Multinational companies are under fire for managing their taxes in such a way that they can pay the least possible – but the wrong people are in the stocks.
Rather than grill corporate executives in front of the cameras while sitting on a committee at Westminster, the MPs ought to swop seats and explain why corporation tax laws are so lax.
Any and virtually every multinational will skip away to a more friendly and inviting tax jurisdiction given the chance.
Even HM Revenue & Customs raised a stink a few years ago when leasing back offices from an offshore company to try to save some taxpayer money.
Taxpayers have heard Starbucks, Google and Amazon pay little or no tax in proportion to their UK revenues or profits.
Not illegal
But that’s not illegal – British tax laws are drafted in such a way that firms are encouraged to find reasons not to pay tax.
Companies have the same tax rights as individuals. They are free to scrutinise the law and to push the envelope to save their tax pound – as long as they do not break the law.
MPs who devised those laws cannot then turn around and play the ‘here, here old boy card’ because they can see what they are missing.
Tax is a constant war, with HMRC lawyers on one side sticking fingers in the legislative dyke, while corporate lawyers are on the other side probing the law for weak spots and loopholes.
The principle is no different to an investor taking up the extra tax breaks offered by the seed enterprise investment scheme (SEIS) rather than pay tax on the money going in to the investment.
The lawmakers are in a lose-lose situation. They know British companies cannot compete with their multinational competitors who salt their money abroad to pay less tax.
Fair share
However, they are scared of changing the law to fairly tax these concerns on their local profits for fear of them leaving our shores and taking valuable jobs and investment with them.
One solution, according to the Tax Justice Network, is for multinationals to draw up one consolidated set of accounts for global trading and then to report the percentage of turnover in each country that contributed to those profits.
Each company would then tax the multinational at local rates on that percentage of profits.
So, if Google turns over £5 billion in the UK and makes £100 billion worldwide profits on a £500 billion turnover, then the British government would tax £1 billion at the prevailing rates and leave other countries to tax the rest.
That way, where the company is headquartered is irrelevant and fair play is seen to be done – especially in poorer countries which generate big profits for the multinationals and get nothing back.
