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Economics

Published on June 10th, 2013 | by Sanat Misra
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An Off-Shore Tax Game

“The avoidance of taxes is the only intellectual pursuit that still carries any reward”. Attributed to Keynes, who as you may know had a special view on taxes and their ability to ‘pump prime’ the economy. The recurring story of corporate tax avoidance questions the ‘rewards’ tax avoidance actually brings. Recent news of corporate giants avoiding tax with the aid of offshore tax havens in Ireland and other countries isn’t something new – It’s happened before with Google, Amazon and Starbucks and no measurable reforms to the tax system grew out of that. But, with increasing concerns of diminishing tax revenues and pressure to balance budgets, maybe these concerns will spark lasting reform in our tax system.

Corporations like Google, Starbucks, and Amazon are able to avoid paying taxes by setting up offices in different countries with lenient corporate tax rates compared to the UK. This isn’t technically illegal; tax evasion is illegal. Tax avoidance is a legal means of using the tax code to avoid certain taxes. It’s not too difficult either, considering the perplexing complexity of tax legislation in this country and the speculation that officials from the Big Four accounting firms (who advise companies about taxation) have a close relationship the HMRC; having detailed knowledge and working of the HMRC can certainly have its benefits when working with companies who aim to maximise profits and increase value for shareholders.

Arguably, this lies in a ‘grey area’. These corporations do pay tax (but end up avoiding a lot more) and I’m not sure the issue is of morality here. They do have a moral compass; they host a range of events and activities to show their commitment to social corporate responsibility, like Starbucks’ activities. Another example is Google, who recently displayed their commitment to renewable energy; ‘going green’ with a Swedish wind farm to power their data centre in Finland.

Keynes may have been hinting at strangling effect of the tax code on company practices that force offshore registrations but it’s time to simplify the tax system and it’s not too much to ask (it may, however be too naive). It’s hard to argue against structural change and a global consensus to tackle the issue. Then again, on the horizon lies a dilemma for politicians; a simpler tax could mean a more restrictive tax code. Global cohesion is difficult to peruse with threats of emerging markets undercutting developed nations to spur inward investment. In the attempt to appease the public outrage over tax avoidance, the government may drive away investment. In retrospect, this is unlikely considering the ostentatious nature of the British market place; producers have and will always centralise in this country to gain access to the British consumer.

Recent news clearly highlights the need for structural reform and the political battleground is gaining momentum to tackle this issue. But it is worth noting that we can’t expect reform to completely absolve problems within the grey areas of country tax codes. Trade-offs will always exist; we can try to fix the tax system, to coax a more comprehensive tax code, but we need to be prepared for inevitable adjustments in terms of product pricing and choice as well.

I am not completely defending the tax practices of such companies, nor am I condemning them. Essentially, both the corporate giants and government officials need to take responsibility of the roles they play and attempt to implement a simpler, more cohesive and more applicable tax policy.

Please note that all blog posts do not represent the views of Catch21 but only of the individual writers. We also aim to be factually accurate and balanced across all content taken as a whole.

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About the Author

Sanat Misra

graduated from the University of York in 2012 where he read Politics, Philosophy and Economics. He is starting a masters in International Political Economy at Warwick in October 2013. He is interested in political and economic issues in the domestic and international stage. Follow him on twitter @sanmisra



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