The Oxford Centre for Business Taxation does promote low taxes

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Mike Devereux, Director of the Oxford Centre for Business Taxation sent me a mail following my blog in which I drew attention to the links between the Said Business School in which that Centre is located and Wafiq Said. Said is a close associate of Prince Bandar of Saudi Arabia who, it has been suggested by the Guardian newspaper, has been in receipt of substantial payments from BAe that have been the subject of Serious Fraud Office investigation. Mike Devereux said:

[A]s I am sure you realise, the Centre has no involvement whatsoever with any of the people named in your quote from The Guardian. I have no idea why you choose to attack the Centre in this way.

In addition he said with regard to my suggestion that the Centre equated effective policies for the taxation of business with low tax:

The Centre has already produced a range of output, which is freely available on our website. I am quite sure that if you read the research that the Centre has produced, you would find it impossible to justify your cheap smear. Also, if you read about the governance structure of the Centre, you would realise that, although the Centre does currently rely on funding from the Hundred Group, it is an independent centre of the University. It has complete freedom as to what it chooses to research, and what it chooses to publish. I believe that you have registered to attend our conference on June 28/29. The programme shows that we have nearly 40 speakers, from academia, government and the private sector. Having such a wide range of speakers is hard to reconcile with the view that the Centre is trying to promote "low" tax.

So, I've been fair and let Mike have his say. And I'll be as clear as he has been: I did not make a 'cheap smear'. I think it wholly justified. I also think the association of the Centre with the Said Business School, and its link in turn with Wafiq Said is material and significant and an issue that should not be ignored. Just as I think the link with the 100 Group makes any suggestion of impartiality by the Centre untenable. Since Mike challenged me to justify my view I have done so in an email to him. Since I happen to believe in transparency I thought I'd share it. The text of that was as follows:

Dear Mike

Thanks for your mail in which you suggested that my comment in which I linked the Oxford Centre for Business Taxation, the Said Business School and allegations made in the Guardian about Wafiq Said's involvement in the Bandar affair was a 'cheap smear'. I am writing because I think it important that I justify my position. I also want to record the fact that I think your arguments on this and on my claim that you are in favour of low business taxes are both wrong and unsupported.

My accusation did, of course, relate to the 'Al Yamamah' arms deal. I must say that this is not the first time I have made the link since I had previosuly discussed Wafiq Said's suggested exploitation of the UK's domicile rules on my blog. So let me be clear why I drew attention to the matter again. I did so because I think it impossible for you to disassociate your Centre from Said. The Centre is located in the business school that bears Said's name. He provided approximately half the funds needed for its creation. Reports suggests he paid a sum of about £23 million for this purpose. As such your suggestion that "the Centre has no involvement whatsoever with any of the people named in your quote from The Guardian" cannot be true. There may be no direct tie but the association is clear, and strong.

I also happen to think that in the light of what is happening in the Bandar affair, where suggestions of illicit payments through tax havens and banks known to have laundered money have been made, and the suggested association of Wafiq Said to Prince Bandar (which relationship is the only currently known plausible explanation for his considerable wealth) it is appropriate to draw attention to the reputational risk that this poses for Oxford University, the Business School and the Centre. This was no 'cheap smear' as you describe it. I raised a profound ethical issue. Put simply, I think that philanthropy of the sort Said displayed is unacceptable when the source of the funds donated cannot be explained or has serious risk associated with it. Even if there were no criminal activity involved (and I am not suggesting there is, I am merely drawing attention to reports from what I consider reliable sources) that philanthropy would still represent the social laundering of money from a source of questionable provenance for the acquisition of status in society. I do not think that the University should have been party to that.

I also happen to think that given the size of this grant the influence it might have upon the policy of the Centre is reasonably open to question, and that to do so is legitimate enquiry far removed from being a smear. Said is, after all, known to be one of the 'Monaco' boys who exploit the UK's residence and domicile rules to make sure that whilst they spend substantial parts of the year in this country, and own property here, they are not resident in the UK and as such are not liable to UK tax. In this case his domicile will no doubt assist this objective. I happen to think that this attitude to tax on his part might have influence upon the definition of tax effectiveness that I quoted from the published aims of the Centre. I also happen to think that the stated aim of the School is of importance here. It says:

The School combines the highest standards of academic rigour with a practical understanding of business and wealth creation.

Note that the two objectives are linked: they do not stand independent of each other. Note also the reference to wealth creation. In most economic theory currently taught tax is considered to conflict with this aim of wealth creation, albeit incorrectly in my opinion since this can only happen when wealth is inappropriately defined. I do however think I am entitled to rely upon these words, published as they are on a web site, being used in their normal current context. In that case I would not expect a 'pro tax' attitude from any study of tax undertaken at the School or your Centre.

Nor, if I am candid, do I find that 'pro tax' attitude in anything that has been published by the Centre. I admit, I have not read it all, so I stand to be corrected here, and would welcome that correction, and would acknowledge it if I am wrong. But I think I have read enough to be reasonably confident of my claim. I stress, I want to focus on policy in this discussion. In doing so I happened to note a single page article you had written on tax competition in April this year for The Banker magazine. Since this is in the policy articles section of Centre's web site and is written in accessible form I thought I'd use this as illustration instead of quoting from one of your pieces written in more formal academic style.

The paper is entitled 'Where will tax competition end?' and is subtitled 'Will corporate tax continue to fall until the rate is zero?'. In it you discuss tax competition in relation to corporation tax alone. The final paragraph is headed 'Fairness should be debated' and reads as follows (I quote at length deliberately and believe this constitutes 'fair use' under copyright rules):

The most important objection [to reducing the rate of corporation tax to zero] is based on a concern for fairness, but the fairness of corporation tax needs to be debated. Corporations cannot pay their fair share of taxes because, ultimately, they do not bear any tax: it can be passed on to shareholders, consumers, suppliers and workers. Whether corporation tax contributes to a fair tax system depends on who bears the tax burden - and that depends on economic conditions, which vary across companies and sectors.

There are almost certainly better ways of achieving a fair distribution from the tax system. If that were generally believed, then the political objections to cutting corporation tax rates would diminish, and the powerful forces of competition would meet with less resistance.

These comments raises a fascinating range of questions, not all of which I can discuss here. The most important one is your argument that corporations cannot pay tax. This is not true. I do not think it too rash of me to say that only an economist could reach such a conclusion. It is tantamount to asking the man on the Clapham omnibus to believe that Tescos does not exist, despite the evidence before his eyes. And yet it is an assumption that appears to underpin much, if not all your work. Despite this it is actually no more than a statement of faith for which there is no evidential support. It almost amuses me to consider how Richard Dawkins might dismiss such a claim.

Your claim is based on the idea that companies are either legal fictions or are mere agents for their participants who are bound together solely by a collection of contracts. This denies the social, cultural and practical dimensions of group behaviour that actually exists in society. The truth is that companies do not exist as legal fiction: law had to create companies because they existed in society. But that reality does not suit your purpose, because you do not want these entities to behave as entities (taxable or otherwise) in their own right, acting independently of their stakeholders. Only if you make your unsubstantiated claim is your argument that all tax is passed on to other parties justified, and that in turn is the only basis on which you can argue that tax competition should result in the further reduction of corporation tax rates without unfairness resulting. I do of course suggest that because your assumption is false so too is your conclusion.

I do have clear reasons for suggesting this:

1) If your argument is to hold water then a company must only be the agent of its owners and stakeholders. It cannot be the principal with regard to the payment of tax. Your argument would be true if a corporation could not manage the tax payment that it makes and retain at least part of the benefit through the retention of its profit. It might also be true if it could not impact the timing of the payment of its tax, the location in which it is paid and consequently those who benefit (or not) from the payment, and it might also be true if the tax system were transparent so that any surplus or deficit in the tax paid by a corporation was remedied by a corresponding income tax payment or receipt by the persons owning the company. But none of these conditions are even remotely true. A company can do all these things, and the relationship between a company and its shareholders is not of this form, especially so when groups of companies are considered. As such the company is not agent for its shareholders or other stakeholders in this matter. It is the principal in the transaction. Accordingly it pays the tax. No one else pays its tax, and no one else bears it either. This may have consequence for others, but that's quite different from the claim you make, which is quite straightforwardly wrong.

2) If your argument were true then it would have to follow that corporations were transparent for all other purposes as well. This assumption cannot be made for tax in isolation. So, for example, the person in a supermarket would not in fact contract with the company who owned and managed that facility, but would have instead to do so with each individual engaged in its supply chain. This is clearly absurd. It does not happen.

3) Companies behave as if they pay tax. If they aren't doing so then the whole tax planning industry and its corporate customers are wholly mistaken in their assumption as to the benefit of the activity they undertake. I'm going to assume they are not.

4) You too would be acting wholly irrationally in studying corporate tax if there was in fact no corporation paying such tax. I'm going to assume you are not as irrational as that.

In that case there has to be alternative reason for you making your claim, and the only one I can suggest is that you do so to support your argument that it would be beneficial for tax competition to reduce corporate tax rates, maybe to zero. That, I suggest is your philosophy and it underpins the work of the Centre as a whole as far as I can see.

Is this analysis a cheap smear? I don't think so. As evidence I refer back to that article in The Banker. You say there, and I repeat:

There are almost certainly better ways of achieving a fair distribution from the tax system. If that were generally believed, then the political objections to cutting corporation tax rates would diminish, and the powerful forces of competition would meet with less resistance.

Just a few lines above that you say:

Can governments then raise the revenue they require from other sources? From an economic perspective, yes. Based on 2006-07 forecast tax revenues, the UK government, for instance, could replace revenue from corporation tax by raising the value-added tax rate by about 10 percentage points (up from seven percentage points in 2003-04).

You then add:

Such a switch would have the advantage of making the UK extremely competitive as an investment location.

You do not consider the social implications of these statements despite promoting them in the interests of fairness. Nor do you even hint at the the massive regressive taxation impact they would have on society. Your proposal is, however, consistent with the view of wealth creation that the Centre espouses. But if you wish to claim objectivity, a freedom from the influence of those who sponsor you and the management of an academic tax programme that asks real questions about real issues with regard to tax then I would expect a much broader and more rigorous approach to this subject. In particular I would expect you to:

a) Base your work in reality, not the assumptions found on an economist's blackboard;
b) Consider the social, political, geographic and even psychological consequences of taxation policy in all that you do since only by doing so can you relate the subject to well being, which is the economist's proper concern;
c) Consider business taxation as part of an overall system of taxation, that gives rise to rights and obligations for a range of stakeholders, and not just business.

This approach is not present in your work. If it were your agenda would be very different. Whilst it is absent and whilst you write articles of the sort I have quoted (and others from which I might have quoted) then I regret that I think your claim that my suggestion that the Centre equates effective policies for the taxation of business with low tax is not a cheap smear, it is a claim that is amply supported by the available evidence.