I am speaking at the All Party Parliamentary Group for Social Science and Policy in the House of Lords this morning, discussing 'what can policymakers do to reduce tax avoidance by large companies?'. I expect to say:
The last year or so has seen an extraordinary outbreak of concern about tax avoidance by multinational corporations. Having worked for a decade, on my own account, with the Tax Justice Network and with many NGOs and other activists, as well as with most journalists working in this field to create that concern I am delighted it has happened but the question is now, quite rightly, what can be done about it. I want to make several suggestions about why this problem has appeared so intractable, and to then suggest solutions that I hope we can develop in the Q & A.
The first reason why this problem has been so difficult to challenge is that microeconomists are in denial about its existence. That is because under the influence of microeconomic theory it has become commonplace over the last few years for many to argue that companies really don't pay tax and that, as a result, we shouldn't really worry about this issue and should be looking to tax others instead.
Let me be blunt. That's wrong. Companies change who pays tax, where tax is paid, at what rate tax is paid, when it is paid, if at all, and who therefore enjoys the benefit of that tax paid. The argument about whether or not companies pay tax is, in that case, almost irrelevant. Since companies do, by their very existence, seriously impact upon the tax system taxing them appropriately is a matter of the highest priority in terms of socially just outcomes of any tax system. To suggest then, as microeconomic theory does, that the best way to tackle this issue is to just pretend companies are mere agents for their members is clearly no place from which to start discussing this issue — especially when that same theory ignores the reality that we have no clue who the members of most companies are.
I am sorry to say that I believe that most tax lawyers and accountants have also got their perspective in this issue wrong. If their opinion on it were to be believed each company is not only real, having a legal persona and a life of its own, but it is also distinct and separate from all other companies, even if it is wholly owned and controlled by a multinational corporation.
The unfortunate result is that for eighty odd years tax law has pretended that groups of companies don't exist when it is precisely because they do that the problem we are looking at arises.
The consequence of this error is as bad as that made by the microeconomists. Whereas microeconomists by making one wrong assumption would have anyone but companies taxed, the tax profession by making another wrong assumption ensures that groups of companies are always under-taxed. This happens because the tax profession has insisted that we must adjust the profits of every company in a group so that we only tax that income that might have arisen if all companies were independent. However, groups exist because they make more money than separate companies and this adjustment process therefore means that it is guaranteed that we under tax group entities — missing out entirely their group related income. No wonder the tax profession and CBI don't want the existing tax system changed.
Bizarrely though the tax profession is at odds on this with accountants — who take yet another view. Through the International Accounting Standards Board accountants now make very clear that they think that groups of companies are entirely independent of their shareholders — who they consider just one provider of capital — correctly shooting the microeconomists argument to pieces on the way. The accountants also take a pot shot at the tax profession at the same time, in this case by refusing to recognise the separate entities within a group by completely removing all the trading between those companies from view in consolidated accounts. However, the result is that accountants rather conveniently as a result help completely hide from view what multinational corporations do in tax havens — almost none of which shows up in their accounts or in local company registries.
And that's the problem. We have not tackled this issue of multinational corporation tax abuse because we have in existence three failed theories of the firm and corporation tax which have when combined, usually at whim, created massive opportunity and cover for tax abuse. And that is where civil society has come into this equation because we have offered a fourth and new perspective on this issue that has both exposed that the problem of tax abuse exists — which would not have happened without us — and how to solve it. Based largely on theories of political economy and behavioural economics I have, and we have, argued five things.
First we argue that companies really do exist as what are, for all practical purposes, separate entities.
Second, we argue that where groups exist then they are also real — and have to be treated as such — which simply does not happen for tax right now.
Thirdly, whilst recognising groups are real we also argue that whilst they may be multinational they do not, as they would have us believe, float in the ether over the world. Their impact is real, and local, and has to be accounted for in that way, but isn't at present.
Fourth, we argue that it is intra-group trading — which represents some 60% of world trade -that provides the opportunity for most tax abuse. And we say accountants, lawyers and micro economists have all, collectively, been wrong to ignore it — as they all have.
Fifth, we have argued that it has been secrecy — both of the consolidated accounts of multinational corporations that ignore subsidiaries — and of tax havens that provide complete opacity for those same subsidiaries — that have have let this abuse occur, especially when used in combination.
The result has been obvious. Encouraged by the arguments of many in academia and the professions the directors of multinational corporations have increased their own rewards through executive bonus arrangements triggered by low tax payments secured through tax abuse that has as a result been motivated by their own self- interests at cost to society at large.
A few have spotted this in academia, where Profs Prem Sikka, Ronen Palan and Sol Picciottio lead the pack in the UK. The professions have, however, flailed on the sidelines. And in civil society we have been tackling the issue — drawing it to the attention of the press, with considerable success - and by proposing three solutions that will, vitally in our opinion, change behaviour.
First we suggest the shattering of tax haven secrecy by requiring the disclosure of the beneficial ownership of all companies and trusts. A bill for this purpose will be tabled in the Commons on Wednesday. The G8 are moving towards it, as is our government.
Second, we have proposed automatic information exchange — that ensures that data from a tax haven is automatically sent to the tax authority of the place where a person using that location is really resident.
And third we must have country-by-country reporting — which is the one thing that the G8 really promised and which I first proposed a decade ago. This is a tool for investors and tax authorities alike that by publishing a separate profit and loss account for each place in which a multinational corporation trades shows with a very high degree of probability whether the self declared profits of a multinational corporation in a jurisdiction is supported by the underlying indicators of economic activity — based on sales, people employed and capital invested in tangible assets.
Together these three measures that shatter opacity — and others, like our proposal to move from arm's length pricing to a profit split basis for profit allocation by default when using OECD transfer pricing guidelines - suggest there are real ways forward for beating tax abuse by creating the right incentives for corporations and their directors to change behaviour. But notably, as I've said, they've all come from civil society — and it is in these ideas that investment is now needed if this problem is to be solved.
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Cbyc doesn’t capture the value created by the group structure. Cbyc, by definition, is looking at the value created without that group structure. So how can it be true that cbyc is necessary to capture the value added by the group structure?
No it is not – because CBC has to reconcile to the group accounts and therefore has to do exactly what you says it does not
“However, groups exist because they make more money than separate companies”
How do they achieve this?
Economies of scale
Monopoly power
But those would be acheived if the whole business was run through one company, rather than a group. Try as I might, I cannot see any reason for a group structure which is not in the end about tax.
Indeed….
I don’t follow. Which (if any) are you saying happens when companies work together in a group:
– each company can make more money?
– the group makes money which doesn’t appear in any one company?
– one or two companies to make extra money even though most don’t?
If the first, I don’t see the problem.
I don’t see how the second can happen – cash and profit must eb accounted for somewhere
If the last, then so long as the other companies aren’t making less profit than they would on a standalone basis I still don’t see the problem.
Groups make money because of economies of scale and often because of monopoly rights e.g. patents and copyrights
They also, often, use tax havens which smaller businesses can’t
The results are reflected in their profits
But under OECD arm’s length rules they are adjusted out of taxable profit as an independent company would not make that return
The problem is in tax – not accounting
Worstall is confused on accounting and you seem to be on the economics of groups – which only exist because they do make more money than individual entities would
The result is the OECD arm’s length model always and automatically undertaxes groups
You can only adjust out of one company by adjusting into another, which means we’re just talking about profit shifting again.
You seemed to be saying that there was something about groups that made profits disappear altogether, which was what was confusing me.
The OECD model only undertaxes groups if you assume that it will lead to profits being shifted into low-tax jurisdictions. That’s not an essential feature of the model, it’s a consequence of tax competition between jurisdictions – which of course at present is not a fair competition because tax havens can attract profits fairly freely. But that takes us back to tax haven abuse, not to there being a problem with groups qua groups.
Not true – and you well know it
James: “Try as I might, I cannot see any reason for a group structure which is not in the end about tax”
You can’t see why a UK company might be unhappy about having unlimited liability in another jurisdiction? Or indeed why a UK company might be unhappy about having unlimited liability in respect of a particular project, that might drag down the rest of the business if it were to go wrong?
I see very few group structures which are about tax, in my day to day work. I see some aspects of some structures which are about tax, but most of it is about legal issues and limited liability.
Of course you don’t…
A tax adviser who sees no tax reason for group structuring
Oh please stop talking BS….
OK, let’s take the property developer I’m currently advising, who is setting up a company for a particular project – allegedly to ringfence any liability that might arise so that it wouldn’t take down the rest of his business.
A UK resident, with a UK-resident company, sets up a UK-resident subsidiary of that company.
It’s going to cost him a few bob in legal fees to set it up, and a few bob more to run it every year, but he thinks it’s a good idea.
Without the new company, profits would be taxed at 20%. With it, they’ll be taxed at 20%. Either way they’ll be taxed again when distributed.
You tell me this structure exists purely for tax purposes?
Since we were discussing multinational corporations what relevance does your example have?
Thanks Pellinor for the example of the “Chewbacca Defense” featuring UK groups.
I also enjoyed:-
“I see very few group structures which are about tax, in my day to day work. I see some aspects of some structures which are about tax, but most of it is about legal issues and limited liability.”
I now have mental image of you saying “Don’t mention the tax advantages”, in a Fawltyesque “Don’t mention the war” style when overseeing the preparation of various tax clearances.
Thank you this provided some much needed levity after reading Ironman’s comments.
In response to James from Durham..
(Note: I think Richard and I mutually agreed that we’d both be happier if I didn’t comment here.. but I do still read and take an interest, and I hope this comment will be taken as the constructive contribution intended.)
There are very many reasons why a group of companies, whether it be multi-national or within a single territory, are preferred over one single company. Tax, I will grant you without any reservation at all, is a very common one. However..
1. Groups usually grow via acquisition. If company A buys company B, and there’s no reason to go through the effort of merging the operations into one statutory entity (and, believe me, it’s an effort), then you have a group. The bigger the group, the more of this there will be.
2. Statutory companies have legal and operational reporting/compliance obligations. The larger and more complex an organisation is, the more likely it is that it will need to deal with those obligations along different timetables. That may arise out of a structural preference, or an unplanned necessity. For example.. I am responsible for a number of companies. Some have to do their accounts on a strict monthly timetable.. others I can leave aside and just sort out every few months. It’s much more efficient that way. If I just had one company then all the work would have to be done to the single, and strictest, timetable.
3. Smaller companies are easier to do the accounting for than larger ones. If you put defined activities in defined units then that’s easier to manage than putting lots of diverse activities in one unit. Modern computer systems mean this is less important that it would have been in the past.. but it’s still a factor. If a complex group was all combined into one legal entity then that entity would have to be artificially split into a number of individual units anyway.. so we’ve just done a huge amount of work to get to the position we started with. As an accountant I should be in favour of that.. because I’ll get paid to do it.. but I don’t see how it serves the best interests of society.
4. Accountability within a group happens at different levels, and statutory entities allow that to be recognised. Many corporate groups will have divisional directors, who are practically and legally responsible for the companies they are directors of. Higher up the chain, more senior directors will be (rightfully) accountable for all the subsidiaries beneath them. If it’s all one company, then that breaks down. A modern group could have hundreds of legally appointed and accountable directors, all with real control over the activities they direct. If there’s just one company then either it has to have hundreds of directors, or it has to have far fewer people given that responsibility. Anyone who has been appointed a company director will tell you that focusses the attention mightily.
5. Identity and branding matter, and sometimes a brand needs to be in a unique legal entity. If I may give you an example from my own recent past.. my company recently had to set up a subsidiary for a new activity that was being carried out as a distinct brand. That activity required it to be registered with a quasi-government body, and that body would only register it using the legal name of the company. Therefore, to use the brand we needed to have the company.
6. To operate in some territories a multi-national might not have any choice. A local legal entity might be required to trade, own assets or employ people.
7. Groups will buy and sell companies for various reasons. It’s easier to sell shares than it is to sell a trade and assets (and the tax effect of a transaction can be ‘better’ one way or the other, depending on circumstances).
With all due respect, your point is very naive. You may have thought about it a lot, but you obviously have no direct experience of how large businesses are run. And Richard, as a Chartered Accountant, does his profession a great disservice by not challenging it.. and it can be challenged without diluting the desire of this blog to question the ability of corporate structures to be used purely for tax purposes.
Let us also not forget that much of the criticism of multinationals comes because they actually do have a single statutory entity which deals in multiple territories. That’s how they get to use the EU regulations to pay tax on sales to UK customers at Irish CT rates. Richards solution to that is unitary taxation.. which is a way (in cases of that particular approach) of disregarding the single legal structure. It’s the opposite of what you’re saying. He would, surely, be happier if Google actually had a legal and taxable entity in each EU state which made the sales and recognised the true costs.
Finally, Richard’s final comment (at the time I write) makes no sense. I agree that the discussion here is different for a multinational than it is for a group within one jurisdiction. I agree that group structures in multi-nationals are where tax avoidance is a problem. However, it’s absurd to say that it’s reasonable to have a group structure within a single country, but once the company goes multi-national the structure makes no sense.
I think you choose to miss the point
See my blog on TP today
What you say is correct to some degree – but entirely ignores the issue
James said he can’t see any need for any group structure beyond avoiding tax: any group would be just as well off being a single company.
This is obviously not the case in a simple situation with only one jurisdiction involved. Are you going to tell me that the legal risk is reduced when you start introducing multiple jurisdictions?
There are clear non-tax reasons to have multiple companies in a business.
There are clear tax reasons in some cases, too. But to say that the only impact of having a single global company rather than a large group would be on the tax position is absurd.
I accept multiplate companies is not always tax driven
But given you ignore that many companies use branches and do not have separate entities in all jurisdictions you are as guilty of over simplifying things
Companies with scale , whether groups or not can can cross-subsidise loss making activities in order to drive the competition out of business and stop the grass growing under their feet .
They can triumph simply by virtue of being able to hold their breath longer .
Richard , do any of the sections in the list on the right have anything on patent law and it’s reform please ?
Tim , I’ve enjoyed reading articles on your blog but stating that “Exactly the same is true of copyright on books or music” is disingenuous ;-
– when did two people ever independently write the same book or piece of music ?
– when do copyrights ever as Richard says about patents “impose considerable cost on society” ? There are restrictions on copywriting and patenting algorithms and patterns as may be found in software .
I have not written much in this issue – sorry
But read Stiglitz on it in the New York Times late last week – absolutely excellent
Worstall gets this wrong every time.
“like our proposal to move from arm’s length pricing to a profit split basis for profit allocation by default when using OECD transfer pricing guidelines”
Just to clarify. The OECD guidelines suggest a number of diferent ways of arriving at a fair transfer price. CUP, resale minus, cost plus, profit split, TNMM and undefined ‘other’ methods. Each are supposed to have advantages and disadvantages depending on exactly what is being considered.
Are you saying that profit split should be the ONLY method used? And if so do you favour ‘contribution analysis’ or ‘residual analysis’? And how big a difference would it make? Much of the profit split method relies itself on what ‘third party’ terms would be (similar to, say, CUP) so I’m not sure what the obvious benefit would be.
I am saying it should be preferred and should use key allocation drives
With the option if the transaction is obviously abusive to simply ignore the artificial transaction
Which is what my General Anti-Tax Avoidance Principle Bill would have allowed
“But under OECD arm’s length rules they are adjusted out of taxable profit as an independent company would not make that return The problem is in tax — not accounting” – From above.
Perhaps in this long chain of messages I’ve lost the point you’re making but you seem to be saying that transfer-pricing rules CREATE an artifical position because it taxes the transaction as if the parties were not related when they are. Is that right?
So if Andrew (UK) Limited sets up a subsidiary Andrew (Italy) SpA and sells wholesale to its subsidiary, then you’re saying the transfer-price should NOT be what Andrew (UK) Limited would sell those goods at to the unconnected Richard (Italy) SpA as would be under traditional transfer-pricing methods?
If there was a market price with a third party then that’s the price – having allowed for volumes, discounts and service etc
The point is when there is no other sale – what is the price – and it may be adjusted overall to an under value
That’s when the problem arises
This is easily done. Suppose two pieces of IP are needed to make a product. Each is worthless in itself. Together they make a product work. They’re owned by different subsidiaries in different countries. So there are two unrelated TP adjustments. Will they ever reach the right price? Easy to set up. How to crack?
A group structure doesn’t give you monopoly power, that is created by the absence of competitors. Neither does it give you economies of scale; size provides that. If by “groups exist because they make more money” you mean ‘businesses get bigger to make more money and cross national boundaries to achieve that and this may create the need for separate legal entities’ then yes, I agree. That, however, doesn’t tell us very much at all. If, however, there is something about group structures per se, then what is it?
If you wish to live in a fantasy bubble all of your own please feel free to do so
But please don’t ask me to engage with you whilst you’re in it
but if you look out of it anytime see my reply to Pellinor
Since the order of this discussion is being changed round, I will follow on from your response to Pellinor.
No, in short. Under the OECD arm’s length principle whatever income is received, whatever profit is earned, must be reflected in one of the group’s companies somewhere. It cannot, simply cannot, disappear. That, if it happened, would be simple evasion. It may well appear in a tax haven subsidiary, but it will appear.
I would also repeat my earlier point: the benefits you assign to groups might accrue from the size of a business; there is nothing inherent in group structures that bring these things about.
And I would just note, once again, that the Courageous State appears a little timid.
That is complete nonsense
Let’s just call it drivel
There is absolutely no requirement at all that under OECD rules 100% of profits will be taxed and no more or less
Just ask GSK a few years ago who paid hundreds of millions in tax because this could not be agreed
And it is widely acknowledged – by the PECD indeed – that double non taxation is completely possible
So please do not blatantly misrepresent the truth
I agree, Richard, that double non-taxation is possible – and that it happens. To give an example: profits which are treated as income in Country A are treated as capital gains in Country B, which doesn’t tax that particular type of gain. The treaty allocates taxing rights to Country B, which means the profit is “allocated” to that jurisdiction, but isn’t taxed there.
That doesn’t however mean the profits disappear – just that they disappear in a taxable sense. I would favour a more purposive approach to double tax treaties which effectively prevents anyone from achieving double non-taxation (as that is not the purpose of a double tax treaty).
I would note Richard, and I hope you publish this comment, that I come to your blog for the lively debate among commenters (and with you) which I think flushes out interesting issues. I am a little concerned by how aggressive you (and the other commenter on your other blog entry, which was directed at me) are being with your commenters here. I don’t think it’s helpful to the debate and I hope you reconsider the way you post to others sometimes, and moderate yourself and your followers in the same way you moderate those who disagree with you. It’ll make the quality of debate much higher.
I am happy for debate – bit not blatant misinformation
You would have my readers believe that transfer pricing negotiation is a zero – sum game where all tax is inevitably taxed once only – or at least allocated to a jurisdiction for them to decide whether to tax or not
That is wholly untrue. I will elaborate tomorrow if I have more time. If I don’t feel free to remind me
That is not what I said at all Richard. In fact, I said nothing about the arm’s length principle or transfer pricing whatsoever. What I am saying is that there is no need to flame people when they post what you believe to be misinformation. It just makes your blog a farce.
It’s odd that those who would like to discredit this blog have been saying just what you’re saying since 2006
It is always said that if only I was more reasonable I would achieve so much more
But if course the exact opposite would be true and I very strongly suspect those saying so know just that
I am well aware I upset some people. All people who effect change do and I have the decided impression you are keen on the status quo
It’s not even about being reasonable – sometimes you just post blatant ad hominems which ignore the issues. It just leaves you open to ridicule. You may think you have made certain achievements – I wouldn’t like to comment either way – but I don’t think flaming anyone who dares to comment on your blog can possibly have contributed to those. An example being saying that you have decided I am for the status quo – even though my comment actually endorses change in favour of preventing double non-taxation. Bizarre.
The entire system currently prevents double taxation. You don’t need change to the status quo to do that
We need to change to prevent double non taxation
As for the suggestion of flaming – respectfully, see where most of the trolls come from and you’ll see I am a model of toleration
In addition find another blog like this that even seeks to engage
It doesn’t prevent double taxation – I’ve seen cases of double taxation myself. It tries to limit it, just as it tries to limit double-non-taxation, but at the end of the day you need agreement between jurisdictions if you’re going to achieve the right result consistently.
The same is of course true of unitary taxation.
But almost certainly easier for unitary….
Richard, if you re-read my comments you’ll see that I *was* proposing change to prevent double-non taxation and *not* double taxation right from my first comment.
I accept your point
But I read it within the continuum of your comments
Fantasy bubble! Imagine a newcomer to this blog reading that. Would you really be happy for this raw abuse to be their only exposure to you?
That was not raw abuse
That was a statement of fact
And I assume that this blog is seen as an ongoing narrative – which is what it is
But you can leave it if you wish
You’re not a newcomer Ironman, you’ve trolled on this blog before…..
You’re not a newcomer Ironman, you’ve trolled on blogs on this website before…..
Sorry, I let your “mind numbing” contributions get to me
“Fantasy bubble! Imagine a newcomer to this blog reading that.”
I could suggest that you try the same mind numbing tactics on Tim Worstall’s website, I’m sure he’d be far more accommodating:-)!?
He does comment on Worstall’s site – often it seems
A sure sign of a troll if ever there was one……
“Groups make money because of economies of scale and often because of monopoly rights e.g. patents and copyrights….”
Sorry Mr. M.,
You’ve lost me a little bit.
The firm I work for spends tens of millions – yes tens of millions of pounds – at assorted world class R&D facilities around the world. Why shouldn’t it make shedloads of money from patents and copyrights when it’s spent millions getting to the production stage?
As a employee of a huge company that is a primary producer of extremely widely used material in sectors across the world, why shouldn’t the company I work for get benefits from economies of scale when purchasing billions – yes billions – of pounds of assorted raw material.
Aren’t you aware that patents etc are market distortions granted to a few hat hinder according to all economic theory economic development?
Odd how market enthusiasts just love market abuses
Can you explain to me why, in a world without patents, any company would spend tens of millions developing technology that anyone else could use freely?
Because they would make a profit
Most patents are now about tax abuse, not profit
“Because they would make a profit….”
Really? So for example, my company goes and spends millions of pounds developing a new product or production process and then you say it is then fine for any Company ‘B’ to come along, have the design for nothing and then make it after spending nothing on getting the product to the product stage.
Of course not having to fund the development costs means that Company B would be able to sell it more cheaply or even at the same price and get a higher profit margin.
The logic of the patent is to prevent market entry and knowledge sharing
Both, as economic theory and even practice makes clear, are barriers to growth
And few companies innovate that much or exclusively – as so many patent disputes now reveal
“The logic of the patent is to prevent market entry and knowledge sharing”
Or to protect tens of millions of pounds in R&D costs for products such as these that make rail travel safer:
http://www.tatasteelrail.com/en/news/news_archive/Sep12_high_perf_grooved_rail_launch
http://www.globalrailnews.com/2011/03/29/tata-steels-innovative-rail-steels-combat-degradation/
Or this unique prduct that helps protect members of HM Forces:
https://www.gov.uk/government/news/new-armour-steel-showcased-at-dsei
Or even this sort of product which helps to protect the general public and people in sensitive locations:
http://www.tatasteeleurope.com/en/products_and_services/services/business_services/tata_steel_projects/market_sectors/nuclear/protective_construction/
Respectfully – do you really think all this would happen without patents?
Some, undoubtedly. But the net outcome? I have to put the question
And for the record I ma not against patents per se
But given that most patents are now opportunity for tax abuse I question their worth – that’s the trade off I am making
Leaving aside the fact that arm’s length means nothing more and nothing less than an arm’s length price should be used by related parties and so doesn’t cause anything to be adjusted out of taxable profit, I still wonder what you mean by “groups exist because they make more money than separate companies”.
James from Durham posited “I cannot see any reason for a group structure which is not in the end about tax”, to which you replied “Indeed”.
And yet you had already described the advantages as Monopoly and Economies of Scale. Neither of these are tax drivers at all.
There have been a couple of well informed people question you on this point now, did the MPs raise it?
The point is so glaringly obvious I presume you are just trolling and will now treat your comments as such
I think I’d like to come to Richard’s (partial) defence.
“Aren’t you aware that patents etc are market distortions granted to a few hat hinder according to all economic theory economic development?
Odd how market enthusiasts just love market abuses”
Patents are indeed market distortions and quite deliberate ones at that.
The basic background problem is that an invention or an innovation is, once done, a public good. Non rivalrous and non excludable. This means that it’s extremely difficult to make money out of having invented something. Because anyone can use the knowledge you’ve created (or found if you prefer) and you cannot stop them from doing so. So why should they pay you for having found it?
Exactly the same is true of copyright on books or music.
So we deliberately introduce a property right here. Make an entirely artificial declaration that this knowledge is property which is now excludable and rivalrous. Thus people can make money from having invented.
The why we do this is because there’s a tension between two goals. The first is that we do want people to spend time and money on inventing things. And we think that giving them that exclusivity will increase the number of people who do so.
But we also think that new developments are very often additions to past developments (that standing on the shoulders of giants thing). So we don’t want people to have too broad rights or rights for too long a period of time. We’re trying to find the sweet spot between encouraging more original invention without stopping too much derivative invention.
It’s entirely possible to say that the current system is not in that sweet spot. I would argue so myself. But it’s most certainly not all about tax either. Which pharma company will spend a few hundred million putting a drug through Phase II and III trials if the moment it is approved every generics company in hte world has a right to make it?
Finally, the very existence of patents (and copyright) and their support by free market types should be taken as proof that we free market types don’t insist that markets are perfect nor that there are not times when they need management and even regulation to work better. For we are saying here that patents and copyrights do make pure free markets work better: or at least can do.
Our disagreement with those further to our left is only that we disagree on how often this regulation makes markets work better, not whether it can ever.
Or, as is now commonly true, patents are simply mechanisms for shifting intellectual property rights to tax havens – which is exactly why the benefits they once provided now have to be questioned when they now impose considerable cost on society
But I notice you ignore that Tim
I wonder why?
Notably graceless response from you Richard. Whether patents (and copyrights) shift wealth to tax havens or not it’s still true that they are both deliberate interventions into the free market, an admission, nay an insistence, that free markets unadorned don’t always work. The two classical cases where they don’t being public goods and externalities (and we can also regard public goods as positive externalities to complete the loop).
As an example, do you think that your copyright on your writings should be voided because some others use copyright to dodge tax?
Have you noticed the copyright licence here?
Hehe… “cost on society”… sorry, had to have me a little giggle at the way you sneaked that in there.
Amazing how you can get the gist of where a person is coming from from just three words among thousands.
It seems clear to me that MNCs are created for several reasons and one of them will indeed be to take advantage of the tax system to benefit itself to the fullest extent it can.
I can’t see how anyone should be surprised by this. Money saved by the company can be re-invested in the business, money given to the government is often wasted on crap.
It could be helpful if some people started to give credit for the enormous benefits that large businesses give to society in the form of a) the capital they invest on R&D from which highly useful products come into existence which none of us would be able to produce individually. b) The thousands of jobs they create.
Come up with a way to quantify this in terms of money and then perhaps we can start to talk of “cost to society” otherwise it’s just typical leftist crap.
And you are saying all business does is good and all government does is bad?
And you think that’s an argument?
Anthem and other trolls, I suggest you get a copy of Mariana Mazzucato’s The Entrepreneurial State, before you hand laurels to the transnationals for their innovation.
“Have you noticed the copyright licence here?”
Actually, you should probably revisit that. All I can find is a CC “Some Rights Reserved”, together with a link to the main CC page. It’s not particularly obvious which of the six variations of license you want to release under.
OK – I’ll check it
NB – have checked – has clearly gone wrong – thanks for pointing out – will be corrected
“What can we do to tackle tax abuse?”
Nationalisation off…EVERYTHING.
With which I definitely do not agree
Well Richard, what else is left ?, what we have is NOT working, as you well know!!!.
I have outlined some ideas today and more before the week is out
Richard,
You have over the years (in the main), been writing sane, common sense on this blog, what have those in power done in implementing what you have said…Absolutely Nothing!, and you want to know something, they have NO intention of doing anything you suggest. The whole system needs change from top to bottom if we are to make any forward progress out of this insanity.
Which is why I continue to be on the left
Someone – I don’t think it is a straightforward question of nationalisation versus free markets. The issue is that the markets are not ‘free’ in the first place and were are in the thrall of corporate power and a state of perpetual debt peonage due to housing speculation. A free market could work well if big finance did not suck wealth out of communities and a land value Tax helped to disincentivise housing speculation. Get rid of housing as a speculative activity and a hedge then much poverty could be eliminated along with a parasitic rentier class. Many on the right in America want this! But I’d certainly nationalise railways/utilities.
Richard, let me offer you a compendium of your responses to me today. You and I will disagree, but I think this sort of reliance on ad hominem abuse is not worthy of anyone who seeks a role in public life.
“If you wish to live in a fantasy bubble all of your own please feel free to do so But please don’t ask me to engage with you whilst you’re in it”
“Oh please stop talking BS”
“That is complete nonsense. Let’s just call it drivel”
“He does comment on Worstall’s site — often it seems. A sure sign of a troll if ever there was one”
“The point is so glaringly obvious I presume you are just trolling and will now treat your comments as such”
This is not ad hominem abuse
It’s a case of dismissing Internet trolling and naming it for exactly what it is
Please don’t bother to waste my time again