Editorial: Put your money where your morals are

In the face of growing public anger and apparent Government impotence, legality is no longer sufficient defence for aggressive tax avoidance

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The Independent Online

The so-called “sweetheart” deal under which Goldman Sachs was let off £8m in interest payments to settle a five-year tax dispute was, as a High Court judge put it yesterday, “not a glorious episode in the history of the Revenue”. Contrary to the claims of the pressure group UK Uncut, however, it was also not illegal.

Yet, for many, legality is no longer sufficient. In the face of growing public anger at aggressive tax avoidance by multinational corporations – and the Government’s apparent inability to fight back – tax is becoming a matter of morality as much as the law.

Google’s Eric Schmidt may defend the sleight of hand that allows his company to pay merely notional UK taxes on the grounds that it is simply good business sense. But such old-fashioned notions sit increasingly uncomfortably alongside a company motto of “don’t be evil”. Sure enough, even as the High Court was ruling on the Goldman Sachs case, just a few miles away MPs were grilling one of Google’s top European executives, for a second time, over the group’s financial affairs.

Matt Brittin stood by his previous statements that, while the company runs marketing activities in Britain, no sales are closed here. But the Public Accounts Committee claims to have incontrovertible evidence to the contrary, and chairman Margaret Hodge branded the company “devious, calculating and unethical” in “deliberately manipulating the reality of the business”. In the austerity after the banking crisis, the line between reasonable and unreasonable exploitation of the rules is shifting – and Google is on the wrong side of it.

So is Amazon. That the books-to-barbecues behemoth routes its UK sales through low-tax Luxembourg is bad enough. The latest revelation, that it received more in government grants last year than it paid out in taxes, is  even worse.

So long as such shenanigans are legal, then the moral outrage of the general public is not without value. Indeed, there is much to be said in favour of consumers voting with their feet. A dip in sales will focus executive minds more sharply even than the odd round of tough questioning from Ms Hodge and her counterparts. Starbucks’ decision to stump up an arbitrary £20m to head off a boycott over its controversial tax strategy gives a hint of the power in customers’ hands.

Moral arguments can only go so far, though. In part, because it is tricky to hit a business like Google, for example, where it hurts. But also because, over the long term, it is not acceptable either for non-law-breaking companies to be held hostage by public opinion, or – conversely – for corporations to choose how much tax they pay. For all that the debate is couched in the terms of honesty and integrity, the problem is, at its heart, a practical one. Tax law has simply not kept up with the changing times. Between the spread of internet technology and the rise of the multinational, traditional rules about who gets what for companies’ overseas activities are no longer fit for purpose.

There is no easy solution. On the one hand, David Cameron wants Britain in the global race – and is cutting taxes and pursuing pro-business policies to that end. But, on the other, he is banging the drum for global efforts to tackle avoidance, and the forthcoming G8 meeting he will chair will consider such vexed questions as how to clamp down on tax havens, fix loopholes and forge shared rules.

The two positions are not wholly contradictory, but there is a tension there. And it is one that exists in every other country that will be party to the negotiations, too. Expect slow progress, then. In the meantime, moral pressure and consumer ire must do all they can.