Taxing international corporations - Far, far more than lost tax cash at stake

A PHRASE from less than a decade ago that came to sound like warning drums confirming that the barbarians had indeed breached the gates was “too big to fail”. 

It was the get-out-of-jail card that somehow stood, and still stands, between the financial sector and regulatory authorities responsible for the massive destruction of wealth and the economic chaos that changed our world.

The philosophy that phrase celebrates, the one that yet again gives two fingers to the idea that we really live in a we’re-all-in-this-together society, can add a new phrase to its lexicon after last week’s UK tax settlement — described by critics as a “sweetheart deal” — between Google’s parent company Alpahabet and the British tax authorities. The new, newish anyway, phrase is “too big to tax”.

The web giant is to pay €170m in back taxes to the British authorities after the company came under persistent fire over the taxes it paid, perceived to be very low, on the profits it generates in Europe.

That the tech giant paid €15m in UK corporation tax from 2006 to 2011 on revenues of €17bn, according to a House of Commons panel in 2013, seems to confirm this.

Google is just one of myriad transnational corporations using entirely legal means to minimise its tax bill.

Just as globalisation allowed work to be moved to low-cost economies, the very same principle means tax issues can often be resolved in the least onerous, most attractive environment.

Speaking to a House of Commons committee in November 2012 the European head of Google Matt Brittin said the company had deliberately designed its financial structures to avoid tax.

Playing under today’s rules anything else would have been irresponsible. Eric Schmidt, Google’s executive chairman, told that hearing he was “very proud” of the structure.

“It’s called capitalism. We are proudly capitalistic. I’m not confused about that.”

In another skirmish, that some estimate is costing governments billions in lost taxes each year, Apple is the subject of a European investigation that optimists suggest could force the iPhone maker to pay more than €7bn in back taxes.

Europe has accused the company of using Irish subsidiaries to avoid paying taxes on revenue generated eleswhere.

International taxation is a high stakes game and those involved have resources, and motivations, far beyond anything available to even the best equipped tax authorities.

It is an uneven match and will remain so.

How this dilemma is resolved is a huge challenge, because it is having an impact far outside the world of commerce.

It is a huge contributory factor to the unhealthy concentration of wealth and the rejection of the relatively moderate political administrations around the world.

Though the jobs these corporations support are invaluable and transformative, and in our case all but irreplaceable, a far better balance must be struck between social obligations and the opportunity to build profits by tax management that sometimes seems little short of piracy.

This is a far greater, a far more pressing challenge, than capitalism seems ready to recognise.


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