THE BLOG

Time To Get Tough On Tax Avoiders Or We All Pay

05/12/2017 17:08 GMT

Three cheers for signs, at last, that the Government is getting to grips with multinational tech companies and their tricksy ways to avoid paying much tax in countries where they operate.

But will they succeed, particularly in finding an international consensus on how best to do it? I wonder. The review just announced by The Treasury is a promising start.

One key idea being floated is to tax the number of users that online sites harvest, thus elegantly bypassing any need to deal with the whole edifice of clever mechanisms and manoeuvres that turn profits into a magic vanishing trick. A package of related ideas, such as taxing turnover, also seem designed to simply cut out the clever clogs with a calculator.

The review is at its heart a formal acknowledgement by Government that international arrangements for taxing international firms are simply not working, and certainly not keeping pace with the growing global economy, let alone the irritation felt by electorates. It is interesting to note that the UK Government has indicated a willingness to go it alone to tackle multinational tax avoidance if global initiatives don’t progress soon.

The idea of a tax on users seems basically fair, too, as well as practical. I suspect most people will support the idea that firms should be taxed where value is created, not at the distant tax haven to which, with a wave of that wand, it is magically assigned. If number of users is the starting point for, say, the advertising revenue many tech sites rely on, then it would seem logical to make that the starting point for deciding what’s owed.

However, clamping down on avoidance by multinationals is a very big challenge, not just because of their arrangements, but because they have huge political power. Bluntly, they can switch between countries at, almost literally, the press of a button. No politician wants to be on the wrong end of that and its implicit threat to jobs.

We should hold our nerve anyway, set a standard even if others won’t. The enormous value we get from our digital age, in work and personal terms, cannot disguise the fact that there is also now a serious impact on the tax raised in many countries, and largely from the tech advance and changing consumer spending patterns which they have enabled.

Taxes are what pay for all our public services, which is the glue that keeps society together as both civil and protected. We cannot, should not, accept that rights, expectations and advances won over several generations, and often in the teeth of established opposition, should be squandered because of a failure to collect reasonable amounts of tax from the latest economic gear shift.

Without action to tackle tax avoidance we risk a perfect storm: an era of low economic growth, and therefore falling tax receipts, as more and more of what revenue is being generated by firms is syphoned to low tax havens abroad. The Government is right to act, unilaterally if necessary.

A Treasury review is not a conclusion, so we should be careful about cheering too loudly. But it does seem to be a start, an implicit acknowledgement that something has to change to make firms pay a reasonable amount of tax on what they earn and where they earn it.

We should not mistake a time of digital plenty for real plenty. The reality for most people is stagnant incomes, stretched public services and economic anxiety. Unfortunately, none of these things can just be deleted and sent to the trash folder. If only.