Guest post by David Bowles
A new protest movement has sprung up in the UK. Several times over the last few months 'UKUNCUT' has carried out flash protests against companies that it accuses of avoiding tax. Some of these protests have turned nasty with the police using CS spray on protesters.
UKUNCUT targets the flagship stores of some of Britain's best know companies, blockading their entrances and causing them to shut temporarily.
Monday nights BBC Newsnight programme had a well balanced report and debate on the issues that the campaign is putting in the spotlight.
Large multinational companies stand accused of registering their company head-quarters in countries that have a low level of tax. This means that the tax on their profits is payable in that country and the bill is much lower than it might otherwise be. There are several favourites for companies to relocate to with Switzerland appearing to be a favourite. This practice has been going on for some years. Former prime minister Gordon Brown had vowed to close such tax loopholes but seems not to have been successful.
At first thought it does appear that these are evil companies taking us (the UK public) for a ride. They sell us their goods and services then take their profits abroad without giving anything back to society. However, I don't think that the argument is that simple.
Firstly the process of tax avoidance by relocating to a low tax economy is not illegal, it may leave a bad taste in the mouth but the law says that there is nothing wrong with it. There are many ways of legal tax avoidance that many of us participate in throughout our lives.
One can avoid inheritance tax by elderly people transferring money to their family more than seven years before the person dies. A property developer can avoid paying capital gains tax on their development as long as it is registered as their main residence. An individual can relocate to a tax haven to avoid paying high rates of income tax. This is particularly popular with formula one racing drivers who often live in low tax Switzerland or Monaco. When paying into a pension scheme your income tax is refunded, thus you avoid the tax.
Secondly, I think it is important to get to grips with what actually happens to the money that is 'saved' by avoiding higher rates of tax on companies profits. As I understand it the vast majority of these companies are owned by shareholders. The majority of the profits made by big companies are paid out to the shareholders in the form of dividends. So why should we care about the rich who have the money to own shares in multinational companies? Well the argument is that if you have a pension scheme, as more and more ordinary people have these days, you probably do own shares in multinational companies. Pension funds hold vast amounts of shares on companies on the stockmarket. Higher dividends boost the size of your pension pot. Would you count your parents or friends as 'Fat Cats' profiting from a multinational companies that are avoiding paying tax?
I don't believe that these arguments make corporate tax avoidance acceptable but they do perhaps offer a more balanced view of the argument. I can only see two ways to stop this practice. Either lower the tax rate in the UK on corporate profits so they don't get an advantage from relocating, or hope that these companies discover their moral compass and choose to pay more tax in the UK. Which do you think is more likely......?