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Do you really want tech companies to pay more tax?

When you're old and gray, the national debt is someone else's problem

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World+dog is grumpy with Apple, Microsoft, Google and plenty of other multinational companies, because they do legal-but-tricky things to avoid paying tax.

But you, dear readers, might have a good reason to let them all off the hook, because you probably own shares in at least one.

There's a good chance you don't know about those shares. For your ignorance, thank favourable tax treatments for long-range retirement savings. Governments the world over have figured out that if you retire on your own dollar/pound/euro/triganic pu, the state will eventually spend less providing you with an income once you're too old or ill to do so yourself. Which is good, because we're all going to want a LOT of health care services and they're not getting any cheaper.

Most of us outsource management of our retirement savings to professionals, who are generally fond of the likes of Apple and Microsoft because they pay reasonable dividends and are clearly going to be around for a while. Shares of big blue chip companies therefore make their way into many balanced investment portfolios.

Your retirement savings probably are not hugely exposed to tax-tricking technology companies, but let's not be naïve and assume assume the steady-dividend-paying or high-growth companies institutions in other industries aren't awake to the same tax tricks for which Apple et al are being criticised.

If, as as looks increasingly likely, governments band together to make all tricksters pay more tax, profits at the companies you've invested in will take a hit.

It's not hard to see why governments are working together. Australia's Deputy Treasurer has gone on the record backing figures that say Google Australia may have paid $AUD780,000 tax on revenue of around $AUD1bn. Australia's Company Tax rate is 30 per cent, so even if Google paid $AUD100m, it would be a nice boost to Australia's bottom line.

Even $AUD100m would be welcome in most other nations, which run budget deficits to help pay for roads, schools, hospitals, PRISM or its local equivalent and so on.

Clawing back a few billions a year from naughty tax-minimising corporates is therefore good politics if nothing else.

But what if doing so also robs pension funds of the equities they rely on to help you accumulate enough coin to enjoy a comfortable retirement? (Let's also ponder, as an aside, if sporadically profitable outfits like Amazon are even viable without legal-but-tricky tax practices. How ready are you to give up cheap books and cloud?)

Financial market types we chatted to about this scenario offered us two possibilities:

  • Share prices are really an indicator of future earnings. The market knows a tax crackdown is coming and has priced that in already.
  • The mere fact that management were clever enough to come up with tax minimisation schemes in the first place means the markets have priced in their ability to do something that keeps profits where they are even if the world gets its act together on transnational tax

Vulture South has no ideological barrow to push here beyond fear of being a scrooge of a grandad when the time comes. We do, however, like to stir the pot and hope that the fund managers in control of our own retirement savings have a Plan B in case the companies they've invested in are made less profitable and/or valuable by international legislative fiat.

We suspect they don't: despite saving conscientiously your correspondent's retirement account balance took a fearsome hit thanks to the events of 2007 and 2008, a common fate that may yet see the whole system go titsup. ®

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