Vince Cable has a rather shabby article in the Observer today. Superficially it reads well, starting:
The G8 summit is a real chance to clean up the mess that is international tax law.
Public faith in tax system has been seriously dented by the actions of a few top companies — which say they are just following the rules politicians make. So it's now up to politicians at the G8 summit to remake those rules.
But Cable shows his neoliberal roots when he says:
I get two opposite reactions from business. Some are outraged. They operate in the UK, make money in difficult conditions, pay tax on their profits, and know that if they don't the taxman will knock. But they see some big companies, often their competitors, getting away with ridiculously low levels of tax on what appear to be healthy profits.
But there is a counter argument: that these accusations are unfair and, even, "anti-business". Google, for example, says: we just follow the rules the politicians create — blame them. Moreover, governments try to tempt investors with lower tax rates and complex tax breaks, so why criticise companies that use them? A manager who aimed to be tax-inefficient would be considered negligent by the shareholders.
Inconveniently, both sides have a case.
No they don't: he should know as business secretary that there is no (I mean no) obligation in UK law to avoid tax and no grounds for a shareholder to bring a case for negligence on that basis. If he doesn't he should resign now. He's simply got this argument wrong.
As he does this one:
In truth, taxing company profits is not ideal. All taxes are ultimately paid by people. We should tax people when they receive the benefits of profitable companies.
That's the right wing ideologues mantra but it ignores the fact that we do not know who the owners of companies are, how long they own the company, where they own the company and often what benefit they get. So to even pander to that line is to simply play into the tax abusers' hands.
As he does as well when he says this:
There are serious limits to national action, however. The underlying problem is a messy patchwork of international tax rules, some almost a century old. The summit is an opportunity to give strong support to addressing weaknesses in those rules.
This is so wrong it's absurd. I've just suggested a reform that Cable as Business Secretary could do. He could ensure that Companies House, for which he is responsible does its job properly and collects all the data due to it, prosecutes when it does not, and has the powers to deliver the transparency we need. He could start by doing that. But there's no hint he intends to do any such thing. So to say action has to be international is wrong. It doesn't. It starts at home. It starts in Vince Cable's department. I'll deliver a whole long list of things he could do this week.
But instead Vince is already setting out shabby neoliberal excises for inaction. And that's just not good enough.
How the halo tarnished.
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Cable comes across as a lost soul and the text of his article seems to indicate his moral compass has lost the magnetic North. I think the Lib/dems have parted company with their own membership.
Richard
I have a lot of time for Vince as the only man who in the mid-2000s said that the rapid house price boom was a recipe for disaster. Neither Labour nor the Conservatives listened to his pleas that a spiral of house-prices &, consequently, household debt, was bound to lead to abject misery.
In this case I’m not convinced he says anything bad.
“A manager who aimed to be tax-inefficient would be considered negligent by the shareholders.”
That certainly doesn’t, to me, suggest a duty to get into avoidance. It would suggest, e.g, checking the Co Assets Register to make sure Capital Allowances are being claimed (say). I’m sure you wouldn’t object to that !
Likewise
“In truth, taxing company profits is not ideal. All taxes are ultimately paid by people.”
Taxing companies isn’t IDEAL, but it is better than the possible alternatives. He doesn’t challenge the reasons why, as you say, taxing shareholders on distributions wouldn’t be an option.
I think he alludes to much more than that – he is saying Google have a point – and they weren’t just checking the fixed asset register
Cable is (or was before he was ‘elevated’) a member of the LibDem campaign for land value tax (ALTER). So he would have been made very aware of Fred Harrison’s 2005 book Boom Bust, House Prices, Banking and the Depression of 2010. Many people predicted the crash, but so far as I know Fred was the only one who precisely predicted the end 2007 house price peak. (He also predicted the previous one in his 1983 book The Power in the Land.)
Vince Cable’s halo?? That disappeared the minute Cameron offered him a ministerial car. This was the man who before the general election strongly indicated that the Lib Dems would favour a deficit reduction plan broadly in line with Alistair Darling, but within weeks started squawking stuff about the UK ending up like Greece, and therefore he felt obliged to support Osbourne’s deficit reduction plans, better known as the austerity death spiral. I remember this, because I lived in a Tory/ Lib Dem marginal and was fooled into voting Lib Dem precisely because of this point. I really don’t understand why anyone vaguely on the left of politics has any time at all for Vince.
i wonder whether, as a viable party, the lib dems are finished. Certainly their opinion poll rating might suggest they are !
“In truth, taxing company profits is not ideal. All taxes are ultimately paid by people. We should tax people when they receive the benefits of profitable companies.”
My counter-argument is: hey, I’m employed by a company. All my income comes from a company. I buy groceries from a company. I buy clothes from a company. I buy energy, phone and internet service from companies. The majority of people either pay rent to a corporation (management agent) or interest on a mortgage back to a corporation (I actually rent from a private landlord with no agency involved, but I’m in the minority here). Looking at it through that prism, why should *I* be taxed and not the companies that all my income and expenditure go through?
The fact is that we make a decision on the scale between corporate and personal taxation, and we do so – hopefully – to rebalance the scales a bit between the power of corporations and the power of individuals. Also, to reflect where the economic substance of transactions is taking place: do we really want to allow substantial economic activity in the UK to go untaxed here, just because the owner is from Russia or the US or wherever?
The point he is making is factually correct. Ultimately tax is borne by people – namely the shareholders – that includes most of us since many of us have have pension funds and pension funds invest in companies so in some form or another most of us are shareholders so bear the tax cost borne by companies. That is the point he is making but I m nto sure his conclusion would work – Philosiophically it may but ….
I’ve seen some people advocate abolishing corporation tax on that basis and suggest we only tax the individuals/shareholders when they receive distributions. That clearly wouldn’t work as a governments income from tax would be subject to the whether or not companies distributed profits – Easy to postpone tax, but equally if a company chooses to reinvest rather than distribute then no tax for the government. So we have to tax profits at source – i.e. when companies make profits – to ensure cashflow for the government – and (assuming government is doing a good job – some hope!) – for society.
A nice ideal thought from Vince but a wrong conclusion 🙂
But since companies change who pays, where, and when, if at all, the argument is spurious
Not forgetting, of course, that ‘corporations are people too’!
While there is no obligation to avoid tax, your other blog post you linked to is flawed in its premise. A director owes duties only to its company: a shareholder can bring a derivative action on behalf of the company if they do not do so. Clearly, there is a spectrum of tax planning and if a director did not seek tax advice on what reliefs the company was entitled to (e.g. group relief), and that company subsequently went into insolvent liquidation, it smacks of negligence on the part of the board. So I can see that in some narrow circumstances a director could be in breach of its duties to the company if it didn’t seek advice on its tax position.
I am however not convinced by the use of directors’ duties to justify tax avoidance – it’s unlikely a court would ever come down on the point either way and would instead strike out any derivative action – but then I would much rather see a coherent change in international law than seeing Hodge waving her fist at individual taxpayers, which I believe detracts from proper, informed debate. That seems to me to be Cable’s underlying message, and it’s not one I disagree with.
There is no fiduciary duty in UK law to avoid tax
Not a hint of it
So that argument is just not true
You have not even read what I wrote yesterday and won’t publish comments asking you to engage. Courageous State? Put forward by someone who doesn’t have much courage in engaging in debate and who doesn’t care about politics, about tax justice, about anything as much as he cares about being in the public eye.
Read my moderation policy
Why should I engage in debate with people so lacking in conviction they will not name themselves?
It’s a shame about Vince Cable, but he lost his credibility when he entered the “ConDem” coalition. One might call him a “ConDemed man”… ho ho.
There is a point here that most of you are missing: international taxation is not a domestic issue, but an international one. The international tax system was created in the 1920s and has been in play since then. It is not possible for the UK, or, any other country, to change the system without international co-operation. And, unlike trade, taxation is a zero sum game. So why should the UK, or, far more importantly, the US, give in?!
Only when the US Treasury realises that they are losing more than they are gaining from the current international tax system, will the rules of the international tax system change. This is beginning to happen.
But even if the rules of the international tax system change, this will not stop countries offering a 0% tax rate on corporation tax. And why should they?! As long as profits get booked to the right place (which they currently are not) all that the current tax justice campaign is doing is pushing countries to abandon corporation taxation altogether!
Quite ironic really….. 😉
I think I have demonstrated I know that
But tax is not a zero sum game – right now it does not add up
And right now without an international tax authority it is only a domestic issue, ultimately
The rules are designed to avoid double taxation – the same profits being taxed more than once, by more than one jurisdiction. However, by moving the profits around, and engaging in regulatory arbitrage, companies are achieving double non-taxation.
The simple answer is to cancel the double-taxation rules: all profits arising in the UK are taxable in the UK, and no foreign allowances will be made. If every major nation did that, companies would be screaming for country-by-country reporting in no time – they would in fact be lobbying everyone for it.
How do you explain Thames Water not paying any tax?
It’s due to excessively generous investment allowances and very large interest payments out of the UK
Mr. Murphy,
On tax being a zero sum game:
I beg to differ: international taxation is most definitely a zero sum game. At its most basic with no co-operation: a simple ‘race to the bottom’. With a bit of international co-operation bolted on: it’s about which of the countries co-operating holds the greatest weight in negotiating the rules of the international tax system. There are also other variables, such as types of corporations: the structure of EU corporations are very different to the structure of US corporations. And US domestic tax law encourages US corporations to avoid tax in other countries. I absolutely agree with you when you say it is a domestic issue. It is. It is a US domestic issue. 😉