Margareta Pagano: Apple a game-changer again with 'simpler tax' call
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Sunday 26 May 2013
I am writing this article on my Apple iMac. Beside me is a skinny capp from Starbucks, and I have already used Google to research information for this piece. Like most of the population, I am queasy about how little tax the trio pay but, while I could boycott the coffee, it's not so easy to do without Apple or Google.
What makes the debate about their tax affairs all the more uncomfortable is that each of these companies has achieved their market dominance precisely because they have been able to plough so much money – some of which would have been due to the taxman without reliefs – back into their businesses.
To date, Chancellor George Osborne and the Treasury have been terrified of doing anything about this massive tax avoidance – estimated at hundreds of millions of pounds – because they don't want Apple, Google, Starbucks or other multinationals adopting similar practices to up sticks and leave; in some ways, understandably so with the economy so fragile.
But the beating these companies have been receiving – from the public, consumer groups and tax campaigners as well as the politicians – has had an impact, and they are beginning to crack. The bosses of Apple and Google last week went into overdrive for the first time to defend themselves, throwing the challenge back at the politicians by saying if you don't like what we do, change the rules.
As always, Apple is showing the way. In testimony to the US Senate, its chief executive, Tim Cook, challenged the US politicians to create a simpler tax system that would cut down on avoidance, rather than constantly carping on about how Apple and others use perfectly legal tax relief and loopholes.
Indeed, Mr Cook stuck his neck out even further to claim Apple pays "every single dollar" it owes, and rejected out of hand claims it uses gimmicks to pay unfair low levels of US tax. In many ways, the criticism of Apple in the US is similar to that of Google here in the UK – that the companies have exploited loopholes and shifted most of their profits to holding companies in Ireland where the special rate means they only pay 2 per cent of corporation tax.
But the game-changer came when Mr Cook also told the committee that Apple would welcome a simpler tax rate – even if it meant paying more US tax. Apple has much to win or lose as it holds $100bn (£66.1bn) in overseas funds and is reluctant to shift the money back to investors because of the potentially huge tax bill. He pointed out, quite rightly, that tax codes have not kept up with the digital age. This was also the line taken by Google's boss, Eric Schmidt, who hit back at criticism from Ed Miliband by arguing that it is for the politicians to set the system.
Mr Cook and Mr Schmidt are right; the politicians have got to change the rules. And here's how. With excellent timing, the Free Enterprise Group of young Conservative MPs has come up with a bold solution – introduce a flat-rate tax of 10 per cent for all companies and abolish all loopholes and reliefs. Charlie Elphicke MP, a former tax lawyer, argues that a simple flat rate will make rules fairer, bring in more revenue and cut the cost of compliance, which was £608m in 2006 – about 12 per cent of the cost of tax on business.
Unfortunately, Mr Elphicke can't put his proposals into a Private Member's Bill – only ministers are allowed to do so on tax affairs. Instead, he is going to use a 10-minute Rule Bill to call for a new commission to be set up to investigate the UK's tax rules and come up with new ones to end current abuse.
As Nigel Lawson's cuts to corporation tax showed in the 1980s, tax receipts will rise. There is no magic to this – a lower and fairer system will make it uneconomic for firms like Starbucks to fiddle around with transfer pricing and royalties through Dutch companies.
Ironically, Mr Cook and Mr Schmidt have given the UK politicians the best chance yet to reform tax rules and set the agenda for changing them internationally too.
They should invite Mr Cook to be a guest speaker at next month's G8 summit being held in Northern Ireland – appropriately, just over the border from where many of these ridiculous tax incentives have sprung.
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