Coining it

Editorial note: If you have not yet read our mission statement above, please do so in order that you can put our blogs in context. 

15 November 2012

There’s a bit of a stink in Britain at the moment over giant multinationals that do extensive business in the country but pay peanuts by way of tax.

Responding to public outrage fanned by extensive media coverage, the Public Accounts Committee of the House of Commons invited three of the principal culprits  – Amazon, Starbucks and Google – to appear before it and explain themselves.

Executives from the three companies were accordingly grilled by the committee last Monday 12 November 2012.

They paraded a variety of excuses.

When UK customers of Amazon place their orders on a UK website, the goods are generally shipped to them from Amazon warehouses in the UK, but the company pays tax in Luxembourg – at a more favourable rate than it would have incurred in the UK.

Starbucks, which is reported to have 800 outlets in the UK and a staff of 7 000, had a different story to tell: it rarely makes a profit in Britain, which is why it pays very little UK tax.

The committee was puzzled, however, as to how the company could afford to keep trading while rarely turning in a profit.  Such a state of affairs seems to run somewhat counter to the normal business model.

The committee did not appear to receive an answer to that question. But parliamentary sketch writer Simon Hoggart of the London Guardian had a theory: Starbucks is actually a charity!

“With one exception they [Starbucks] had made a loss for 15 years,” wrote Hoggart in his sketch on 13 November. “Year after year, the business failed. Yet somehow it survived, and the UK boss was even promoted!”

Google played a straight bat: the company sought out legal avenues to reduce its tax bill. According a report of the committee meeting in the Guardian, the company avoids UK tax by channelling non-US sales via Ireland, which has a less punitive tax regime than Britain. The company also apparently diverts some of its profits through the tax haven of Bermuda.

Commenting on Google’s defence, committee chair Margaret Hodge said: “We’re not accusing you of being illegal. We are accusing you of being immoral.”

The committee will produce a report in due course. It will then be up to the government to decide what, if anything, to do.

Antigone1984:

The committee was evidently not happy that all three companies did considerable business in Britain but paid relatively little UK tax. The excuse offered by Starbucks in particular – that they rarely made a profit in Britain – was greeted with some scepticism.

Google, however, made a good point, in our view. No business  – or individual taxpayer, for that matter – is obliged to pay more tax than is required by the law of the land.

Hodge’s claim that Google was behaving immorally is irrelevant, in our view. Companies are in business to make the maximum profit possible within the constraints of the law. Morality does not come into it. Companies are not churches. Morality may fittingly be preached from a pulpit. It has no place, as things are, in the boardroom. Governments may, rightly, take the view that certain business activities are immoral. But then they must legislate to outlaw those activities. Until that time, businesses will understandably  continue do the one thing that they were set up to do, namely to exploit all the opportunities legally available to them to make as much money as possible. Like it or not, that currently includes having recourse to creative accounting and aggressive tax avoidance. Long-time readers of this blog will know that Antigone1984 favours an economic model at the opposite extreme to the free market. In such a model the concept of morality would certainly bulk large. However, any move in that direction would have to be introduced politically. It is totally unrealistic to imagine that an alternative model involving such radical change could emerge naturally out of market-based economic systems or organisations. Turkeys do not vote for Christmas. Hence, it is meaningless for Hodge condemn legal tax avoidance as “immoral”. It should also be borne in mind that Hodge is a senior figure in the British Labour Party, which functions these days as a clone of the ruling Tory Party and which is no less committed than that party to the jungle of the market economy. Thus, Hodge’s own party has cast its lot firmly in favour of an economic model in which moral behaviour has no place.

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 You might perhaps care to view some of our earlier posts.  For instance:

1. Why? or How? That is the question (3 Jan 2012)

2. Partitocracy v. Democracy (20 July 2012)

3. The shoddiest possible goods at the highest possible prices (2 Feb 2012)

4. Capitalism in practice  (4 July 2012) 

5.Ladder  (21 June 2012)

 6. A tale of two cities (1)  (6 June 2012)

 7. A tale of two cities (2)  (7 June 2012)

 8. Where’s the beef? Ontology and tinned meat (31 Jan 2012)

Every so often we shall change this sample of previously published posts.

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