The idea that paying more tax than legally required is 'moral' is perverse (Daily Telegraph)

Ryan Bourne, CPS Head of Economic Research writing in the Daily Telegraph, argues how the debate on corporate tax avoidance is threatening to spiral out of control.

To view this article, visit the Daily Telegraph.

“Margaret Hodge’s public pronouncements suggest she believes that the amount of corporation tax a company should pay ought to be determined by whether she thinks it is a “fair share”.

The Public Accounts Committee chairman describes Google as “evil” for exploiting tax loopholes to minimise their liabilities. She is not alone. Politicians routinely condemn tax avoidance as “immoral”, and fall over themselves to bash the big corporations.

Yet, while legitimate questions can be raised on the legality of individual company decisions, and the apparently cosy relationship of some with HMRC, it’s time our legislators took a step back to consider the wider implications of their stance, before shrill posturing begins to cause long-term harm to the UK economy.

The rule of law is an essential foundation for a flourishing capitalist society. Many corporations engage in tax planning, helped by the fact that policymakers around the world have devised complex systems offering exemptions, deductions, and allowances, not to mention agreements with other jurisdictions, to generate inward investment.

That corporations then take advantage of this is not “evil”, but merely carrying out the fiduciary duty to their shareholders to maximise profits within the law. Threats for action at an individual company level, or indeed retrospectively, in order to force them to pay more on “fairness” grounds, is thus inherently arbitrary. If there’s a problem, then the only way to deal with it is via law change, not public pronouncement.

The risk is that this moralising translates into a toxic anti-business climate, making profit a dirty word and undermining the whole concept of the law itself.

If this were to deter foreign investment to the UK, the costs would be extremely high. Consider, for example, the economic contribution of Starbucks, another corporation in the firing line. It employs 8,500 employees, all paying income tax and national insurance contributions. Measuring its benefit to the UK on corporation tax collection alone, as its “contribution to society”, is therefore absurd. Were Starbucks to abandon the expansion it has planned for the next five years, jobs would be lost and other tax revenue foregone.

In part, this explains why the debate about tax avoidance should not be considered a moral issue. The idea that paying more tax than legally required is “moral” requires a perverse outlook that tax is moral but money in the pockets of shareholders or employees is not. Most analysis suggests that the effect of higher taxes on profits is principally to reduce workers’ wages.

Politicians do plenty of things with our money that many of us might consider immoral; meanwhile, plenty of moral activities are undertaken by private initiative – not least the creation of jobs.”

To view this article, visit the Daily Telegraph.

Ryan is also qouted on the subject in the following article by Christopher Hope, in the Daily Telegraph

Date Added: Friday 14th June 2013