There’s a rather silly idea floating around that the value to an economy of a company lies in the taxes that that company pays. This simply isn’t true, the value to the economy lies in the value that consumers put on the goods and services that that company purveys. The value of Apple to us all is that we all get to use iKit, the value that Starbucks provides is that we all get to drink bad coffee. And those values to us all have entirely nothing at all to do with the amount of tax that either company pays or does not pay.
One expression of this, as I say rather silly, idea is here at the Global Witness blog (aided by my bete noire, Richard Murphy):
There’s been significant progress on this in recent years, much of which has been driven directly by public sentiment. Take efforts to investigate the tax affairs of Apple and Starbucks in the EU. People are fed up with big business using financial chicanery to hide how they siphon off huge profits whilst putting very little back into the societies they took them from.
With respect to Starbucks there (and the references are obviously to the UK) there was in fact no financial chicanery leading to a reduction in tax bills. The company made no UK corporation tax simply because it did not make a profit upon which to pay such a tax. There’s much blathering about how they paid their brand royalties off to a Dutch subsidiary of the American parent and also a 20% margin on coffee beans to another Swiss one but even when those numbers are added back into the UK accounts there’s still no taxable profits. So, the reason Starbucks did not pay a profits tax is because they didn’t make a profit.
We can also make the observation that if there was not a margin paid to the Swiss company for those coffee beans this would be in itself a breach of the international tax rules. For those state that corporate subsidiaries should, as far as possible at least, trade with each other on the same terms as they would with a company outside the corporate structure. And no brokers or dealers in coffee beans offer their services for free: there’s always some addition to the purchase price of the beans to be paid by the customer. Therefore for Starbucks UK to have paid Starbucks CH without some margin or other would have been illegal.
But we can go further than this with the example of Apple. It’s certainly true that Apple is very canny in the manner that it routes margins and profits around Europe leading to an entirely legal 2 or 3% profit tax rate. And might even be possible to argue that this isn’t a particularly moral thing for the company to be doing. But to argue that as a result Apple is putting very little into UK society is nonsensical. For the value to UK society of the existence of Apple is that we all get to use Apple’s iKit, iPhones, iPads, Macs and the rest. We can even quantify what that benefit is: it must, by definition, be at least as great as their sales. For, if we as a consumer didn’t think that a piece of iKit was worth it then we wouldn’t buy it. So the value we assign to said iKit must be at least what we’ve paid for it.
To invent some numbers which are not accurate but are of the right sort of order of magnitude. Imagine that Apple’s sales in the UK are £10 billion a year. That £10 billion is the minimum value that Apple is providing to the nation at large: must be, we wouldn’t fork over the £10 billion if it weren’t. Apple does have good profit margins, let’s imagine they’re 30% here. So £3 billion of profit is made from those sales. And the corporate income tax rate in the UK is 22% at present. So we might, using these truthy numbers, say that Apple should be paying £660 million in corporation tax.
£660 million is, you will note, rather smaller than the £10 billion we first started with. Indeed it’s about 7% or so of that original number. So, to state that Apple provides £10 billion of value to the UK while, arguably, not paying 7% of that sum in tax, well, it’s pretty difficult to argue that they’re putting “very little” into that society. In fact, by definition, they’re putting 14 times as much into the society as the amount they’re allegedly dodging. And that’s without even considering the possibility of there being a consumer surplus, something which there of course will be.
The value to an economy of a producer of anything is the value that people put on what is being produced. The value of the NHS is health care that (sometimes) doesn’t kill you, the value of Apple is that we get to use iKit and the value of Starbucks is that quite dreadful coffee*. Not the tax that any of them do or do not pay.
*It is possible that I am not being entirely impartial here.
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