As John Kay notes in the FT this morning:
Many multinational companies that appear to be operating successfully in Britain pay little or no corporation tax in this country. It is not difficult to understand why ordinary people on wages and salaries, and small British companies that pay tax at the normal rate on their profits, are angry.
As he correctly concludes, little can be done to mend the existing international corporate tax system: it is fundamentally intellectually flawed.
The consequence is, as he notes, that an alternative system is now needed. Despite George Osborne's hopes, and the OECD's claims, tinkering with a failed mechanism cannot ever now make it work. As Kay notes:
The states of America quickly experienced the problems encountered in a highly integrated economy with many different tax collectors. Many states dealt with the issue through profit apportionment. Instead of attempting to estimate what fraction of a company's total profit was earned in California and what amount in Wyoming, apportionment states taxed corporations on a share of their aggregate US profits corresponding to the share of their total US activity that took place in the state. The most common basis of apportionment is the “Massachusetts formula”, which gives equal weight to sales, payroll and assets.
This is, of course, unitary formula apportionment taxation that I and the Tax Justice Network have been promoting for some time. As Kay also notes:
Some states, notoriously California, attempted to apply this principle on a global basis. Through more than a decade of aggressive lobbying by British multinationals, this arcane issue became a major cause of friction in Anglo-American relations. In the mid 1980s, the British claimed victory and the US agreed to limit apportionment to its own frontiers.
However, the battle that Queen Elizabeth's Conservative government won had little more legitimacy than the battle that King George's forces lost to America two centuries earlier. Well conceived apportionment is the best — perhaps only — answer to the problem presented by multiple company tax jurisdictions.
Quite so.
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Richard, I sat there watching the Channel 4 piece with Google’s UK chief thinking he was an excellent PR person but little more. The argument – subsequently supported (as one might expect) by Madsen Pirie – that the reason this huge pile of cash sits in Bermuda is so that at any moment it can be invested wherever and whenever Google identifies some start up scheme, or some innovative idea or entrepreneur it wants to support was simple fantasy. Furthermore, it does nothing to counter the claim that they are basically free-riding in the UK (and elsewhere for that matter): happy to let ordinary tax payers and UK companies pay for the education their workforce requires, plus health benefits, infrastructure and so on, but not wishing to contribute themselves.
This self-centred, selfish view will not surprise anyone who subsequently watched the superb BBC 4 programme ‘Park Avenue: Money, Power and the American Dream’. This programme was probably the most shocking indictment of US politics and democracy I have ever seen. It knocked Michael Moores stuff into a a cocked hat. If anyone wants to see where modern day Tories (and a good deal of Lib Dems by design or default – plus Blairite Labour) and their advisers and supporters want to lead this country then watch this. Compulsory viewing!
Will watch
Thanks
Worth adding that if you think about what you see in terms of feudal society it’s all here, from the Serf (poor American, generally black, hispanic, etc), through the freemen (the middle classes, with just about enough resources to maintain thier position), to the retainers (congressmen and representatives taking money from corporate donors and the people who head up the various ‘think tanks’ and lobby groups), high sheriffs (people like the Wisconsin governor and the Chairmen of senate committees, etc, also accepting money from corporate donors), and finally the dukes and lords (almost exclusively men) – the likes of the Kock brothers – who all aspire to be King.
By the way, the clips from the film Atlas Shrugged are something to behold!
Enjoy 🙂