There are two possible responses to the payment by several large, profitable, multinational companies of nugatory sums in corporation tax. One is to give up on the idea of a profits tax altogether. There is an economic case for that. It is complex and hard to administer, and it makes more economic sense to tax sales and the income of employees and shareholders. Unfortunately, corporation tax raises £42bn a year in the UK and, as a nation, we need the money. We have, therefore, little choice but to pursue the second option, which is to try to ensure that our taxes on profits are as fair and efficient as possible.
That means being as aggressive and imaginative as – and preferably more aggressive and imaginative than – the tax specialists who work for accountancy firms and the companies they advise. Inevitably, this is a competition at which lower-paid public servants are always going to be at a disadvantage to their rivals in the private sector, but HM Revenue & Customs have one thing in their favour, which is that they are fighting from the higher moral ground.
That is why Margaret Hodge MP, the chair of the Public Accounts Committee and hero of the people, was able to wrap a cable round the legs of Google last week, like a rebel starfighter bringing down an AT-AT walker in The Empire Strikes Back. Too often her committee, like many select committees, indulges in grandstanding and in being rude to witnesses from a position of ignorance. Thanks to a whistle-blower in Google, who was presumably motivated by the public interest, Ms Hodge this time had details about how the company recorded sales apparently made by staff in the UK as being transacted in low-tax Ireland. This arrangement was described by Ms Hodge as "smoke and mirrors to avoid paying tax". No wonder Matt Brittin, head of Google in north Europe, squirmed. No wonder Eric Schmidt, Google's chairman, pulled out of an interview with the BBC this weekend.
If, however, Mr Schmidt keeps his appointment, as a member of the Prime Minister's Business Advisory Group, to see David Cameron tomorrow, we have a suggestion for what he could say. He could say that, having seen The Independent on Sunday's report of the failings of the UK's system for recording and searching for missing people, he had decided that Google should make a contribution to the national good. Data collection and search are, after all, what Google is good at. A company that can now predict what people are looking for before they know themselves is well placed to help build a better national database of missing people. The problem is especially acute for children in care. As we report, the Government has conceded that "improvements can be made in the collection and sharing of information about children who go missing from care".
Google could even, once in a while, use the incredible reach of its front page to raise awareness of the problem and to link to an integrated database.
Ben Chu, our economics editor, has some practical suggestions on page 14 for international agreements to tax profits more fairly, based on the American system of "apportionment". These changes are difficult and will take time. While we wait, it would do Google's corporate reputation no harm if it reinterpreted its motto, "do no evil", not as "pay as little tax as possible" but "do some good".
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