Amazon has been branded the “worst out of big six US tech companies” for “aggressive tax avoidance” by a recent report published by UK-based campaign group Fair Tax Mark.
The report, which claims Amazon, Apple, Facebook, Google, Netflix and Microsoft have collectively avoided a total of £75 billion in tax globally over the last ten years, singles Amazon out as the worst offender.
Tax avoidance by large multinational companies triggers increasing resentment amongst the general public, but is it right to expect these companies to pay more tax than they are required to by law? Do they not have a legal duty to pay as little tax as possible, through all legal means at their disposal, so as to provide the best value for money to their shareholders?
Indeed, surely a company’s number one duty is to serve the interests of their shareholders, and thus it is then surely their duty to arrange their financial affairs in a way that allows them to pay the minimum rate of tax, to the extent allowed by law, to provide maximum profit for their shareholders?
After all, we live in a capitalist economy, and companies exist to make money for their owners, not to provide maximum ‘good’ in the world, or maximum tax revenue for governments.
Why pay more?
Arguing the rights and wrongs of tax avoidance by large companies gets political and philosophical quite quickly; however, whatever our political beliefs and values are, we all accept the reality of the current system we live in, and the rules that govern that system of free market economics. Companies fundamentally don’t exist to ‘do good’. They don’t have consciences. They are merely instruments of wealth creation and accumulation, which, as a by-product provide us with the material goods or services we might need or desire.
That being said, surely companies do have a responsibility to be ethical in their practices, including (but by no means limited to) paying a fair amount of tax in the countries they do business? They benefit very much from the infrastructure of the countries they operate in, so of course it’s only fair that they contribute. But who decides what is a fair amount of tax to contribute, or more broadly, who decides what is ethical for a company, and furthermore, who should enforce these ethical standards?
Should it be for governments to regulate? Should the industries regulate themselves? Should it simply be down to customers to vote with their feet and to take their business elsewhere if they find a particular company’s practices unacceptable ethically? A libertarian or anarcho-capitalist might argue for the latter, but you only have to look at various multinationals’ behaviour over the last few years to see that they often don’t possess great ethical standards, and their customers often don’t show a willingness to punish them by taking their business elsewhere.
The Volkswagen Group cheated on emissions tests for decades, whilst in 2009 even advertising their TDI engines as being ‘clean diesel’ despite pumping out poisonous NOx far above European and American environmental regulations, yet they remain the largest car manufacturer in the world.
Moreover, HSBC was caught red handed laundering billions of dollars of drug money for hideously violent Mexican cartels, paid a token fine of what amounted to a few weeks worth of revenue, and still made $12.8 billion in profits last year while remaining Europe’s largest bank.
Amazon was well known for tax avoidance long before this latest report came out, not to mention treating their warehouse workers appallingly, with one Channel 4 documentary revealing that employees in one of Amazon’s UK warehouses felt forced to urinate in bottles to avoid being sanctioned; yet customers continue to buy from them because their prices are low and they are incredibly convenient.
If we are to have taxes, and generally the political consensus is that we should, if only at the lowest rate possible to cover the bare essentials of a functioning state, then it must be for governments to decide how much tax big companies like Amazon are liable to pay. The current tax code is cumbersome, overly complicated and totally unequipped to deal with modern multinationals and tech companies in an age of tax havens, cross-border retail sales and the internet.
Not only does it allow large tech companies to avoid paying a fair share of tax on their earnings while the government struggles to fund public services like the NHS and social care, it also creates an uneven playing field as far as competition goes.
Amazon paid 10% CT over last ten years
Amazon is said to have paid around 10% corporation tax on their UK profits over the last ten years, whereas the bookshop Waterstones paid closer to 30%. It’s obviously unfair that a company like Amazon can pay a reduced rate of tax when other companies don’t have the same ability to avoid taxes, putting them at a commercial disadvantage.
Waterstones are already at a disadvantage in the modern age, relying on expensive bricks and mortar stores, with the ensuing rent and business rates. Unlike taxes though, these are the cost of doing business, and innovation probably shouldn’t be held back in the name of protectionism. On the other hand, tax rates that favour one business over another don’t foster innovation, they just hinder competition, often to the detriment of small to medium sized enterprises.
Again, it is up to the government to set laws that bring in taxes in a way that doesn’t favour certain companies over others. A more modern and simplified tax code is much needed to collect taxes in the internet age, creating that level playing field. Ideally, nations belonging to the OECD and/or EEA would coordinate their tax codes and clamp down on tax havens, to create an environment more conducive to free trade, not to mention fairer taxes. However, that may be a little unrealistic given the current political climate and trends towards economic nationalism and protectionism.
It wouldn’t be a fair argument that either a company or an individual should pay more tax than they are legally bound to; a company or an individual is indeed perfectly entitled to arrange their finances so as to comply optimally with the tax code in order to minimise their tax burden.
That was at least the opinion of the respected US Appeals Court Judge Honorable Learned Hand, who was ostensibly a supporter of economic redistribution, voting for Democrat Franklin Delano Roosevelt in 1940 and again in 1944, being in favour of an interventionist government policy and believing large scale spending by the government was necessary to recover the US economy following the Great Depression. He was also however, wary of government overreach, and held the following view regarding taxes, which is as relevant today as it was when he spoke back in 1934:
US Appeals Court Judge Honorable Learned Hand
“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose the pattern which best suits the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”
If the government is to demand taxes, then companies are obligated to pay what is demanded, but not a penny more. Tax avoidance is not tax evasion. Tax evasion is both illegal and dishonest. Tax avoidance is simply the practice of organising a company’s finances so as to avoid paying extra, unnecessary taxes. It must be recognised that it is a company’s right, as well as being in their very nature, to avoid paying more taxes than is absolutely necessary.
If a company, in accordance with the wishes of the citizens of the territory in which it does business, should be expected to pay a higher proportion of its profits in tax, it is the job of the government to create a set of rules, in order to tax companies in a way that is fair and is not advantageous to one company over another, and is simple enough that it can actually be understood by a majority of the territory’s educated adults.
Companies like Amazon should continue to be scrutinised by the press and the general public alike, to highlight their poor ethical standards, whether it be their treatment of their workers or their anti-competitive practices. But when talking about tax, the finger should be pointed firmly at the government, for whilst it is clearer than day that Amazon among a whole heap of others are paying rates of tax that are minimal – token even – in comparison with more traditional small to medium sized enterprises, it is only the government who can legislate an appropriate system of taxation to get this new breed of companies to pay a fair share. You can’t blame them for acting like companies, for that is what they are…