COLUMN-Business, taxes and responsibility-Chrystia Freeland

Thu May 2, 2013 1:14pm EDT
 
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By Chrystia Freeland

NEW YORK May 2 (Reuters) - In recent months, people and their politicians around the world have been astonished to learn that big companies and billionaires will go to extraordinary lengths to pay lower taxes.

Thanks to the work of the International Consortium of Investigative Journalists, based in Washington, we have discovered that some of the most prominent public figures in the world have banked their fortunes in international tax havens, beyond the scrutiny of their national treasuries.

Meanwhile, Tom Bergin, my Reuters colleague, has become the scourge of the top U.S. multinationals by revealing their low effective tax rate in Britain. Mr. Bergin has found that between 1998 and 2012, Starbucks paid less than 9 million pounds, or about $14 million, in British taxes while registering sales of more than 3 billion pounds. According to statutory filings, Google made $18 billion in revenue in Britain from 2006 to 2011, and paid just $16 million in taxes.

Open the door to the top executives' suite and you will hear howls of rage over the backlash these revelations have provoked. There is, from the corporate point of view, something a little disingenuous happening here. After all, countries, states and cities have spent the past several decades openly competing to set the lowest corporate tax rates in an effort to attract business. The fact that multinationals would respond to these incentives and turbocharge them with some international tax arbitrage is about as shocking as the discovery of gambling in Casablanca.

After all, as Lord Clyde observed, in a 1929 British tax case: "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores."

This principle - that you should seek to make the most money you can, provided you do not break the law - is the operating software of modern capitalism. As Milton Friedman put it: "There is one and only one social responsibility of business - to use its 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."

In the hypercompetitive 21st century, where every Apple is only one algorithm away from becoming a BlackBerry, paying the lowest possible taxes is not the exceptional policy of one particularly greedy chief executive - it is what every executive seeks to do to keep his job. That was what Andrew Kassoy, a former private equity investor, explained at a recent panel discussion at the Stern School of Business at New York University (Disclosure alert: I was the moderator).   Continued...