The 'Hollywood Accounting' that goes on in these multinationals is quite spectacular. Moving cash around between their various subsidiaries and national companies in such a way as to pay the least possible tax and to make strategic losses where convenient, all the while announcing record profits.
I can see why you would try it on, the sums involved have to be huge, but it is fundamentally immoral to operate like that.
It's not fundamentally immoral; it's more of a tragedy of the commons.
All these loopholes are perfectly legal and companies actually need to exploit them to remain competitive.If they didn't then any competitor could decide to do this and could earn 30% less and still make a bigger profit.
It would of course have been great if the representatives had been self-aware enough to agree that they might not be taxed effectively in a global market and that they would be willing to co-operate with aligning global tax incentives in a way that leaves it a level playing field for all competitors; but that's probably a bit much to ask ;)
It's better to treat matters of law as orthogonal to matters of morality, since the latter depends very much on the subjective judgment of the observer.
Example: A company, acting "morally" as you define, pays more tax than it is required to under the law. In so doing, it incurs a loss so severe that it must cut staff in order to remain viable. Among those employees cut are some of the more vulnerable - those with low savings, poor health, or babies on the way.
Has the company acted morally?
Consider another issue: Should the same company pay more than its legal obligations in every jurisdiction to which it is subject? How should it allocate its extra giving? What if, in some of those jurisdictions, there's a good chance the extra money will simply go into private pockets via graft and corruption, instead of serving the public good? (There are such jurisdictions in the EU, yes?)
These issues are not as clear-cut as you suggest. It's far better for the tax law to best reflect the morality of the citizenry, and then fully excuse the citizenry (including business entities) from seeking to legally minimize those taxes.
That's disingenuous. You make it sound like your imaginary company goes to extra length to "pay more tax than is required under the law" while it's the complete opposite: these companies go the extra mile to game the system and pay a minimal amount of tax by exploiting failures in the system. There is no "extra giving" to consider, they should just be paying the same taxes other companies are paying.
> A company, acting "morally" as you define, pays more tax than it is required to under the law. In so doing, it incurs a loss so severe that it must cut staff in order to remain viable.
Usually not an issue in this case, since corporation tax covers profits. If anything, corporation taxes encourage greater employment.
At least in Google's and Amazon's case, I'm sure you can add an additional 10% tax on profits without making a dent on the company's competitiveness. They are both extremely profitable businesses, in dominant market positions.
Amazon seems to choose to be unprofitable so they can keep up their revenue growth. If they cut the unprofitable new sectors, they would b profitable, but why bother? Wall Sreeet doesn't care.
In the US a corporation's legal responsibilities are to it's shareholders ... it might be fundamentally immoral but it would be unethical to operate the company against the interests of the shareholders too.
It's the laws that need to be changed rather than blaming the companies for being good at accounting.
I don't follow that line of reasoning. Assuming it's fundamentally immoral, it remains fundamentally immoral for a company.
If a person did it, we'd call it immoral. When it's a group of persons doing it, we'd call it immoral. But when it's one group of persons doing it -- the employees -- in the name of another group -- the owners -- it's suddenly unethical not to do it? I don't get that.
I guess it'd be unethical for the employees to act one way when they know the owners want them to act another way. But if the owners willingly let the company act immorally, then they are themselves acting immorally. Which is, of course, the case.
The problem is that shareholders include everyday people who have money in mutual funds who invest that money in large cap corporations who depend on management of those corporations to maximize their shareholder value at the expense of all outside, non-investors. Including employees, governments etc. as long as it is legal and maximizes long term shareholder value.
It is a fundamental shift in finance theory that occurred about 25-30 years ago. Many people will argue that management should put the shareholders above all else. I think there is a somewhat muted, but real discussion happening in a lot of places that the currently accepted system may not be the best one, but for now, management has a fiduciary responsibility to shareholders.
It's a problem because it spreads out the blame on a lot of people. Management can point to the shareholders. The shareholders argue they each own just a small bit of the shares and aren't involved at all in the day to day business. It's a systemic fault.
Yes, I agree with you. But it is a current fact. I have no idea what the solution is, but when a system works conveniently for so many people it is unlikely to change.
The crazy thing is that people "blame evil corporations" while having almost 100% of their retirement invested in the corporations they dispise without even realizing it.
Unless you have no savings, you are likely a shareholder in a number of companies which are using transfer pricing to save on taxes.
You are much more likely an investor in a unit fund that itself holds shares. As a result you have no say over anything, and pretty much no alternative but to join one of these schemes.
The point is:
You invest in funds that invest in companies that use transfer pricing to minimize taxes.
You could say you don't want to be invested by not investing in mutual funds/ETFs etc.
But, almost every American with savings does invest and is the direct beneficiary of transfer pricing.
You and others could decide to allocate a portion of your capital gains back to the UK government as a gift, but I think that is "very, very unlikely".
[Also] One strategy could be to only choose small cap names, then you are unlikely to hear of any of the "evil" things the corporations you own are doing... Obviously that would create problems with risk in your portfolio.
Would we? It's pretty rare that I hear of someone being accused of immorality for taking every tax deduction allowed by law. If people want to complain about tax deductions, they usually say that the law is bad, not the people who follow it as written.
I was in the UK briefly this summer, but learned nothing relevant to this discussion while there. I didn't know who Jimmy Carr is until this post; it seems that the major controversy stems from the fact that he criticized others for avoiding taxes, then did the same thing himself.
I think countries should arrange their tax rates and accounting rules so that there's little incentive to avoid taxes by moving money around, but I don't think it's in any way immoral to pay as little tax as the law requires. Governments are not charities and do not run on donations.
If a person did it, we'd call it immoral. When it's a group of persons doing it, we'd call it immoral. But when it's one group of persons doing it -- the employees -- in the name of another group -- the owners -- it's suddenly unethical not to do it? I don't get that.
You don't strike me as having a libertarian bent, but that's essentially the argument used to justify taxes as immoral:
If I steal from my neighbor and distribute the proceeds to the community, including my neighbor and myself, it's theft – immoral.
But if the whole community gets together and vote to steal from my neighbor, and his neighbor, and everyone's neighbor, and split up the proceeds – that's suddenly moral?
Point is, not all arguments generalize from "a person doing it to" to a group doing the same thing collectively.
Your mistake is in your assumption: different people have different values of "fundamentally immoral". Different people do not have different values of "illegal".
Sure. That just means people have different moral evaluations of a company's conduct. It doesn't mean people shouldn't or can't sensibly have such evaluations.
It's an interesting conflict, and clearly they do have a duty to investors to maximise their profit. If it was a privately owned company it might be more clear cut.
Absolutely agree the laws need to be changed. I, personally, would be looking to stop the 'convenient' reporting of losses in markets that are actually highly profitable but not tax efficient. There's an interesting comment on the Starbucks press release that coves it quite nicely -
"How can Starbucks tell Companies House and HMRC that its UK business is loss-making but tell analysts in SEC-regulated calls that the UK business is profit-making, without either making misleading financial statements or filing false accounts?"
They aren't the same legal entity - it is entirely possible that the US parent company is profitable and the UK subsidiary loss making (or indeed vice-versa).
That's not what's happening though, there are reports by the parent company that the UK business is profitable, when it suits them to boost share prices, yet reports from in country that there has been a loss so they can minimise taxes.
I agree - it's possible that Starbucks UK is not pofitable, and that the parent company is, or vice versa. But reporting the same thing in different ways to different audiences seems fishy to me!
Good point - I guess if they are saying in their UK tax return that they aren't profitable and the US reports that they are making substantial profits in the UK then that is extremely fishy.
Aren't they just transfer pricing their profits out of the UK to Switzerland and the US?
"Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous."
If I live in the US and own shares of Starbucks, it is much more strongly aligned with my interests for Starbucks to pay me a dividend than to pay that same amount in UK taxes.
Even in a jurisdiction where I might see some benefit from the taxes, I'd probably see more benefit from that same amount of money in my pocket. It's perfectly rational to want to minimize one's tax obligation, especially to foreign governments.
The question of immorality is irrelevant unless it is also illegal. It is the government's fault for putting so many loopholes in the tax code. They knew exactly what they were doing when they put them there, and have just as much culpability as Amazon, Google, and Starbucks.
I would think of it more like 'couponing' than cheating the system.
The companies in question are availing themselves of the laws available to them to get discounts on their tax obligation, just as an individual might claim their children as tax exemptions, and use charity contributions as write-offs.
As you indicated elsewhere, morals and law do not necessarily align, and you are trying to attach morality to a legal obligation here. That companies do the same thing as everybody else does shouldn't be counted against them, especially as it is legal.
That's actually a bit of a myth; companies don't have any explicit legal obligation to maximize shareholder value. In addition, courts tend to defer to their judgment on things such as intangibles; if a company says they're doing X because it's good for the company's image even though it loses money in the short term, a court will generally not second-guess that decision, especially since the shareholders have alternate means to reverse it if they disagree, such as voting out the board. To the extent the shareholders keep the board in place, they're presumed to agree with their decisions on where to take the company. The material that makes for a successful shareholder lawsuit tends to be more about things like favoring one class of shareholders over another, or executives making decisions for their personal gain.
It is in my moral code - Availing yourself of a market and using the facilities and workforce of the UK, without chipping in your fair share (as decided by the people of that country). Sounds immoral to me.
I'm sure if the UK precisely defined what they mean by "fair share", and enforced their own laws regarding companies paying their "fair share", these companies would pay it. Or leave and do business elsewhere. Trying to do business without paying the legally required tax would be illegal, and immoral in your system, but not immoral in any system that views forms of income taxes as evil. (There are a lot of those around.)
There are indeed a lot of people who view income taxes as evil. Many, many people including a lot of people in the UK. But that doesn't stop them being thought of as a necessary evil, and avoidance as worse.
It's quite clear what the intent of the tax laws is, and it's quite clear that announcing a loss to the tax office but a massive profit to your investors is at the very least duplicitous.
tax is a robbery anyway. We only pay it because the government will take away our personal freedoms if they didn't receive payment. Do you honestly think if tax was 100% voluntary people would willingly donate without being coerced into doing it?
Someone out there has a moral code that encourages stoning women to death. Doesn't mean that has got anything to do with anything being as it is a vague and meaningless concept that doesn't inform governance.
> Availing yourself of a market
By which you mean acting as a VAT collection body and sending that money to the treasury for transactions within that market that occured under your business.
> the facilities and workforce of the UK
Would you rather the roads were empty because the people of the UK had no jobs?
There are ways to address this issue as discussed endlessly. But the last thing this is is immoral. It may not be just nor fair, but those do no interact with the morality of a benign government and their laws and regulations. It doesn't help the argument but it is rhetoric that is being thrown around that as much as anything hinders progress on this issue
I didn't claim morality was objective, no need to behave as if I did.
By which you mean acting as a VAT collection body...
What are you trying to say here? That because they collect VAT that's ok and they should be exempt from other taxes?
Would you rather the roads were empty because the people of the UK had no jobs?
False dichotomy. It's not the ability to move profits abroad that keeps people employed in the UK, arguably it sucks money out of the country and is a net loss to our economy.
> I didn't claim morality was objective, no need to behave as if I did.
> it is fundamentally immoral to operate like that.
Sounds pretty objectively-stated to me.
Count me in the camp that disagrees with you. Normal people do all sorts of perfectly legal tricks to pay less income tax. They're not cheating; they're just paying the minimum they're legally required to pay. Same deal for business. Whatever they can get away with without breaking any laws is the minimum requirement. Paying extra tax out of some patriotic duty is illogical, as is not taking advantage of the perfectly-legal loopholes found.
It is not up to the businesses to pay more tax than the current legal framework requires; it's up to lawmakers to amend the tax code so that 'undesirable' loopholes are closed.
Businesses act to maximize profits. There is nothing immoral about this.
Businesses act to maximize profits. There is nothing immoral about this.
I really disagree with this worldview.
When business dump toxic byproducts into water supplies, in places where nobody has yet legislated against that, is it not immoral?
I agree it's up to the lawmakers to change things, by the way, but I don't agree that it's always the right thing to do for companies to walk as close to the line of illegal behaviour as it's possible to get, just to maximise profit.
I agree. It's stunning to me that a bunch of executives and lawyers sat together and decided, we are going to take advantage of the infrastructure and workforce in the UK, but will avoid paying any taxes there, using these clever shenanigans. And because it saves money and is in the interest of the company, it's okay.
That most ordinary people would agree that this is the right approach tells volumes about the society we live in.
These companies are based upon the proposition that the people who own them are not accountable for what the company does. Furthermore, to a large extent the people who operate the company are largely absolved for their actions.
Corporations, like Nicheian supermen, are not subject to ordinary rules. If you were dodging taxes, your ass would be in court, not before parliament.
I can see why you would try it on, the sums involved have to be huge, but it is fundamentally immoral to operate like that.