Wednesday 22 May 2013

Eric Schmidt The Cross Border Shopper

Kudos to Google's Eric Schmidt today for standing his ground so bluntly on tax avoidance (emphasis mine).
Schmidt: "Taxes are not a choice." 
Q (from Krishnan Guru-Murthy): "The way you use transfer pricing, Ed Miliband says that's wrong. You've taken a decision to put a lot of money in Bermuda, and you take moral positions in lots of other areas." 
Schmidt: "If the international tax regime changes we will too." 
Q: "But is that moral?" 
Schmidt:"Virtually all the American companies have tax structures like this, and UK companies operating in the US do too. But if we pay more taxes in one area then we pay less in another."
And that is the beginning, middle and end of it.

Miliband and Cameron are playing a confidence trick on the public in a competition to appear the most 'concerned'. But the truth - which is obstinately refusing to move out of the way of political massaging of voter envy - is that politicians like Miliband and Cameron made the rules which Google are adhering to.

The EU is a free trade area for all 27 member states, meaning that a multi-national company has to choose where to base its operation. Only a business with someone astoundingly incompetent at the helm would choose a nation which didn't benefit their business the most.

The problem for the UK is that we are not competitive enough for Google to stick their name plate up on a head office in London, and it is arrogant for British politicians to automatically assume Schmidt should do so whether the UK is competitive or not.

The alternative - which I really do believe some sad people are suggesting - is that Google should have head offices in every EU state where they do business. But then, they are a multi-national with all the associated economics of scale which help to create jobs, lower prices for their advertisers and (ahem) allow them to offer services 100% free to the public; and the EU is run like a great big nation with businesses based all around it according to their choice. Like, as Schmidt rightly compares, the USA.
Schmidt: "Personal answer: when you have high differential tax rates you will have widely divergent outcomes, you have this in the US where you have lots of different rates. There's some feeling this is good because it makes governments moderate ... this is a big fight in the economics community.
So, if Miliband and Cameron want Google's cash, work for it. Make the UK the most attractive EU nation to base itself. The fact they don't means that Miliband and Cameron are failing in not attracting the receipts, not that Google are 'immoral' for not rewarding that failure.

Of course, we could always leave the EU, thereby solving the problem, but none of the three main parties can officially contemplate that so - IMO - they really should zip their traps.

Besides, again in my humble opinion, it's everyone's democratic duty to avoid tax as I commented at Longrider's the other day.
The state is made up of legislators and employees whose only job is to legislate and spend. Human nature – and historical experience – shows that they will legislate and spend as much as they possibly can unless checked. 
We are now at such high levels of taxation compared with GDP (over 50% in many developed nations) that legislators have trouble legislating for more money to spend as it is politically damaging to their re-election. They know this which is why we have seen many policies since 2000 which seek to bribe the public with spending of *other* people’s money. For example, minimum wage, paternity pay, auto-enrolment pensions, plus talk of a living wage etc. 
The control of excessive legislation on taxes is fear of electoral defeat; the control on excessive spending (which they’d naturally wish to do) is to deprive the state of excessive money to spend, thereby forcing them to live within their means or have to explain themselves for accumulating debt. 
Governments have reached the limit of what they can get away with from the electorate with taxation in relation to GDP; they have almost exhausted other people’s money that they can spend; so they are now scrambling around trying to claim that it is “immoral” to follow their own rules and use perfectly acceptable avoidance methods. Just to hoover up more money to spend. 
Avoiding tax is therefore a part of democratic process, and we should be proud to be part of checks and balances on out-of-control government by doing so.
We jewel robbers should understand this very well.

Hands up who refuses to pay UK duty on cigarettes and utilises the EU market to buy them abroad instead. It's our way of sending a message that the state has gone too far and is no longer competitive compared with Belgium or, I dunno, Bulgaria. It is our little bit of tax avoidance and follows the same principle as that of Google. If the UK government refuses to change its rates of duty, they would have a fucking cheek to harangue us about taking our duty payments elsewhere.

Likewise, vapers have seen what politicians do when they are given too much of our tax - they inevitably waste it by producing ridiculous documents like the Tobacco Products Directive which effectively bans e-cigs.

Trying to make Google, Amazon, Starbucks etc into patsies is an attempt to conceal the obvious fact that the UK government has spent so much of our money that they have nowhere left to go to raise funds to waste, as again Longrider neatly describes today.
Clegg and Miliband ... will merely piss it up the wall, lining the pockets of their fat cat cronies in the NGOs, fake charities, quangos and the makers of inane public information films. 
It is you and I who have to dig deeper into our wallets to fund the largesse of politicians who think our money is their money to give to their friends and co-conspirators in the third sector and the public sector.

There is one last curiosity which all three leaders have brutally exposed in the past week too.

When all three parties talk tough about limiting banker bonuses, the industry replies that, in the global internet-led world, the bankers would simply up sticks and move to where their rewards - and the huge taxation which comes with them - are better appreciated.

When there is talk of taxing banking transactions (the Robin Hood tax), banks reply that many companies would simply relocate to Singapore and take their corporation tax contributions with them.

"Good riddance" is the general bravado from advocates of both policies, "if they think like that, we don't want 'em".

Yet when companies like Google and Amazon do exactly that to avoid unhelpful tax rates, politicians whine like a McLaren F1 car.

I wish they'd make their minds up.

1 comment:

spud said...

Did anyone see the PAC hearing with Google and Lin Homer?

Hodge came across as a screeching harridan, totally unwilling to listen to anything that didn't fit into her already decided world view.