Big name companies have faced a lot of criticism from the media about the low taxes they pay in some countries.
Lately, the Organisation of Economic Cooperation and Development (OECD) has finalised a set of recommendations to stop base erosion and profit shifting (BEPS).
The rules are aimed at curbing companies such as Apple, Facebook and Google from making profits in one country and moving the money to another country which charges a lower rate of corporate taxes.
Facebook paid £4,327 corporation tax in the UK in 2014 on revenue of £224 million.
Many other international corporations pay little or no tax in the countries where they earn most money.
BEPS and profits
Although BEPS is a taxation issue, the move to make companies hand over a larger slice of their profits will also affect investors.
Dividends are paid out of profits and one reason multinational corporations make such large profits to pay healthy dividends is that they pay low amounts of tax.
BEPS rules will come in worldwide and reduce the opportunity for tax avoidance for companies, but the loosely worded agreement between OECD countries includes opt-outs and ambiguities.
The OECED represents 38 leading developed nations out of 196 countries in the world, still leaving big companies with places to hide their cash, although more than 100 have expressed an interest in joining the BEPS network.
Undoubtedly, a more unified approach to corporate taxation and less opportunity to hide money will result from BEPS, but the rules still need tweaking to make the tax net more watertight.
Ethics before dividends
Now is a time for shareholders to stand up and be counted.
Ethical investors should shun companies they avoid paying their taxes because they are harming the global economy with their selfishness.
Wherever they make their money, the taxpayers and citizens are short-changed because taxes that could go to paying down national debt or funding much-needed health or welfare services is whisked off overseas.
This particularly hurts the poorest countries, whose money is poured onto Apple’s reported £118 billion pile of cash.
Turning a blind eye is not good enough. Shareholders should do the right thing and put ethics before dividends.
