I was asked one question on two separate\u00a0occasions\u00a0last week. It was \"is tax a cost of business?\"<\/p>\n
The answer is a resounding \"no, it isn't!\"<\/p>\n
The idea that tax is a cost of business is a\u00a0convenient\u00a0myth - one propagated by the tax avoidance industry to provide an all too ready excuse for its clients who justify their tax abuse by saying \"it's all in the\u00a0shareholders\u00a0interests.\"<\/p>\n
We do not\u00a0however\u00a0have to go far back in history to realise that in a more\u00a0enlightened\u00a0era those responsible for accounting saw through this untruth. It's not by chance that in the profit and loss account of any company tax is shown as a payment after its profit has been struck. In that sense the tax charge of a company stands alongside the payment of dividends to shareholders as a distribution by the company out of its profit. This makes abundantly clear that tax is not a cost, any more than payments of dividends to shareholders are costs. The payment\u00a0of\u00a0tax is a distribution.<\/p>\n
Dividends are a distribution to the owners of a company paid in return for the capital that they provide to allow it to trade.<\/p>\n
Tax is a payment made by a company to the society that grants that company its right to operate.<\/p>\n
And there is no company that can say it has not been granted a licence to operate. Most companies trade in the states in which they are incorporated. In that case their certificate of incorporation - the certificate that proves they have a legal existence - that is their quite literal licence to operate. If they trade in a state other than the one in which they are incorporated\u00a0then most states require that they be registered before being allowed to do so - in which case that registration becomes their licence to operate.<\/p>\n
And have no doubt that this licence is very real: the licence may be cheap, but it carries with it too significant and unavoidable obligations.<\/p>\n
The first such obligation is to comply with the tax\u00a0charges\u00a0created using the very same legal process that granted the company a\u00a0licence\u00a0to operate.<\/p>\n
The second obligation is, I think, to be\u00a0transparent\u00a0and\u00a0accountable\u00a0for their actions by\u00a0putting\u00a0financial statements on public record.<\/p>\n
These are reciprocal obligations for the right of limited liability that has been granted by a state. And yet we have allowed them to be corrupted. So much so that we don't enforce them any more<\/a> resulting in a loss,\u00a0in my estimate of up to \u00a316 billion a year in tax revenue.<\/p>\n Which is something we really can't afford.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":"