By: DailyForex.com
Although Daniel Defoe may have been the first to use it, Benjamin Franklin is credited with the popular coinage of the expression “in this world nothing can be said to be certain, except death and taxes.” In one shape or another, they are a necessary evil and a common experience in all our working lives. In the UK, standard income tax is set at 20% and corporation tax is at 23% for businesses with profits in excess of £1.5 million.
Corporation taxes can be lower in one country than another, giving multinational firms incentives to locate there. Such a country may be offsetting direct tax revenues against indirect gains through higher employment and increased spending. A corporation tax rate of 12.5% is levied by the Republic of Ireland and many analysts believe that this was an important factor in the rise of the “Celtic Tiger” economy – which ultimately triggered a property bubble that burst during the global financial crisis nearly bankrupting the country.
Recently, scrutiny is being applied to major multinational companies such as Starbucks; Apple; Amazon and Google which make very significant profits in certain jurisdictions but pay relatively little tax. For instance, Apple is believed to have cash reserves of $145 billion, yet it raised $17 billion through a bond issue to pay its shareholders – had it used its overseas cash reserve, it could have incurred a 35% tax on the money so the move saved it an estimated $9.2 billion. This is tax avoidance which, unlike tax evasion, is perfectly legal. Similarly, although Google’s UK sales were worth £3.2 billion, routing them via Ireland meant that the company paid the exchequer just £6 million or less than 0.2% of the total.
A report commissioned by the Progressive Alliance of Socialists and Democrats in the European Parliament has estimated that tax avoidance costs the EU up to €1 trillion per annum – the equivalent of combined EU member states’ spending on health in 2008. The UK Prime Minister, David Cameron, is to urge his EU partners to back plans to tackle aggressive tax avoidance and tax evasion when he meets them at an EU summit on Wednesday.
The G8 are set to look at the issue of tax avoidance by major multinationals (some with financial reserves well above the GDPs of smaller EU member states such as Cyprus, for instance) in their meeting in Ulster next month.
With tax payers across Europe being forced to bear austerity cuts and hardships, it would seem that the politicians have finally found a bogeyman that they can safely punish without risk of a backlash from the electorate. Whilst the multinationals have enormous influence, public outrage may just be enough to see them agree to pay a fairer share of tax.