Ever since the financial crisis there has been a growing clamour for multi-nationals to pay their “fair share” of taxes. In the UK, targets include Amazon, Google, Starbucks, Vodaphone. In India targets include – wait for it – Vodaphone. In the US, they include, you guessed, Amazon, Google and Starbucks. In France, it’s all the above. And so it goes on.
And today, yet another politician has joined the voices of the dissatisfied. The American President no less, complaining about US Corporations moving their tax base overseas. His speech included two comments I find interesting:
- “My attitude is I don’t care if it’s legal – it’s wrong,” and
- “Let’s stop rewarding companies that ship jobs overseas; give tax breaks to companies that are bringing jobs back to the United States”
Looking at the first of these comments, I wonder how the President would feel were, say, Amazon to be obliged to pay tax in Germany on profits he believed it earned from its US activities and should therefore be taxed in the US. Would he turn to Amazon and say “I’m the president, and I say you pay your US dues”, and would he then turn to Angela Merkel and say “they’re US profits, they get taxed here, not there”, or would he say nothing at all to Angela, and let Germany tax the same profits? Or would he perhaps turn to Xavier Bettel, Luxembourg’s Prime Minister, and say “you can’t offer your tax structure to Amazon, Amazon’s mine”. Maybe in a conversation with David Cameron, he’d say “we charge our US businesses 35% on their profits, you’re deliberately undercutting us, I’m telling you to stop it – now!”
And when, or if, he invokes the second of his comments, will Angela, or Xavier, or David, start bleating about the damage he’s doing to their tax base?
What rules are multinationals meant to play by, if not those established by law? And who, if not our political masters, is responsible for passing those laws?
Tax arbitrage exists, and will continue to exist, as long as national governments use their tax laws as a device to attract inward investment. It ill behoves the leader of the most powerful nation on earth to cry foul when he bears as much responsibility as anyone for setting the rules.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
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“Tax arbitrage exists, and will continue to exist, as long as national governments use their tax laws as a device to attract inward investment.” Looking back to 1973 the main rate of UK corporation tax was 52% and we are now looking at an incoming 20% rate. The political spin hides the cold truth that until the governments work together large corporates will continue to gain substantial benefits by the devices these governments use to attact investment.