Those who oppose the UK Uncut tax protests argue – as the new head of the CBI did
in the Observer today – that a company has a duty to be “tax efficient”. In saying this
What are the rights, duties and responsibilities of any company? To ensure
shareholders are correctly rewarded and to act in the right way for the organisation.
Part of that is to be tax efficient. That’s reasonable and appropriate.
He’s wrong. As the Tax Justice Network has argued:
Companies and rich people can locate wherever they are “tax efficient”. Ordinary
people lose out from the process. There is a term for this: its called the Bono
Defence. Named after the Irish rock musician whose band shifted its tax base from
now bankrupt Ireland to the Netherlands in the name of “tax efficiency”, the Bono
Defence provides stark warning that tax dodging doesn’t promote better economics; it
promotes failed states.
That’s a big claim, but one that is justified. Those like Bono and the CBI, and others
from business and the right wing who argue tax efficiency is simply tax avoidance
and tax avoidance is legal and so acceptable have entirely missed (or deliberately
ignored) some enormous ethical issues when making their claims. For a description
of what tax avoidance (and some of the other language used here about tax) means I
refer you to my blog but the big issues can easily be explained.
First, just because something is legal does not mean it is ethical. Think apartheid in
South Africa or even slavery in 18th century England and move on from there.
Second, remember that when you avoid something you go round it. That’s what tax
avoiders do. They go round the law. How on earth can anyone, anywhere claim that
getting round the law is ethical?
But perhaps most important is the fact that a limited liability company gives its
shareholders in whose interest Roger Carr says it must be run the most phenomenal
economic privilege: they cannot be sued for the debts the company incurs if all goes
wrong even though they get all the benefit if things go right. That’s an astonishing
privilege. It is not a right. I stress, it is a privilege – and one that is granted by
parliament on behalf of the people of the UK.
The privilege carries with it at least two implicit responsibilities. The first is to
account for how the privilege is used – which means putting full and proper accounts
on public record so we can know exactly what our companies are up to. The second
obligation is to pay for the privilege – and that means complying fully and willingly
with the tax (and other) laws passed by the UK parliament that creates them using
exactly the same authority that they use to grant the privilege of limited legal
liability. Of course these two obligations are also related – the accounts must properly
explain how much tax is paid.
In combination these observations puts paid completely and utterly to Roger Carr’s
argument that the company has a duty to its shareholders to be “tax efficient”.
That’s not true. It has a duty to society to be tax compliant in exchange for the
benefit of limited liability granted to its shareholders.
That then requires that companies be tax compliant. Tax compliance means seeking
to pay the right amount of tax (but no more) in the right place at the right time
where right means that the economic substance of the transactions undertaken
coincides with the place and form in which they are reported for taxation purposes.
Tax compliance is a million miles form tax avoidance. Tax avoidance is about reducing
a tax bill come what may without breaking the law, and not caring who else has to
pick up the bill. Tax compliance is about trying to pay the right amount of tax, but
no more. The last bit is important: no one has to voluntarily pay tax. But no one has
to use a tax haven or a loophole either when the result is that the tax not paid by the
company and its shareholders as a result will be shifted onto ordinary working people
instead (and for the pedants who say this assumes tax is a zero sum game, my answer
is it certainly looks like it is from all the evidence over recent years of tax burdens
shifting from capital to labour).
So, in that case what is UK Uncut doing? In summary it seems to me it is doing three
things. First it is trying to uphold parliament and the ethics of democracy – including
voluntary compliance with the rule of law. Second it’s asking that people, and
especially large companies, comply with the law – and not avoid it. And thirdly it’s
saying that there’s a contract between the people of the UK and the people who own
companies which is implicit in the granting of limited liability and that some who
use companies are acting in breach of that contract. That is unacceptable and all UK
Uncut are saying is that it’s time corporate UK honoured the obligations it has to fulfil
in exchange for the privilege it has been granted.
Seen in this way it’s extraordinary that anyone can object to such a campaign. If ever
there was a campaign that Tories should be turning out in force to support it’s this
one, largely run by young people, that demands that people comply with the law and
respect parliamentary democracy.
So the real question is, if they aren’t doing that, then why not? Could it be that
they’re on the side of those who are in breach of their contract with society?