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Google, Apple, eBay shouldn't pay taxes - people should pay taxes

And we'll all be richer as a result

Internet Security Threat Report 2014

Secondly, since when was obeying the law suddenly such a heinous act?

Now onto my final point: the difference between tax avoidance and tax compliance. We all know what tax evasion is, that's the breaking of the law that puts you in the clink.

Tax compliance is said, by some, to be doing exactly what the politicians wanted you to do when they passed the law. Tax avoidance is using the law to do what the politicians didn't want you to do.

Personally I reject that distinction: if our rulers are too stupid to write decent laws that can't be twisted then more fool them. But this is the distinction being used by pressure groups, such as the Tax Justice Network, that is fuelling this rash of stories about what Google and chums pay in tax.

Which brings us to the question of whether flogging stuff through Ireland is tax compliance or tax avoidance. And the thing is, even by the standards of the Tax Justice Network, this is tax compliance.

For the rules about corporate taxation across intra EU borders are set by the EU. And, amazing though it may seem, some in the EU know the aforementioned effects of corporate tax. Companies don't pay it, and it's also a very expensive way of collecting tax. Better, by far, to do it with some other mixture of taxes, such as VAT or land taxes.

But there's a great temptation for politicians to assume that everyone's too dumb to understand these points. Thus we end up taxing company profits because everyone thinks it's someone else getting stung for a change.

So, when the EU system was set up there were a number of things put in place. Any company can, indeed should, have only one corporate base in the EU and then sell to all 27 countries from those headquarters. Further, any company must be allowed to change or move that base without hindrance, just as any individual can bugger off out of a tax jurisdiction. And they will be taxed on their corporate profits from that one base: no one else gets a sniff at their tax. It doesn't matter where the sales are nor where the people are; where the brass plate is is all that matters.

Please do note, this isn't a failure of the designed system: this is what the system was designed to do. To allow, indeed tempt, corporations to shift stuff around so as to reduce their corporation tax bills. This, in turn, forces governments to keep their corporation tax rates low: for it's a very bad tax, d'ye see?

They're most certainly not doing tax evasion. Everyone agrees that they're not breaking the law. But they're also not doing tax avoidance. For they are doing exactly what the designers of the system, the people who set up the EU corporate tax system (largely Fritz Bolkestein, I believe) intended and desired that they should do. They are being entirely tax compliant by pressuring governments to keep corporation tax rates low for fear that the tax base will bugger off. Something that over the long term makes all of us rather richer. ®

Bootnotes

* The capital doesn't all flow out for the shortage will lead to returns rising until they are at the world average again. And it's not quite that simple either. For as Adam Smith pointed out in his only use of “invisible hand"** in Wealth of Nations, even if foreign profits are higher some will prefer to invest domestically, just 'coz, and will “thus be led as if by an invisible hand” to benefit their fellow countrymen.

** No, really, this is the only use. Nothing to do with the perfection of market systems or anything like that.

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