Google and Starbucks behave lawfully – tax transparency will achieve nothing
On today’s Daily Politics, Kiz Kendall offered her two cents on how to tackle tax avoidance by large multinationals. Her answer was the same stock answer that has been offered countless times before: “transparency”.
Transparency works as a means of forcing compliance with the rules – where a shroud of secrecy facilitates non-compliance with the rules. However, transparency won’t change anything where companies are behaving lawfully. The problem is the rules themselves, not lack of adherence to them.
Transparency and information sharing have been the primary focus of efforts to address the problem of tax avoidance for over five years. In particular, tax transparency has been the focus of agreements of both the G8 and G20 leaders, as well as between countries like the UK and its overseas territories.Despite such agreements, however, little appears to change.
Domestically, the accountants and tax advisors responsible for coming up with perfectly lawful tax avoidance schemes have been required to tell the revenue how they do it since the Finance Act 2004, under penalty of criminal conviction. This, it’s hoped, allows the treasury to shut down such schemes in the subsequent budget. However, such advisors have proved quite adept at coming up with new schemes faster than the revenue can shut them down.
The reality is that shedding light on companies’ tax arrangements will usually reveal that all is perfectly legal and above board. While it is the case that they may be forced to do in public what they formerly did in private, when it comes to a choice between pleasing tax campaigners and substantially lowering their tax bills, multinational corporations are going to elect to continue to do what they have been doing all along. Despite all of the adverse publicity that Starbucks suffered as a consequence of its tax affairs, its global profits grew by 22% in 2014-15. Clearly the benefits of their existing tax structures far outstrip any potential losses resulting from adverse publicity. Starbucks cafes continue to be stuffed with bearded, skinny jeans-wearing Guardianistas.
If you want to force Google and Starbucks to pay more tax in the UK then we need to change the substantive rules contained within Double Taxation Conventions. Tax transparency will achieve nothing.