Like it or not, highly profitable companies operating in the UK but paying little or no tax are doing nothing illegal. So it’s time for snarky politicians to either do something about it or shut up and stop making parliament appear absurdly anti-business.
The debate over tax avoidance is becoming increasingly absurd, driven by a committee of MPs who have demonstrated that they know little about how taxation actually works. And yet they still think it acceptable to insist businesses, like limited company contractors, should volunteer to pay more tax than the law requires, and professional advisers should act against the best interests of their clients.
According to the latest outburst by the chair of the Committee of Public Accounts (better known as the Public Accounts Committee, or PAC), Margaret Hodge MP, Google is doing “evil” because it uses legitimate tax planning strategies to minimise its UK tax. Google’s Matt Brittin responded: “Tax is not a matter of choice; tax is a matter of following the laws that are there internationally.”
In his speech to Oxford Business School, in which he called on politicians to avoid the moral debate, Confederation of British Industry (CBI) president Sir Roger Carr echoed Brittin’s response. “Tax payments are not and should not be optional. Tax should not be viewed as a down payment on social acceptability,” he said.
“Tax avoidance cannot be about morality – there are no absolutes. It is about responsible judgement, finding the balance between shareholder fiduciary duty, stakeholder responsibility, social awareness, and corporate reputation for acceptable behaviours.”
The PAC has also roundly criticised the tax profession for providing its client base with the best possible tax advice, as one would expect from professional advisers with a duty of care to their clients. After taking evidence from representatives of the ‘big 4’ – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – that they no longer offer aggressive tax avoidance schemes, the PAC reported that: “We believe they have simply moved to advising on other forms of tax avoidance which are profitable for their clients.” Erm, isn’t tax planning what accountants are supposed to do?
So, why does this committee of MPs think it can instruct businesses to do more than is legally required of them, and pay more tax than they should? And although many of the committee have worked in the ‘real world’, successfully run businesses and even worked for members of the ‘big 4’, others express a wilful ignorance of how taxation works, how tax legislation is created, and how laws are drafted.
Why should company directors with a legal responsibility to maximise returns for their shareholders voluntarily act against those responsibilities? Why should professional advisers, charged with a duty of care to act in the best interests of their clients, deliberately act against their clients’ best interests by advising them to pay more tax?
The response from the business world, tax profession and financial media has been increasing derision at the PAC’s continuing fumbling over taxation. It has also been along the lines of: “You MPs make the laws in this country, so if you don’t like them, who is better placed to change them than you?”
In his speech, the CBI’s Carr told politicians to “avoid the moral debate and work together to fix the rules internationally”, warning that “as politicians pursue fairness it is important that any criticisms are grounded in fact and hasty solutions or political point-scoring do not trigger long term unintended consequences”. He called for “consultation with the business world” as a “critical part of the design process and ultimately the business buy-in”.
That’s not what Hodge is demanding when claiming that “HMRC appears to be fighting a battle it cannot win in tackling tax avoidance” and that the taxman “is always constrained by resources”. If HMRC needs more resources to collect more tax, it’s the responsibility of MPs to ensure HMRC has them.
And when tax legislation has been changed, both at home and abroad, then there may be less scope for companies to avoid tax. But right now, the law is what it is, whatever the PAC might think. Company directors, contractors and professional advisers are only applying their expertise, as required by law, to ensure they and their clients comply with tax legislation, and nothing more. The responses and actions of the PAC are currently adding nothing to the tax avoidance debate but further absurdity.
Taxpayers feeling the financial pain of austerity have every right to call on highly profitable companies that pay little or no UK tax to pay their “fair share” – whatever that might be. But it is as absurd to expect them to voluntarily choose their own higher tax rate, as it is to expect MPs to hold those companies to account without actually legislating for it.
We’ve had enough of snarky words and grandstanding from the PAC; now’s the time for serious proposals that government can discuss with other EU and non-EU countries, and that parliament can eventually legislate for.