upvoted because you're correct. Determining profits vs expenses vs tax-advantaged accounting catagories is difficult and allocating profits to countries is even harder. Moreover, there are brigades of clever folks in every large company whose livelihood depends on obsfucating where money is and whether it is profits or expenses or investments or indeed exists at all.
There would seem to be at least three possible approaches to deal with this.
Say "screw it" and let the companies do as they wish. This is basically the libertarian approach. I disagree with it. It has a certain appeal, but it's intellectually lazy. And it almost certainly won't result in much taxation.
Leave it up to the often corrupt and even more often confused legal and political systems of some 200 countries to sort out. Probably not a good idea.
Create one or more international commissions tasked to evaluate the books of large international corporations, determine profits, and allocate them to countries. The commission(s) will probably do a lousy job, but it'll likely be better than what 200 autonomous legal systems would do. And it should discourage most venue shopping. Note that countries would still be free to set their own tax rates and tax rules within the scope of whatever treaty arrangements they have agreed to (and choose to honor).
But this is a lie, since the original article talked about tax rates on profits
By whose definition?
I don't know if it applies in this case, but very often tax advocacy pressure groups arrive at 'profit' figures by calculations that are a whole lot more bogus than the tax-avoidance the companies themselves use.
Anyway, it's for governments to set the rules, and for people and companies acting within those rules to avoid over-paying. If a big company is breaking the rules, they should be prosecuted - and that's a threat that tends to keep businesses in order where there's anything (like real-life profits) to lose. If they're not breaking the rules, then it's not them who are wrong, it's the rules and/or the critics.
"Anyway, it's for governments to set the rules, and for people and companies acting within those rules to avoid over-paying."
That kind of don't hate the player hate the game bullshit is only true if the players didn't form large lobbying organizations to get the rules of the game set up so they always win.
If you look at our governing party's donors, Big Tech is not sponsoring them. Their biggest donors are all global money-laundering operations, headed by Russian and other ex-Soviet regions and the Middle East. See Private Eye for a lot on the man who owns them (an Israeli, but one who has had fraudulent business closed by the courts in his own country).
From memory, the only other bigger donors are hedge funds benefiting from brexit volatility and British-dependent tax havens. Not big tech.
"If you look at our governing party's donors, Big Tech is not sponsoring them."
They are the same rules that allow all corporations to dodge tax, not just FAANG. And there are ways to influence government other than donations. For instance, the revolving door between Google and governments, as investigated in, er, Private Eye.
See, for example, this Guardian article.
"Like other multinational companies, we pay the vast majority - more than 80 per cent – of our corporate income tax in our home country."
So it's quite ok to make absolute profit in Europe but not pay tax in Europe? It is apparently ok for the company to (legitimately) surf the tax rules to funnel that raw profit back to the US without any restriction. That same headline profit has suddenly reduced due to the multiple handling by 'company administrators' in many countries, investment capital is taken, payment of the board is made then, and only then, tax is paid on the small remaining figure.
What they say may be true. What they do may be legal. However, what they are allowed to get away with is morally reprehensible on the part of the national Governments that both allow and encourage it.
This is exactly the point - these companies are reacting to what the law is giving them. So it the law that needs to be corrected (or internationally co-ordinated) such that such options no longer exist. Finance people within these multi-national companies are paid to reduce the tax burden to the fullest extent possible - voluntarily causing the company they work for to pay more taxes on "ethical" grounds will get them fired in today's environment.
Now if consumers started paying attention to whether these companies are paying taxes in their own region rather than moving them to the lowest option like Ireland, Cayman islands, etc - that would be a different story, and could possibly cause the companies to change their behavior for PR reasons - but at the moment consumers don't see this as their responsibility.
Sad that France was forced in the EU to go it alone with their "digital tax" strategy (https://www.nytimes.com/2019/07/11/business/france-digital-tax-tech-giants.html) in which transactions are taxed at the point of sale within France, ensuring that some of the tax revenue accrues to the local market. The resistance of the the rest of the EU to this is a missed opportunity which would have gone a long way towards correcting this issue. Vive la France!
"Sad that France was forced in the EU to go it alone with their "digital tax" strategy ... in which transactions are taxed at the point of sale within France, ensuring that some of the tax revenue accrues to the local market."
There's a whole load of anti-tax-evasion legislation that comes in across the EU in January, aimed at this type of thing (no paying loans to your parent company to minimise profits, etc).
"This is exactly the point - these companies are reacting to what the law is giving them. So it the law that needs to be corrected (or internationally co-ordinated) such that such options no longer exist."
and then later:
"Sad that France was forced in the EU to go it alone with their "digital tax" strategy "
You forgot to mention that The Trump has waded in threatening to attack France's economy if it does, indeed, make such a law. So it's not nearly as clear cut as certain people here are making out.
Is it something new that Trump comes down on the side of tax-evading multinationals? Quite the opposite - he pushed through a tax break for those profiting most from the tax evasion shell game (and for others). Also I might mention that what Trumps say and what he actually does are 2 often unrelated things...
Respect to France for pushing this long overdue measure forward... and the opposite of that to those who cower before the lobbyists of these money-printing near-monoplies profiting from the mis-use of our data, which they harvest for basically no cost from individuals - and then don't pay any taxes on their massive profits. Good work if you can get it......politics needs to wake up.
It is all well and good saying that Amazon only paid $3.4B (or thereabouts) and Apple over $90B but what would be regarded as a fair level of taxes for them and all the rest. If you state that they are paying too little (and IMHO in Amazon's case this is very clear) then you must know what is a fair amount for them to pay?
In the UK, I'd be on pretty safe grounds to say that Apple pays a whole lot more Business Rates than Amazon. Apple has lots of Retail Outlets. Amazon does not.
Then there is Google who insist that all their UK business is billed through Eire...
My guess is that it is not easy to come up with the right numbers for these companies.
Why only pick on Tech Companies? What about Exxon and Starbucks? Do they fiddle (legally) their taxes?
The only thing that is certain is that there is SFA that we can do about it. We can complain and rant all we like but you only have to look at what El Trumpo is threatening to do to France if they impilment their Digital Tax?
[See icon] for what I'd like to do to all their tax advisors and lawyers.
I'm sure there was some kind of slight-of-hand where Starbucks (UK) pays a large licensing fee to Starbucks (Netherlands) to the use "Starbucks" brand. This makes Starbucks(UK) overheads high (so less profit to tax at UK rates), whereas Starbucks(Netherlands) has big income but in a low tax rate area.
Steve Davies 3,
One answer is to abolish corporation tax altogether. It's getting harder to collect in a more globalised world - and it's also hard to judge where it should be collected. So tax dividends and capital gains more instead - and capture that money somewhere where it's much easier to define what's owed.
One of the problems is that big corporations and their lawyers make it so that their capital (the primary source of their revenues) is highly mobile. As long as the capital is highly mobile, there's no simple way to capture taxes based on that capital as they are transnational in nature and can outpace governments in their shell games. And due to international competition, there will always be countries out there willing to cheat to get more revenues (and it's hard to beat tiny countries like Ireland and the Cayman Islands that have an inherent advantage of low operating expenses).
"One answer is to abolish corporation tax altogether."
I pretty much agree with this approach, but it's not straightforward.
Companies, particularly large, multinational companies, have vast resources to find ways to reduce their tax burden.
Instead of taxing companies, it would make more sense to tax individuals. Higher taxes on dividends would be one way. Individuals are far less likely to have the resources to avoid these taxes.
Unfortunately, just as now, this would need a joined up approach globally, unless you were to introduce a tax on removing funds from the country (which would be tricky to set up and unpopular with other countries).
In short, while this seems a reasonable approach, there are no simple solutions.
Higher taxes on dividends would be one way.
Do we have any figures on how many shareholders pay tax on our dividends? I don't (I make extensive use of tax avoidance measures including a Pension, an ISA, and VCT and EIS breaks). Neither do the many foreign shareholders who are not UK taxpayers.
Corporation tax as it stands now is not fit for purpose. How to fix it (short of abolition) is above my pay grade.
Besides, if dividend taxes go up, they'll just change tactics and use non-dividend payments like stock options and so on (capital usually doesn't get taxed until transacted--thus Capital GAINS Tax--but some simply hold and borrow against until they die--Tax Planning 101--and let the heirs dodge taxes via the carryover basis).
"One answer is to abolish corporation tax altogether."
And also abolish multinationals, presumably? Otherwise US corporations would still be shovelling all their UK-made profits back home and not being subject to UK tax.
Country-by-country reporting is the correct way to go, and abolition of the multitude of loopholes through which you can transfer cash between countries. No IP licensing, market value for intra-company goods (e.g., Starbucks coffee beans should be sold to Starbucks UK at market price for beans), and so on.
Or you introduce expected tax: if the group as a whole made n% profit, and UK sales (as determined by where the customer is) are £m, then if the profit made by the UK arm falls significantly below £m * n%, then you have to open your books to the public, journalists, accountants, etc., who can decide if they believe you. If not, the profit assumed will be 3*m*n% and taxed accordingly.
It should help clean up accountants books as well, because if they are too complicated, you get the "I don't believe you" response.
Otherwise US corporations would still be shovelling all their UK-made profits back home and not being subject to UK tax.
It's worth pointing out that this is not a one-way street, the UK gets a lot of tax income from FTSE-100 companies that make most of their profits abroad. The UK arm of BHP paid £4bn in taxes last year, and don't do much mining in the Cotswolds.
No IP licensing, market value for intra-company goods (e.g., Starbucks coffee beans should be sold to Starbucks UK at market price for beans), and so on.
I think one's easier than the other. I also think there are tax rules that are meant to prevent contrivances used to avoid/evade taxes. There are also huge problems if tax authorities are allowed to decide market price, and that alreay happens when assessed values can be far higher than actual market value or cost. And of course it'll probably be used against small businesses rather than the FANGs with their legions of lawyers & accountants.
Contrivance though could work, so the Starbucks example. It'd be good business if a company used it's skill to lower the roasting & processing cost of coffee beans. It doesn't make sense though that Starbucks is probably the world's most expensive supplier.. Especially as there's really only one customer. ISTR Starbucks claimed an Italian company bought a few beans, but that seemed rather contrived. Regulators do have various tools to test shenangigans though, ie benchmarking, or notional 'equally efficient operator' tests that could be used more fairly.
Starbucks may be a particular case: for many years they were contrasted with UK-owned Costa paying their full whack of corporation tax here.
It may be instructive that Costa was recently sold to a US megacorp (Coca Cola). So in principle at least, they can now play all the same tricks as Starbucks. I don't know what happens in practice, but this is a particular case-in-point where being British-owned appears to have put Costa at a tax disadvantage compared to a major rival.
DavCrav,
Some of this has already been done. Transfer pricing is more scrutinised and HMRC can challenge vehicles that are purely designed for tax planning that don't have any obvious economic benefit.
But equally some of it can't be done. Companies are supposed to pay tax where their economic activities take place. But that's not always clear. You could argue that all of Facebook's revenue derives from their USA headquarters. The company is the website and all the data they've hoovered up.
Even if you don't accept that extreme view of things, not all advertising (their source of revenue) is done at a national level. And a lot of their costs are at a global level, not a national one. So there's got to be some sort of transfer pricing to account for this, or we're stealing taxes that belong in the US.
There'll never be a perfect answer to this question. And I suspect that international cooperation on it will be very slow indeed.
Thus slowly moving Corporation tax levels lower, and putting it on dividends/capital gains instead seems the pragmatic and achievable thing to do. The lower corp tax rates are, the less incentive to play silly buggers as well.
As for people moving their wealth off-shore to avoid taxes, that's down to what you allow. If someone is solely resident in your country, you can tax them on that overseas income anyway. Or they can subtract the taxes they pay on it abroad from their domestic tax - as now. Hiding assets abroad has beeen getting harder in recent years, even the Swiss banks are less secret than they used to be.
"Hiding assets abroad has been getting harder in recent years, even the Swiss banks are less secret than they used to be."
This is true. A couple of tax havens, for example Switzerland and to some extent Jersey/IoM, have been trying, as little as possible, to clean up their act. This leaves all of the others, like Caymans, Bermuda, Delaware, Panama, Liechtenstein, etc., who do their best to help companies and individuals hide their ill-gotten gains. Oh, and the London property market, of course.
The big problem with stopping the havens is that you have little leverage against them. Most of them are tiny, have low operating expenses, and have populations small enough that imports are a drop in the global bucket. BUT most are still sovereign so still possess the ability to say No.
That's less than a tenth of what Microsoft paid in income tax during the same period, $46.9bn, even through Amazon's revenue during the decade exceeded Microsoft's by about $80bn.
Woah, stop. Just stop. Their argument here is wrong on various levels. First, income is not the same as revenue, and Amazon is in a low-margin business; it makes sense for them to have a much lower income than Microsoft, and pay less income tax. Second, they say Amazon's revenue exceeded Microsoft's by $80bn, as if this was a huge difference; but that actually means Amazon's revenue was around 10% higher than Microsoft's, since they both had revenues of about $1tn these past 10 years.
Large corp are not paying enough taxes, I can believe that. But people shouldn't randomly compare large numbers and claim it means something.
The problem with a lot of these campaign groups is that they need headlines - and so they reach for the big numbers and simplistic slogans to get journalistic attention. And they're often not too honest about how they do it.
It's depressing, but also depressingly successful. The stories write themselves, so it's easy cheap copy for the media - who rarely seem to concern themselves with anything like checking if ti's bollocks. Not helped by so many journalists being utterly crap at numbers.
Everyone should be forced to listen to Radio 4's More or Less.
I want mass re-education camps with giant speakers playing nothing but re-runs of More or Less, I'm Sorry I Haven't a Clue, The Briefing Room and any programs with Peter Hennessey in them. Clive Anderson's legal discussion show (Unreliable Evidence) is also pretty much universally excellent. Some In Our Time to lull them to sleep in the dormitories would be good too.
The Archers could be used in the interrogation block. It's cheaper than waterboarding.
Worth the licence fee on it's own.
What's that, Radio 4 or just More or Less?
It is an excellent station. Although Today has been rubbish for at least 25 years now and Just a Minute similarly. I'm Sorry I Haven't a Clue has however gone from strength-to-strength. And John Finnemore is a comedy God.
But it's the stuff that takes a looser look at current affairs that's greatest. More or Less of course, but the Briefing Room is good for taking a longer look at issues. The Media Show is vital if you want to understand the successes and failings of the modern media. I've learnt a lot about the history and recent changes to the legal system from Unreliable Evidence and Peter Hennessey's interviews with retired politicians or programmes about the constitution are always enlightening. This also prepares you much better to understant politics, if you've got some historical perspective, understanding of how things get reported and how the legal system works (and interacts with politics). Plus there's science coverage, comedy and a surprising amount of content on music.
I'd love to see something like More or Less used in schools though. So many stats you're shown are just obvious bollocks with even the most basic look at them - but people aren't comfortable with doing the kind of basic mental arithmatic in their heads to notice. I remember an interview with the awesome Hans Rosling where he was doing his Gap-Minder Powerpoint to a bunch of politicians and NGOs at a global development conference. And how ignorant a bunch of them were about how much has improved for the poorest people in the world in the last 2 decades. People have a tendency to just repeat a shocking number, if it aligns with their political outlook, rather than doing a double-take and saying, that's way too unlikely to be true.
The anger and venom should be directed squarely at politicians.
Donald is going to war with France because he believes American multinationals are paying exactly the right amount of tax.
And Boris isn't exactly known for being fair and equal.
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