The legality of News International's behaviour is not in question, but the morality is. It is a common and legitimate practice for companies to offset profits made in one area against losses made in another, before paying tax on the net profits that remain. Using chains of unexplained financial transactions between a network of subsidiary companies, including several based in international tax havens, News International manages to find significant losses to help to reduce its British tax bill.
Companies such as News International clearly believe any trick within the limits of the law is legitimate if it reduces their tax bill. Yet they benefit from many services that the Government provides. Ranging from well-maintained roads that help efficient distribution, to a legal framework that ensures their contracts are enforced, they depend on government action to help them to make profits. Multinationals with clever accountants who avoid paying their fair share in tax are in effect subsidised by the British taxpayer.
Then there is the question of a level playing field. Other newspaper operations pay the Treasury more: the Telegraph Group paid about 29 per cent of its profits in tax last year, while the Mirror Group, which owns 43 per cent of the Independent, paid about 20 per cent. If News International had paid, say, 25 per cent of its profits in tax last year, the Treasury would have been almost pounds 200m better off.
Murdoch's competitors must be feeling pretty sore. After all, he is engaged in a predatory price war designed to push some of his competitors out of business by keeping newspaper cover prices low. It must be particularly infuriating to discover that the strategy is being subsidised by the money that News International has avoided paying in tax. Companies that play fair, or whose operations are largely confined to Britain and are therefore unable to use the same methods of tax avoidance, face a serious competitive disadvantage.
Unfortunately, there is no simple loophole for Mr Clarke to close on Tuesday. While companies have many international arms and while tax collection is confined within national borders, the scope for ingenious accounting will remain.
The Inland Revenue has a tough new line on corporate tax avoidance. It should go farther and examine new ways to close down the tax-avoidance options available to multinational firms. And the Labour Party should make sure News International's affairs are at the forefront of its corporate tax review. It is vigorous enough in its pursuit of fair tax for individuals. No amount of favourable headlines in the Sun should deflect it from a fair tax proposal for companies, too.Reuse content