Corporate Tax and “Social Responsibility”

Backbencher December 10, 2012 1
Corporate Tax and “Social Responsibility”

Tristan Kitchin,

 

 “There is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”  – Milton Friedman 

 

Since when was “social responsibility” the defining characteristic of how much corporations should be taxed in the UK? Following the events of this past week, one could assume that paying extra corporate tax is a moral obligation for businesses. Public Accounts Committee chairman Margaret Hodge judged the tactics used by Google, Starbucks and Amazon in minimising their tax expenditure as being “cynical” and unjust, going on to note, “we are not accusing you of being illegal, we are accusing you of being immoral.”

Since when was it immoral for a business organisation to maximise profits, especially when done so following the law of the land? It is common sense for corporations to save as much on tax as possible; it is expected that an entity, which is trying to increase its income, will reduce expenditure wherever possible. It is no different when it comes to tax.

Accused of not paying their “fair share” of taxes, a public backlash followed the disclosure that these three businesses had been avoiding tax, despite through legal means. This is not the first time a corporation has attempted to minimise taxes paid, and will not be the last. What is striking about the current situation however is Starbucks announced it plans on paying around £10m in each of the next two years to the HMRC, regardless of whether it is profitable or not. The coffee giant has only paid around £8.5m in corporation tax in the 14 years it has been operating in the UK, so announcing that it plans on voluntarily paying more than double this over the space of two years, on moral grounds, is baffling.

It is evident that this commitment is an arbitrary PR stunt made in order to appease liberals and gain back some credibility and support from the British public. The move was hailed by Margaret Hodge, stating that Starbucks had taken its “first step in the right direction.” But has it really?

Tax is a legal obligation, not a voluntary donation, and “social responsibility” has no part in how much a corporation should be paying. Even Danny Alexander, chief secretary to the Treasury, said “taxation for big companies, or for anyone in society, can’t be, and mustn’t be, a voluntary arrangement.”

What we need to focus on is where this £20m will come from. Kris Engskov, Starbuck’s UK managing director, said that the company’s UK operations have not even been profitable. These voluntary payments are not going to help solve this.

Friedman wrote, regarding cases such as this, “the corporate executive [is] spending someone else’s money for a general social interest. Insofar as his actions in accord with his ‘social responsibility’ reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.” In one way or another, an area of the business will be affected negatively, whether it be the prospect of future growth and investment in the UK, the quality of the product, or the workforce which currently stands at 8,500 people employed. Starbucks will be suppressing its potential for future economic growth, even putting its UK operations at potential risk (especially if its UK operations remain unprofitable over the next two years), and all in the name of “social responsibility”.

At a time when we are trying to spur on economic growth, having the corporations which bolster our flailing financial system pay out extra funds as a result of public blackmailing, especially when there was no wrongdoing or illegal activities principally, is counter-productive. Although one will have differing ideals when it comes to right and wrong as to others, taxation is not an issue of morality and therefore tax minimisation cannot be seen as wrong whilst those involved are following the letter of the law. “Fair share” is not a concern. The purpose of a business is to create a profit for its shareholders, an aim which these corporations were undertaking when cutting back on expenditure. People should not be lambasting Starbucks, Google, or Amazon for legally maximising their profits, considering that is the primary aim of these corporations.

If people are displeased that companies are doing as such, calls should be made for reform of the tax code as opposed to crying out against those who have been following the system already in place, paying their dues as already required by law. No one can blame these companies for trying to protect their interests. Rather, if people are outraged then changes need to be made at the legislative level.

Tax avoidance happens because tax rates have been set too high, or the current tax system is too complicated, allowing companies to jump through loopholes. The ball is in the government’s court, and corporations cannot be blamed if the system is broken or inefficient. The solution to this row lies in the Coalition’s hands; tax laws need to be overhauled and simplified. We should not look to corporations to try do the “right thing,” especially if they have been doing nothing wrong.

 

http://www.bbc.co.uk/news/business-20657312

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/Starbucks-Amazon-and-Google-accused-of-being-immoral.html

http://video.sky.com/news/related/55435/1/Starbucks%20Not%20Profitable%20In%20UK/true

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

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