Agreement of People website

Sign here if you support the campaign for a real democracy


Our blogs


 

AWTW FacebookAWTW Twitter

Your Say


 

 

Corporate tax scams you may have missed

Protests outside Vodafone shops at the weekend amid claims that the mobile phone company had been let off most of a £6 billion tax bill, highlight the fact that the major corporations ultimately call the shots at the expense of the ordinary taxpayer.

Vodafone’s case is just one example where transnational corporations (TNCs) deploy vast resources to minimise, avoid, reduce or eliminate tax liability. HMRC, who cannot compete at the same level of expertise, usually come off worst when they launch a challenge.

Take the case of food and drinks giant Cadbury-Schweppes. It set up a shell company in Ireland with no office and no employees but with £500 million in cash, which was allocated to different parts of the group. The incentive was a simple one. Corporation tax in Ireland is 12.5% – less than half the rate in Britain.

Under what are known as the Controlled Foreign Company rules (CFC), HMRC tried to collect the missing taxes. But after a series of cases, the European Court of Justice found in favour of the company on the grounds that member states could not block corporations from operating in different parts of the European Union. In 2008, HMRC lost against Vodafone in a similar case. Vodafone was thought to owe about £6 billion; it eventually settled for £1.2 billion.

An extraordinary case highlighted by BBC Radio’s File on Four is that of the Alliance Boots pharmacy and health products group. It is one of more than 27,000 companies registered for taxation purposes in the Swiss region of Zug, equivalent to one for every man, woman and child.

The reason that Burger King, Boots and other corporations are in Zug is simple – the rate of tax on corporate profits is 8.8% compared with 28% in Britain. After a series of mergers, Alliance Boots was eventually taken over by a private equity firm. The company used to pay around £120 million a year in taxes in Britain. One expert reckons the company paid about £14 million last year – an effective tax rate of just 3% on its £450 million plus profits.

Companies can also reduce corporation tax rates by using transfer pricing, which sets the price at which one unit of a group sells goods or services to another unit of the same group in a different tax jurisdiction. Google used this device to avoid virtually any corporation tax on its £1.6bn advertising revenues in Britain.

The capitalist state and governments of various hues are entirely complicit. In Britain, the corporation tax rate was 53% in 1983. It’s now heading for 24%, while some suggest that because of transfer pricing scams, the effective rate is 21%. During the credit-fuelled boom, corporate tax revenues rose to help pay for public spending. They collapsed in 2008 and helped accelerate the budget deficit. Now ordinary people face horrific cuts in services, jobs, wages and conditions as a result.

Professor Prem Sika, of the Centre for Global Accountability, Essex University, points out that “taxation is targeted by financial engineers who regard it as an avoidable cost, rather than a return to society on the investment of social capital (education, security, healthcare, legal system, etc.).”

Globalisation, of course, freed corporations from territorial jurisdictions and facilitated the creation of subsidiaries, joint ventures, special purpose entities and trust to benefit from low taxes and subsidies.

In the Dark Side of Transfer Pricing, Sika adds: “Reducing or eliminating taxes is attractive to corporations as it boosts shareholder value, post-tax earnings and returns to shareholders. It also increases company dividends and executive rewards as these are linked to reported earnings.”

In other words, for the corporations the whole issue of taxation (or how to avoid it) is an essential aspect of capitalist accumulation itself and not some form of aberrant behaviour. There can be no semblance of tax justice so long as the profit system rules the roost.

Paul Feldman
Communications editor
1 November 2010

Bookmark and Share

Comments now closed

We do not store your name or email details, but may inform you if someone responds to your comment.

If you want weekly update messages please indicate and we will store your details in a secure database which is not shared with any other organisation.

Your name

Your E-mail
(we will not publish your E-mail)

Do you want Updates?