Brussels
must fight and beat McDonald’s in the battle for tax justice
Corporate
taxation around the world is at risk of becoming a joke. Large-scale
avoidance must be challenged and defeated
Sunday 25 September
2016 07.00 BST
Speculation is rife
in Brussels that the European commission is strapping on its boxing
gloves in preparation for another battle over corporate tax
avoidance.
In the red corner is
Luxembourg’s finance ministry, which has spent the last year under
investigation for allegedly setting up sweetheart deals for allowed
McDonald’s to receive €1bn from its European operations tax-free.
At the same time,
Ireland is preparing to defend its treatment of Apple after being
pummelled by a commission report that accused the US mobile phone
maker of avoiding €13bn in corporate taxes. Dublin aims to persuade
the European Court of Justice that all the tax breaks it offered were
fair and reasonable or, if not, then at any event in the gift of a
sovereign national government.
It all adds up to a
busy time for competition commissioner Margrethe Vestager. She has
landed a few punches as part of a Brussels mission to stop corporate
taxes going into the dustbin of history.
If her officials
have pieced together a watertight case against McDonald’s, it will
send a strong message to the legions of US companies based in Ireland
or the Grand Duchy that tax is not optional. McDonald’s, it should
be said, denies any wrongdoing, while Luxembourg said the fast food
group had not received preferential treatment.
Without a crackdown
on the biggest avoiders, the current system of taxing corporations
risks becoming a bad joke.
Only last week, the
rich nations’ thinktank, the Organisation for Economic Cooperation
and Development, said eight of the top industrialised nations had cut
corporation tax rates last year or said cuts were imminent. The
Paris-based organisation named Japan, Spain, Israel, Norway and
Estonia as culprits. Future reductions are planned by Italy, France,
the UK and Japan.
The OECD avoided
using the phrase “race to the bottom”, but characterised the
downward trend as having accelerated since the 2008 banking crisis.
“With regard to corporate income tax, rate reductions had generally
slowed down after the crisis but seem to be picking up again,” the
report said. “The trend seems to be gaining renewed momentum.”
A combination of
lower headline tax rates and generous tax breaks has proved to be the
formula of choice for many countries desperate to attract foreign
investment. In a bid to shore up their depleted exchequers, the OECD
suggested cuts in corporation tax were being partially offset by
rises in other taxes such as VAT, fuel and car tax.
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But as tax justice
and inequality campaigners have shown, higher taxes on personal
incomes and essential items hits poorer individuals hardest.
The Tax Justice
Network summed up the problem when it said this remedy for lost
corporate taxes “redistributes wealth upwards”.
It added:
“Governments make up shortfalls [from corporation tax cuts] by
levying higher taxes on other, less wealthy sections of society, or
by cutting back on essential public services, so tax ‘competition’
boosts inequality and deprivation.”
Strangely, the US
government is one of the few to stand out against the trend and
maintain its high corporation tax rate. At 35% for major corporations
and 40% once local taxes are taken into account, its main rate is
double the UK’s 20%. But the only reason the rate has not come down
yet is the gridlock on Capitol Hill, with senators, representatives
and the White House at each other’s throats.
Barack Obama can see
that everyone else is at it, and it would be a big part of a Donald
Trump’s war on tax. Which makes the McDonald’s case so crucial.
If Luxembourg and Ireland are both successfully prosecuted, EU
citizens might feel better about paying tax. All governments
underestimate voters’ resentment that corporations pay almost
nothing.
Will RBS’s new
image make a difference? You be the judge
X Factor contestants
are fond of telling the judges that they “really want it” as they
wait for Simon Cowell and his fellow judges to decide whether to say
“yes”. This weekend, the talent contest should be essential
viewing for Philip Hammond, because Royal Bank of Scotland will be
rolling out a new publicity campaign during the show’s ad breaks
intended to signal a break from the near-fatal era of Fred Goodwin.
Ross McEwan will be
hoping that he gets a yes from Hammond for the strategy he has
adopted: to abandon global ambition and focus on high streets in the
UK and Ireland.
The new chancellor’s
intentions for the government’s 73% stake in RBS have not been made
public since he stepped into No 11 to replace George Osborne in the
wake of a Brexit vote that has piled even further pain on RBS. The
lower-for-longer interest rate environment is not helpful for a bank
that has racked up losses of more than £50bn since its bailout and
is on course for at least two more years in the mire.
Osborne had
signalled his determination to return the bank to private hands by
taking a £1bn loss on the first sell-down of the government’s
stake last summer. Those shares were sold at 300p – below the 502p
break-even point for taxpayers, but way above the 180p to which they
have now sunk.
For now, at least,
McEwan can tell Hammond that he is not to blame for problems he
faces: the footdragging of the US authorities over a fine – which
could amount to £9bn – for the way it sold mortgage bonds before
the crisis, and the delays at UK regulators over an investigation
into the way it treated, or mistreated, small business customers.
McEwan will also
argue that the delay selling the 300 branches that the EU demanded as
a penalty for its bailout cannot be helped. The post-referendum rate
cut ended all hope that Williams & Glyn could be reborn as a
standalone bank.
The New Zealander
made sure his strategy got the approval of Osborne. He will be hoping
it is enough for a yes from Hammond.
Ignore Lawson’s
bluster over Brexit: Carney must stay
Attacks on Bank of
England governor Mark Carney are nothing new. But the volume has
risen recently, especially after he defended his warnings of doom and
gloom should the UK vote for Brexit.
Lord Lawson has
called for him to quit, saying he “behaved disgracefully” in the
run-up to the EU referendum. He said: “I have known all six of his
predecessors as governor of the Bank of England and not one of them
would have thought it proper to behave as he has done, particularly
during the campaign when he joined in the chorus of scaremongering.”
Lawson’s anger
might turn to apoplexy it the rumours are true that Carney will stay
three years beyond the end of his term in 2018. But the public will
cheer. Carney has shown himself to be calm in a crisis, cutting
interest rates when needed in the weeks after the vote. Lawson should
pipe down.
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