Corporate Tax Avoidance

The sham argument about corporate tax avoidance

A lot of big corporations avoid paying tax, despite being able to afford it.

By now you’ve probably heard that Apple has been asked to pay €13 billion in back taxes to Ireland. I’m fairly certain that they won’t pay a cent of this (or they’ll agree a much much smaller compromise figure). Apple is obviously not the only one who do this. Google, Amazon, Starbucks and Facebook, as well as 100s of other large companies, are all guilty of this practice. (Fun fact, last year Lean Consulting paid 14 times more tax than Facebook did in 2014 in the UK).

Closer to home for us, our competitors like Accenture and Capgemini have also been previously identified as companies that aggressively minimise tax. In 2012, Accenture paid just 3.5% in tax on its UK profits and Capgemini paid less than 1%*.

So what…?

Working for a small business, I find this very frustrating. Whilst our firm is paying the full corporations tax rate, some of our biggest competitors are not. How can we hope to compete with big companies when they don’t have to pay as much tax as we do? Is it right that we are effectively subsidising their huge businesses (and profits)?

Because if they paid anything like the level of tax our company does, then either the overall corporation’s tax rate would fall, or we’d have a lot more money for the government to spend on things like adult social care, pensions or the NHS.

Companies like Apple claim they are doing nothing wrong. But that’s a sham argument – here’s why.

From Apple’s statement on 30th August 2016:

“In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe”

It’s not our fault! We complied with the law! If you don’t like it, it’s up to governments to change the law – it’s not up to us to change the tax laws.

But then there’s this statement in the very same letter:

“The most profound and harmful effect of this ruling will be on investment and job creation in Europe”

In other words – if you do this, we’ll move our base of operations out of Ireland and Europe altogether and set up in another country that’s willing to keep giving us ridiculous tax breaks.

It’s a threat – and not a particularly veiled one.

If you’re still not sure that it’s a threat then consider this – the Irish Government is going to appeal the ruling! They don’t want the money. From Finance Minister Michael Noonan:

“I disagree profoundly with the Commissions decision… It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment”

So that’s why it’s a sham argument. On one hand, CEO’s and CFO’s of the worst offenders are saying – we comply with the law. If you don’t like it, change it. The next day, they say that if you change the law, we’ll punish you by incorporating our businesses elsewhere.

So what is a business like ours to do?

We could emulate some of their cost avoidance practices. In fact, it would be more lucrative for us to register our head office offshore and funnel the operating profits there. The cost of doing this legally would be much lower than the tax we would save.

But we won’t. We believe that it’s unethical. Like paying more than a living wage to all our staff, it might cost us more, but it’s very much the right thing to do.

Apple makes a big deal about their corporate and social responsibility. Improving the environment, saving water, improving supplier responsibility – lots of good stuff. But not paying taxes.

Can Apple afford to pay this? Of course. As a company worth over $600 billion, it’s a pretty small debt. They can pay it straight out of the $216 billion in cash reserves they have (and it would still be a ridiculously huge war chest).

But they don’t want to. And that’s a real shame.

*According to a Sunday Times investigation.