By Norman Burden CEO of True North Human Capital
Apparently, the UK is not the only place where global corporates avoid paying their way in taxation by exploiting loopholes. A recent article in the Bay Citizen of San Francisco suggests that the top fifty US tech companies, including Microsoft, Apple, and Google are avoiding $225 billion in taxes by sheltering their assets overseas. True, tech companies are major contributors to the US Treasury department even though they benefit from a preferential tax regime compared to say, small businesses or retailers who have to pay much higher tax rates.
It is hardly surprising then that in a week when the Board of Apple announced to their shareholders that they were as yet undecided about what to do with the accumulated cash pile of $123 billion, that certain members of the US Senate and media alike are becoming more vocal in their questions about the current taxation regime.
The challenge is that these practices are widespread across global corporates and by no means restricted to tech companies. A US Senate subcommittee recently concluded that around 46% of all funds held ‘overseas’ by US multinationals was actually invested in U.S. Treasury bonds and other U.S. government-backed assets. The loophole is that these organizations defer recognition of the U.S. income tax that would be paid on foreign earnings — if the company plans to permanently reinvest the money outside the U.S.. Loose definitions around all of these categories mean that the system is very open to abuse.
These issues resonate with UK policy makers. Whilst the specifics vary the outcomes are familiar and the growing list of multinational businesses with an HQ in the UK being ‘outed’ by whistleblowers or others for employing creative strategies to reduce their UK tax burden makes uncomfortable reading for many including the government, the board members of these organizations and employees alike.
Whereas in 2010 it was bankers who were embarrassed to tell you what they did around the dinner party table, the other evening it was a middle ranking executive of a certain U.S. owned coffee shop chain who was a little shy about the name of his employer. That is the kind of thing that happens when the company you work for hits the headlines for being unscrupulous and somewhat dishonest even though it might not be strictly acting illegally. All estate agents (those who still have a job that is) can finally breathe a long sigh of relief that they are no longer bottom of the popularity list in terms of profession!
It also brings home the point that it is the ‘squeezed middle’ who are once again being penalized when it comes to taking the pressure for dealing with the challenges of austerity. From a corporate perspective, it is small and medium sized companies are that are taking a far greater share of the tax burden than their larger counterparts. And the question many are asking is why this economic disadvantage should be allowed to continue?
Of course last weeks ‘naming and shaming’ of small businesses fined by HMRC for tax avoidance is to be applauded; most agree that those who break the rules should be brought to book but when the Revenue has spent £50 million to raise £110 million of unpaid taxes the obvious question in a world of finite resources has to be, would that effort not be better spent targeting the tens of billions of potential annual tax revenues currently not being paid by much larger businesses?
As a professional operating in the world of human resources one of the interesting question is how does all this news affect the morale of the workforce? Well according to the results of a recent annual survey co-published by Kings College London and law firm Speechly Bircham, the answer is rather badly. Employee engagement, a loose measurement used to evaluate the level of commitment employees feel towards their employers, is at its lowest level since the survey started in 2007. Not surprisingly, working harder and longer for less is taking its toll on the workforce generally. Big companies seem to be suffering more that their smaller counterparts although it is only fair to add that many smaller organizations do not formally measure this kind of thing.
On the other side of the fence, reports from organizations such as the CBI which represent the interests of small and medium sized companies in the UK have repeatedly been saying that this sector of the economy needs more help if it is to create the growth and employment opportunities which the government is banking on. The level of dissatisfaction is at an all-time high amongst business leaders in the SME sector.
Whilst initiative after initiative appears to fall short of expectation (for example, the latest round of funding provided by the government through banks specifically to create lending for small businesses but mysteriously being diverted to fund additional mortgage lending to first time buyers), tension will continue to rise.
At a recent meeting of small business leaders and owner manager’s one of the attendees summed up the general view very well. ‘Our economy was built by an entrepreneurial spirit where someone with a good idea would take things and create something else of far greater value. The people who took the risks reaped the greatest rewards if they were successful and created wealth for many of those who they worked with. Today, these people are not the power brokers anymore; they have been overtaken by the lawyers, bankers, accountants and others who have manoeuvred themselves to become the elite who take vast wealth out of the economy whilst putting very little back in. The inflated value they command for their services is stifling the efforts of the capitalist and all the regulation just helps to justify them.’
If you run or work for a small business today it is easy to feel that the odds are heavily stacked against you. Whilst big companies with the means to pay for clever lawyers and accountants squirrel money overseas and avoid paying the same level of taxation as their smaller competitors. As for their employees, personal taxation burdens seem to be rising in order to pay down a debt created in part at least by overly ambitious social welfare policies of politicians.
And the really painful truth is that no one in a position to do something about it seems to be showing much interest.