Tax avoidance is bad business, not immorality

6 12 2012

On Monday evening, Newsnight featured an intense debate about the rights and wrongs of corporate tax avoidance. The two sides vigorously put their cases, but I felt that for all its ferocity, the discussion never really came to anything. 

Of course, those who defend Google, Amazon, Starbucks and the many others accused of ‘immoral but legal’ tax avoidance are right in many ways. It is unreasonable to ask companies to pay more tax than they owe (Jane McCormick of KPMG astutely pointed out as soon as they become voluntary, they cease to be tax). Indeed, they have a legal responsibility to make their affairs as tax efficient as possible.

And yet, Giles Fraser and Ellie-Mae O’Hagan both also make a convincing argument: multinational corporations rely on the state to educate their workforce, to keep them healthy, to ensure the security of their assets. It is only right that they should make a fair contribution to funding all of those things. The alternative, Amazon educating our children from birth in return for indentured ‘employment’ is hardly appetising either for the public, or for Amazon.

Both these positions are made even more acute by the challenging economic circumstances in which we all find ourselves.

Of course the truth is, as ever, rather more subtle than either side would have us believe. I suspect that the solution is unlikely to be found in fresh legislation. More likely, we need to look carefully at how big companies are grounded in the communities they serve.

I am under no illusion about the often-brutal relationships between landowners and tenants in the Nineteenth-Century, despite its rather quaint depiction in Downton Abbey. Nevertheless, Julian Fellowes has captured one undeniably positive feature of that arrangement – the person making a decision would almost invariably know by name the person it will affect.

Whether the rest of us like it or not, Google, Starbucks and Amazon are making rational decisions for the benefit of their shareholders. The trouble is that the benefit may only be a short-term one. A failed economy helps nobody, but multi-national corporations won’t be able to see the impact of their decisions because they are too far away from where those decisions matter.

There’s an excellent television programme called ‘Undercover Boss’ which follows a well-established plot. A senior executive spends a few weeks undercover working at the lowest level of their organisation, stacking shelves, driving lorries or flogging shoes – whatever it is the company does. As the boss builds relationships with their colleagues/employees, so they build an understanding of the challenges they face, and how company policy could be improved. They then come back to the boardroom with a series of changes to implement.

What I find interesting about the programme is that the boss never comes back with changes to be made on a simply empathetic basis. Their ideas are always supported by a powerful business case, and they usually involve looking after employees better, to allow their talent to flourish.

Knowing and understanding what is happening on the ground is crucial to making good decisions. Anybody standing in a coffee shop can see that it is in Starbucks’s interest for their workforce and their customers to be educated, healthy and wealthy; for the road outside their shop to be well-maintained; for there to be policemen making the area feel safe.

We need to build the business case for paying a fair share of tax. The best way to do that would be to ensure all corporations are closely in tune with the communities they serve.

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