The current round of incredulousness and hand wringing over the tax avoidance practices of several multinationals is very amusing indeed.
On the one hand there is outrage that companies such as Apple and Google, but not limited to tech (ie Starbucks), might be generating huge profits and not paying tax on them by not repatriating the cash, and then there is recrimination that countries such as ourselves and Holland (featured in the famous ‘Dutch Sandwich’ of the ‘Double Irish’) are facilitating these things with loopholes in our systems.
One very interesting and, it has to be said, quite naïve commentary came from the BBC’s Robert Peston. This is most surprising as Peston is a long time commentator on such things. But in this article, where he quite rightly states that the storm of controversy could be bad for brand Ireland, he says that while it may be individually a good idea for these companies to take full advantage of tax avoidance, collectively it means that they are failing to contribute to the very infrastructures that produced the people who create their intellectual property in the first place.
Now pardon me for being a cynic, but to use the parlance of the cool kids, WTAF?
Peston appears to be suggesting that these companies exercise a social conscience and pay what is right instead of the absolute minimum they can legally get away with. When, in the history of business has that ever happened?
Imagine the uproar at the shareholder meeting of a major multinational company when it was revealed that it was paying more corporate tax than it absolutely had to.
But the paradox is that it is the ravenous greed of shareholders that drives this situation in the first place. It is a delicious irony then that companies such as Apple can generate these vast slushes that remain tantalisingly offshore and unavailable to the very ravenous drivers of the need to create them in the first place! Indeed, Apple recently, after much criticism about paying dividends, issued a bond to pay shareholders instead of paying tax on these massive offshore funds!
So, who is kidding whom here?
It is utterly naïve of anyone to expect a corporation to pay more tax than is absolutely necessary, irrespective of how right, moral or just that is. Corporations are driven by the profit motive because their shareholders tell them to be-that is all there is to it. Shareholders don’t care how immoral tax avoidance is as long as they get their expected benefits from being a shareholder, unless of course the whole dirty scheme is revealed publically attracting the ire of the hard pressed public and prompting politicians to hypocritically condemn them and thus denting the share price and causing sales to slump.
Whose job is it then to ensure that these companies do pay their fair share? Well, it is the job and responsibility of individual governments through tax agreements and regulators (both state and collective such as EU) to ensure that any loophole or extraordinary facility is sufficiently controlled and regulated to prevent exploitation.
For example, the double Irish was originally a facility set up in the hope that Irish founded companies could scale to global-sized operations. As such, it was never envisaged that a tech company would set up Irish operations which would licence IP from a US parent and then channel royalties, not sales, from an Irish subsidiary, through a Dutch company, before being whisked off to a haven such as Bermuda.
But this is not a new situation and has been known about for some time. Indeed, it is no revelation that Apple or Google or any one of a multitude of other companies has "special" tax status here either.
Governments should be free, within reason, to make special arrangements to encourage or facilitate certain industries, specialities or verticals in a territory, but not to the extent where it facilitates their tax avoidance elsewhere-because we know they will if they have the chance because corporations are utterly amoral when it comes to making money. Note I said amoral, not immoral. This has already drawn a repsonse from the Tánaiste here, defending our "transparent" tax regime. Indeed, it is that, so transparent as to be exploitable by any good coporation.
The fact is that governments need to grow a pair when dealing with such entities in the full recognition that such things will be exploited instead of any presumption of fair play because it simply will not happen. And it reflects badly on anyone who knows how international business really works to expect a company to do the right thing when clearly "right" by definition of shareholders and corporations is very far from the "right" of Mr and Mrs Joe and Joanna Public.
For a dispassionate look at the situation that explains it far better than I can, go to The Irish Economy Blog.
Ltd
