Tax Research UK

‘Slash the tax’ - Accountancy Age.

My friends down at Oxford University ran an event recently on controlled foreign company rules, but it looked as though it was hijacked so that they can state the naked aim of the so called Centre for Business Taxation at the Said Business School.

As Accountancy Age reports about the event:

Finance chiefs at two of the UK’s most powerful companies have called for corporation tax to be slashed to 15% in what would represent one of the most sweeping changes to the UK tax system since VAT was introduced 30 years ago.

As more and more business giants turn their backs on the UK or threaten to move offshore, Julian Heslop, chief financial officer of GlaxoSmithKline, and John Connors, tax strategy director at Vodafone, laid down the gauntlet to the Treasury and pushed for the tax to be almost halved. They believe this would give the UK a dual boost, stemming the flow of companies leaving the UK while also attracting overseas investment.

How do I know 15% corporation tax is the aim of the Oxford Centre? because Chris Wales - who was instrumental in setting it up - told me that was the case, in person when I was t Oxford two or three years ago before Prof Mike Devereux, the head of the centre, contrary to all UK academic ethics, withdrew my invitation to all events there.

And let’s be clear what this call is. It’s another blatant attempt at re-engineering the social structure of the UK so that the rich get richer and the rest fall further behind.

I know all the twaddle Devereux, Jim Hines and other aficionados of so called free markets that are anything but free put forward about corporation tax being a tax on labour. And I’ve also shown they are wrong. The  data I prepared on trends in corporation tax in the UK from 2000 to 2006 based on detailed analysis of tax paid by  the largest 50 UK companies in that period, published in the Missing Billions in 2008 showed this:

The effective rates of corporation tax in the UK fell during this period from 26.1% to 22.5%.

If Devereux at al are right wages should have risen as a result. This graph is based on direct download of Office for National Statistics data and shows what actually happened:

From a high of 55.2% labour share of GDP in 2001 it fell to 53.2% in 2008. The return to capital, however, rose from 19.9% in 2001 to 23.5% in 2008.

Glaxo and Vodafone and their friends at Oxford want to increase the gap between rich and poor in this country. It’s the only explanation for their proposal there is.

And it’s sickening.

Richard Murphy Corporation Tax

I am speaking at a meeting tonight in the House of Commons organised by the University and Colleges Union. As has been reported this morning:

Lecturers’ union UCU will call on the government to abolish all university tuition fees - and force big business to pick up the tab. The demand is made in a new report highlighting Britain’s status as one of the cheapest countries for firms to do business.

Currently British businesses only pay 28 per cent combined corporate income tax rate, the lowest rate in the G7 with the exception of Italy. UCU is demanding that tax be raised to the G7 average of 32.87 per cent, with the billions this would raise each year ploughed into education.

It says its proposals for a business education tax are the "first coherent attempt at making business pay its way for the numerous benefits it gets from UK higher education," after years of neglect and underinvestment. Research by the union and left Labour pressure group Compass has revealed that higher education contributes £59 billion to the economy every year. Graduates are also more likely to cost less to the economy through more secure employment and be healthier, more active individuals, the union states.

UCU general secretary Sally Hunt pointed out that the proposed increase in corporation tax would still be lower than when the Tories were last in power.

"Our proposals are based on fairness," she said. "The future for the UK is as a high-skilled knowledge economy and that requires business to pay its fair share towards something which benefits us all," she said.

"We believe our proposals will be welcomed by hard-working families who want their children to benefit from education but are put off by the potential debts created by university fees."

The report comes as the government draws up plans for £900 million worth of cuts in higher education over the next three years.

NUS president Wes Streeting welcomed the report as a "contribution to the debate.This report shows that there is a fair way to generate more funding for higher education through increasing the contribution of large corporations without affecting small businesses."

And Tax Research UK director Richard Murphy said: "This tax pays for the investment we need if the future of British business is to be secured."

I’m not heavily in favour of hypothecated tax. What I do know is that business is under taxed right now, most people are over taxed, and we need spending, not cuts.

If the big business of this country cannot afford to train the workforce they need we have something very wrong with our priorities. And this is just the first of many such issues that will crowd in upon us as the right demand more and more cuts, and people will resist in ever greater numbers when it is glaringly obvious that we have the capacity to train people – just a lack of willing to demand the cash to do so from those who seek to retain it for the sole reason of increasing the gap between them and the rest of society.

And to those tempted to post on this bout tax incidence, please note that post is not open to those comments.

Richard Murphy Corporation Tax

I’ve been having a courteous debate with Tom Worstall over the last week on the incidence of financial transaction taxes (yes I know it sounds surprising, but it’s also been true).  At the end of it the best Tim could say was:

For myself, before we decide to change the taxation system for the globe’s financial markets I would insist that we should only be making changes where we can predict both the effects and the magnitude of them.

He came to this position having failed to knock any holes in my logic on the potential incidence of a financial transaction tax on foreign currency as explained in Taxing Banks. I on the other hand have argued that sufficient data to predict the future and the consequence of all action is never available. In that case we use a priori logic, whatever relevant and reliable data we may have to test and a considerable quantity of judgement to decide what to do since the evidence will always be incomplete and the opportunity for error will, therefore always exist.

The difference in contention between me and Tim is not, however, the weight given to empirical data over logic: poor logic can never be resolved by good data. Good data can support logic or give rise to further questions. Therefore anyone of sound mind has to put sound logic ahead of data: to argue anything else is itself illogical.

Rather though the difference between Tim and me is something quite different: I argue that we have to make judgement. Tim is seeking to deny that although I am quite sure that he knows in doing so he is just using a rhetorical tool to object to change to a status quo which he desires and which I abhor – namely the exploitation of society by banks. I seriously doubt he or anyone could believe that action on taxation cannot take place unless it were possible to predict with the degree of reliability he seems to think essential the effect and magnitude of the change they might create. We’re unable to do that. So Tim is either seeking to deny the reality of the uncertainty inherent in the human condition or he is putting forward an argument that he knows to be false in the hope it will achieve his political aim. Not surprisingly we’ve agreed to differ on the outcome of our debate.

I did, however, then ask him to consider the issue of the tax incidence of corporation tax, which I discussed here. He said:

If, as Joe Stiglitz pointed out can happen, the incidence of corporation tax on the workers’ wages is higher than 100%, then cutting corporation tax will increase the workers’ wages by more than the cut in corporation tax. Even assuming that taxes on labour are raised to cover the lost revenue (that no other measures are taken, such as different methods or taxing returns to capital, or spending cuts) as we don’t think that the incidence of taxation upon labour is more than 100% on labour then labour will be better off by being taxed directly rather than indirectly.

In other words, he thinks that the incidence argument suggests that as corporation tax falls labour rates should rise. Note this does not imply that this must be the case in individual companies: it should be so across the economy as a whole. In other words, if Tim is right as corporation tax rates fall then wages should rise. He is unambiguous about this. It’s an a priori argument which can be tested with data. This is data I prepared on trends in corporation tax in the UK from 2000 to 2006 based on detailed analysis of tax paid by  the largest 50 UK companies in that period, published in the Missing Billions in 2008:

The effective rates of corporation tax in the UK fell during this period from 26.1% to 22.5%.

If Tim is right wages should have risen as a result. This graph is based on direct download of Office for National Statistics data and shows what actually happened:

From a high of 55.2% labour share of GDP in 2001 it fell to 53.2% in 2008. The return to capital, however, rose from 19.9% in 2001 to 23.5% in 2008.

I thin on this occasion the data is compelling and unambiguously supports the logic I have presented that corporation tax cuts reduce the return to labour and increase the return to capital. In other words they reallocate income from those who work for it to those who do not work for it: they reallocate income from the poorest to the wealthiest and they make society more unequal and the tax system more regressive as a result.

Of course, data is insufficient in itself to prove a case. The logic has to be right to. But those who honestly believe that the incidence of corporation tax is on labour are few and far between – and it is their work which has, by and large, lead to the crisis we’re now in. Those who do however think that companies do pay tax and that when they do so the incidence is on capital are widespread, and whilst herds aren’t always right on this occasion the logical flow in their argument is so obvious it is hard to contend with. It just helps that the facts support it.

Richard Murphy Corporation Tax, Economics

I knew that re-opening blog comments and writing on tax incidence on the same day was going to attract attention, and it did. Tim Worstall turned up as predictably as a bee round a honey pot to assure me I’d got it all wrong. So did other past regulars, like the falsely named Alex. Interestingly, although the latter clearly sides with Worstall on the incidence issue – arguing that corpropation tax is not paid by companeis he can’t help but reveal the duality of these people’s position, saying:

[George Buckley of 3M] is quite right about the transport system and the UK corporate tax regime is probably the most complex in the whole world, with very ungenerous rates of capital allowances for companies like 3M, so his comments are not surprising.

Hang on though Alex – if corporations don’t pay tax who cares what the capital allowance rate is? Companies can pass the bill on anyway so does it matter? Well of course it does – or business and Alex would not make such a big deal of it. The reality is they think this matters for one good reason – because they know they pay the tax. Like it or not that is the true answer to this debate.

But let’s return to Tim Worstall for a moment. Note what he says:

You’re still not getting the point about incidence. We’re not trying to say that the corporation decides to stick someone else with the tax bill. We’re not imputing desire here at all.

What we are saying is that taxing something changes behaviour. Such changes in behaviour can have effects on other people. If those effects on other people make them worse off then we say that they are carrying some of the economic burden of the tax.

For example. Other things being equal, adding more capital to labour makes that labour more productive. More productive labour gets paid more.

If we tax the returns to capital in a specific place then less capital will be added to labour in that place. Labour there will thus be less productive and get paid less. So, some of the burden of the taxation of capital will be carried by the workers in the form of lower wages.

We’re absolutely not trying to insist that managers of corporations try to stick workers with the tax bill. We’re just noting that the imposition of such a tax changes behaviour and thus changes other things as a result of that change in behaviour.

But note three things. First, Worstall sticks to the classic manufacturing model of an economy beloved of economists who think the world is still made up of people making their way to tend smoking stacks. It isn’t like that: most capital is now human, not physical. The model he refers to is a complete fiction of his imagination. Second, note the classic “other things being equal” argument. The trouble is they are not. The EU apart (and Worstall’s living in Portugal whilst working for the anti-EU UK Independence Party is a classic example of this exception to the general rule) labour is very immobile. Some sorts of capital – rather oddly the least productive forms – are quite mobile. But it’s very clear “not all things are equal”. Third, no manager I have ever spoken to recognises the behaviour that Tim describes.

What does that mean? That it doesn’t happen? Or that if it does there may be some other entirely plausible explanation?

I suggest two things: first, it may not happen. The much beloved Devereux test did, for example, test the very odd hypothesis that when corporation tax went up wages went down. It did not test the alternative hypothesis that wages go up when corporation tax goes down. One has to wonder why. Look at this graph of corporation tax rates in Europe over the last decade or so and wonder which hypothesis would have been more useful to test and then wonder why the wrong one was tested, and what the motivation for that was.

Source data is from KPMG, I did the analysis. Note the number of increases in tax rates and then wonder about the validity of the research findings. Second – note that to do this work Devereux et al assumed the conditions for general equilibrium modelling existed. Someone recently wrote of this “Friedman propagated the delusion, through his misunderstanding of the scientific method, that an economy can be accurately modelled using counterfactual propositions about its nature”. I’d suggest the authors of that research are subject to the same delusion.

In that case let’s assume for a moment that there may be other reasons for noted change in behaviour and return to Tim Worstall who next says:

You keep telling us, for example, that every transaction has to be treated as an “arms length” transaction. As if it were between two unrelated companies, bound only by contracts. Only then can we see whether someone is fiddling the transfer pricing.

This is untrue: that’s not at all how I see the multinational corporation: that’s how the OECD sees it. I see it very differently, as an integrated whole which is none the less rooted in the communities that host its activities. That’s why I propose unitary taxation. In which case I agree with Tim that:

But if at the same time we’re insisting that a multi national is not simply a group of unrelated companies, bound only by contracts, that there is some dynamic unity which is more valuable than the sum of the parts (which is what Coase is telling us is the reason such multi-nationals exist) then we cannot allocate that value to those parts, can we?

In a sense, that’s true. Of course world wide tax for multinational corporations is then the obvious answer, but I think we’re a wile away from that yet, and the reality is that multinational corporations both need to relate to national governments as that is what we have and to pay them – as they’re the only collection agents we’ve got right now.  In that case a mechanism to do so has to be found. Arm’s length pricing is one way of doing so – but does not reflect economic realities. Unitary apportionment does seek to reflect how the multinational corporation adds value, and country-by-country reporting provides the data to allow this to be calculated.

Except Tim then objects to the value an multinational corporation creates being taxed at all:

Now, let us, just as an example, take an industry where the multi-national one company form is more efficient. OK. We now know that this form of organisation, being more efficient than the single national companies for, is going to be making higher profits. Not because of any difference in the activity undertaken, not because of anything different in any one location. Purely and simply because of the form of organisation. So, how do we allocate the value of that form of organisation over the different locations? Given that there is nothing related to any location which produces that value?

If we say that because more value is created then each location should get more tax….well, we’ve just decided to tax the more efficient form of organisation more than the less efficient one. Which doesn’t sound all that sensible. We generally think that efficiency should be rewarded, not punished.

So now we come to the core of it: taxing the value multinational corporations create is a bad thing according to Tim. See the incidence argument in that light,and the extraordinarily spurious data that is used to support it and you suddenly see that the economics supports the politics, not the other way round. None of which is surprising – all economics is normative whatever its exponents claim.

But let’s also look at the consequence of this. Suppose for a moment we said that because business does pass on all its taxes to others it should not act as a paying agent for tax (that’s the incidence argument after all). In the UK corporation tax take will be about £35 bn this year, down from a peak nearer the high 40s. Business (or at least PWC) argues that for every £1 of corporation tax they pay they pay £1 of other tax. So let’s cut all the other taxes they claim they pay out as well and exempt them from £70 billion of tax.

What now? Who will pay since we know we need this revenue to fill the budget deficit? Let’s apply a little logical thinking to this. The potential groups who might pay are logically shareholders, supplies to corporations, customers of corporations and those who work for companies. I’ll suggest that’s a comprehensive enough list.

Let’s knock out straight away one possible settlor of the additional tax: that’s the suppliers. They’re corporations too, so that tax won’t stick there as they’re now tax free.

Let’s look at shareholders next. About one sixth of these are UK pension funds in the case of FTSE companies – who pay most tax in the UK. Pension funds don’t pay tax About 40% of ownership of the FTSE (the last time I looked) was overseas – it may be higher now. So put these together and instantly over half of the shareholders cannot or will not have the tax charge transferred to them – at least in the UK. So this income falls outside UK tax entirely. What of the rest – those in the UK? Well, if as the incidence brigade argue these are ultimately individuals then they’re also, because capital ownership is concentrated amongst the best off, those with the lowest overall rates of tax in the UK and the highest rates of tax avoidance. Effective tax rates in the UK are shown here:

As progress into the top 10% increases dividend income rises and effective tax rates fall. Passing the burden to shareholders is therefore regressive at best in the overall tax take and quite probably ineffective with regard to UK investors. I have of course suggested mechanisms to tackle that, but let’s assume the current tax system for now. The fact is shareholders are unlikely to pick up the tab.

So, as Tim argues it’s either customers or labour who will. Customers are most likely to do so via VAT. This is only charged within the UK so customers and labour might be considered as being in the same pool.

The Institute for Fiscal Studies has proposed replacing corporation tax with VAT. They got their numbers wrong, but let’s not worry. As I have shown  their logic – which also extends the VAT base, increases the average household food bill in the UK by more than £13 a week. This is incidence at work, and regressive beyond doubt, being almost three times more penal on the poorest than best off in society.

As for income tax? let’s assume that it picks up what VAT can’t - £35 bn or so, and that as the rich apparently always avoid this charge or run away from it this must fall by default on basic rates. So that’s another regressive move.

The implication is clear then – abolishing corporation tax has to be regressive. No other possibility exists. And yet Devereux at al argue that its imposition is also regressive. What can this mean? There are three options. One is I am right (as this logic seems to suggest true). Or Devereux is right – but his analysis provides flimsy evidence for it – or we’re both right. Both right? Yes – try this:

It’s a sort of inverse Laffer curve where my argument is to the left of the current CT rate and Devereux et al’s to the right –  and by some chance the current corporate tax system happens to be optimal – incidence on labour goes up whether we increase or decrease corporation tax rates. The chance that’s true? Near zero, of course.

So, I’ll stick to my theory. Sure there’s an incidence to corporation tax and the lower the corporation tax rate the higher the incidence on labour, with the reverse also being true, that the higher the rate (within reason) the lower the incidence on labour.

If you disagree prove it wrong, logically, from first principles, using real facts, not models that are so abstracted from reality that they have no relationship to it.

Richard Murphy Corporation Tax, Economics

Overseas businesses put off by UK tax regime, Brown told | Business | guardian.co.uk .

There was a conference yesterday at which Gordon Brown and Lords Mandelson “welcomed 250 international leaders to London to reassure them the UK remained a competitive place to do business despite the turmoil of the financial crisis and recession.”

The response of business may be typified by that of George Buckley of 3M (maker of the post it note - which the world could easily survive without) who said:

Britain has a stable government and good education and innovation, but it also has high taxes and the trains and roads are not as good as in continental Europe

So George wants the state to provide him with the infrastructure so he can make money. But as he argued:

Companies are not taxpayers, but tax collectors

So let’s be clear then: he thinks business does not pay tax so what he’s demanding is that the people of the UK provide him with the opportunity to make money in the Uk from which he has no intention of paying a return to them as his company does not, according to him pay tax. It’s a one way deal on that basis, isn’t it? Why should we bother if this is true?

Well, for one good reason - which is that he’s wrong. Let’s say it loud and clear: companies do pay tax. I agree - they do their best to pass the bill on to others. Some goes to shareholders. Some claim it’s passed on to customers, but given that’s only possible in the odd world of the economists who argue companies don’t pay tax if you’re a monopolist there are other more important issues to address in that case. Some argue that companies pass on the cost to labour - but the paper that claims to prove this by Mike Deveruex at Oxford has to assume to get to this result (quite extraordinarily) that a company facing a strike can move its production from the UK to another country without disruption to output and without cost incurred - showing how absurd the hypothesis is in the form in which economists present it (although I do not deny that in some situations - such as when a financial transaction tax might be imposed on a bank such a situation might arise).

The reality is that Buckley is pushing a line of argument that is not true that has been created by economists who have propagated the delusion, based on misunderstanding of the scientific method, that an economy can be accurately modeled using counterfactual propositions about its nature. In the real world companies pay tax.

How do I know this. I do so for three reasons. First they think they do. That’s pretty powerful evidence. Either business is staffed by people who are all deluded or economists are: this may be a genuine case of one or t’other.

Second, if business did not pay tax it would not spend nearly so much time trying to avoid it. There’s no evidence they do so on behalf of shareholders to whom they have no relationship. They appear to only do so on behalf of management who wish to command resources which they otherwise perceive as lost to them i.e., yet again they act as if they know they cannot pass the bill on elsewhere so they must avoid the bill itself.

Third, if tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes then we can say with some assuredness that business spends a great deal of time seeking to pay too little tax in the wrong place and later than they should by ensuring that the form in which transactions are declared is inconsistent with their economic substance. That’s because companies pay tax.

Mt Buckley denies an obvious truth. What credence should we give to anything else he said?

Richard Murphy Corporation Tax, Economics

Mark Lee of the Tax Advice Network mailed me about the story that 30 UK large companies have looked at leaving. As he put it:

All of the top 30 companies in the UK  who would like corporate and income tax rates to be lowered in the UK

Of these, half  "have looked at shifting their tax base offshore". And a handful "are actively considering such a move."

They have ‘looked at’ this. Of course they have. What this means is that the Chairman or CEO asked their FD or accountants to tell them what shifting their tax base offshore would involve.  Once they found out they decided it was not practical - other than the ‘handful’ which are ‘considering’ it. The vast majority will of course conclude (albeit reluctantly) that their main operations will remain within the UK. The prospect of more than 1 or 2 ACTUALLY relocating is negligible.

As the FDs and accountants will invariably advise their bosses, to relocate central management and control out of the UK has to be more than a paper exercise. And it is not something that can be arranged overnight. For these top 30 companies, and indeed all substantial groups, such an exercise would take 3-5 years to complete.

I doubt that even a handful of these top 30 companies are seriously in the process of making detailed arrangements to move their main operations outside the UK ahead of the election. Others may start the process but will back off once they realise what’s really involved.  I’m quite sure that the majority of those who have expressed a view on behalf of their company have yet to be briefed on the practicalities. Or they are just sabre rattling.

There’s a further clue as to the lack of detailed plans given that the Sunday Times report that 15  companies said "that they were keeping their tax domicile status under review". Once they have consulted with their accountants they will find that companies don’t have a domicile status.

Mark is a former chair of the Tax Faculty at the Institute of Chartered Accountants in England and Wales, which is an important point. You don’t have to be seen to be radical to think that what’s going on here is nothing more than posturing to secure political advantage. Anyone with their eyes wide open can see that.

Richard Murphy Corporation Tax

French plotting “Google” tax - Accountancy Age.

If my work showing Google pays little or no tax outside the USA has given rise to this, that’s very good news.

Tax avoidance does not pay is the right message to deliver.

Richard Murphy Corporation Tax, Tax avoidance

Guido Fawkes has commented on this blog this morning, saying:

“If the Tories get in business will be decimated.”

Crass and ridiculous. Labour is crushing business with taxes cheered on by you.

He confirmed his belief by adding a further comment, saying:

NI hike for a start.

But his fellow right wing blogger, Tim Worstall argues in a comment also aimed directly at me:

businesses don’t pay taxes. People do.

Come on guys. You need to agree a line. You can’t both be right.

Rather curiously on NI I agree with Worstall.

For much of the rest Worstall is just wrong and Guido’s instincts are right. Whilst on the economic blackboard of so-called rationality Worstall lives by which bears no relationship to reality it is true that it can be shown that a limited company cannot of course pay tax – the reality is that they do change where, when and by whom tax is paid and at what rate – as all tax planning and offshore proves. In which case Worstall is wrong and Guido is right in his instincts about whether companies pay tax – but fundamentally wrong in his analysis.

The simple reality is that wages and earnings have fallen as a percentage of GDP over the last thirty years, profits have risen as a proportion of GDP and tax yield from profits has not risen to match. So labour has been taxed more heavily – as people know – and it’s time for this trend to reverse. Business does pay tax and has to pay more.

Richard Murphy Corporation Tax, Economics

Earlier this year I reviewed Google’s accounts for the Sunday Times using 2007 data.

They updated their story using 2008 data (and get it wrong in the process – it pays to ask) this weekend. The Guardian quoted me on it today.

Today I wrote a piece for SkyNews on this. The planned television coverage did not happen – their outside broadcast truck got stuck trying to get to me!. This is their article:

Recently filed accounts show that Google managed to legally avoid paying millions of pounds in corporation tax by channelling its earnings through its Irish subsidiary.

Google has based its European headquarters in Dublin.

Tax expert Richard Murphy has been looking at the figures for Sky News Online:

Google Inc has the motto "don’t be evil". Maybe it should add "and pay no tax outside the USA".

Google is a profitable company. In 2008 it made worldwide sales of $21,795m (£11,774m).

On that it made profits in 2008 of $5,853m (£3,161m). That is a 26.8% profit rate, which puts it in the same league as banks in terms of its ability to generate cash.

The UK tax rate for that year would have been 28.5%. But Google is not a UK company, it is a US company and tax rates there are much higher than here.

The US company tax rate is 35% and added on to that are state taxes.

Combined and if charged at full rate Google would have paid $2,311m in US taxes in 2008.

Actually, it reduced that bill to $1,815m through adjustments. Meanwhile, its total tax bill outside the USA was just $91 million.

Google has always said it believes it can make money ‘without being evil’

That bill outside the USA would not be odd if Google was just a US company, but it is not - 14% of Google’s sales are in the UK according to its accounts - that’s £1,648m.

The vast majority of its sales outside the USA are actually made from Ireland which had 91% of its non-US market in 2007.

Latest accounts for Google in the UK are reported to show that it paid just £141,000 in tax on its profits in the UK in 2008.

That’s much the same as the year before. Which is very, very little indeed on UK sales of £1,648m.

Even stranger still, the accounts for Google in Ireland show it only paid €7.5m (£6.7m) of Irish tax on profits in 2008.

Ireland has a lower tax than the UK, at 12.5%, but this implies the Irish company - which bills almost half of all Google’s worldwide revenues - made a profit of £53m - which is less than a fiftieth of Google’s worldwide profits.

We’re now into the world of guesswork, but the guesswork may be helped by clues given in the ownership of Google’s Irish company.

It is owned by a company in Bermuda, which is a secretive tax haven where no tax need be paid on corporate profits.

How does the profit get there? I suspect that Google Ireland pays Google Bermuda for use of Google’s technology.

That’s fair enough - clearly Google has created something very clever. But two questions remain.

Is that technology so good that charges for it are enough to ensure no significant amounts of tax are paid in the UK or Ireland?

And is it right that Google should seem to avoid paying tax on the vast majority of its profits outside the USA as a result? Those are questions for Google to answer.

What I know is that if Google had made profit in the UK at the same rate that it made profit in the USA about £125m of tax would have been paid by it in 2008 on its UK profits.

There’s a lot we don’t know about Google’s finances and I’ll be candid, I don’t think that can be justified.

We need to make sure every multinational corporation is accountable in every place where it operates so we know where it makes its sales, where it records its profit and where it pays its taxes.

So, if doing no evil means being responsible I wonder if Google is really living up to its own proclaimed standards.

What is curious is this: Google implicitly seems to be acknowledging the power of unitary taxation in its tax reporting. It seems to report profits in proportion to sales in the US. But it seems to avoid doing so elsewhere.

Country-by-country reporting would solve this: the lost tax would be obvious under country-by-country reporting.Isn’t it worth £125 million to HM Treasury to check this out?

Richard Murphy Corporation Tax, Country-by-country, Ethics, Unitary taxation

According to the FT:

Britain should consider competing with tax havens because to beat them at their own game would be more constructive than trying to eliminate their use, according to the Institute of Directors.

The UK should relax tax rules for certain types of business – such as hedge funds – that find low-tax jurisdictions especially attractive, it says in a new paper. “If the UK’s tax rules were amended, hedge fund assets could be held in the UK, with no overall loss and some gain to the exchequer.”

The paper warns some obvious responses to low-tax countries would run counter to national sovereignty and indirectly damage the world economy. It said they could have positive roles to play, however, including putting pressure on normal-tax jurisdictions to have business-friendly regimes.

Oh boy, it’s summer. And he silly season is upon us. So the IoD buys the theory of tax competition in a moment of Pimms induced madness.

But it’s time they woke up and realised there’s only one legitimate authority with the ultimate right to “put pressure on normal-tax jurisdictions to have business-friendly regimes” – and that’s the electorate of that state. Otherwise, in direct contradiction to their own argument about national tax sovereignty, these places are deliberately creating tax policies designed to undermine the tax regime of another state.

Now why is that apparently unacceptable when it is done to stop a secrecy jurisdiction promoting abuse behind a veil of secrecy but OK when done to bring down business tax rates in normal tax jurisdictions, with the burden of tax no doubt then being shifted onto ordinary tax payers.

Perhaps the IoD would like to justify their plainly warped and anti-democratic logic?

Richard Murphy Corporation Tax, Ethics, Secrecy jurisdictions, Tax Havens