Leaders: New clothes for global emperors

'The haloes of popular household names such as Apple and Google are slipping'. Picture: PA

Both Apple and Google have enjoyed cult status among their customers: both were seen as “cool” by youngsters whose online experience their high-tech innovations facilitated; their laid-back image of “geeks” in baseball caps and hoodies seemed to differentiate them culturally from the rest of the capitalist system. That indulgent view may not prevail for much longer: both corporations have been severely discredited by exposure of their tax avoidance record.

That record is not edifying. Last week, a US senator denounced Apple, citing its Irish-based subsidiary as having paid tax amounting to five hundredths of 1 per cent (0.05%) on income of $74 billion (£50bn) over the past four years. In Britain, Google was similarly attacked by Labour leader Ed Miliband for making billions of pounds in the UK but paying “a fraction of 1 per cent in tax”. That outburst, at an event organised by Google in England, clearly signalled that corporate tax avoidance is now very high up the political agenda. Despite public outrage, governments were less concerned about bankers’ bonuses since they did not affect tax take. But corporate tax avoidance infuriates governments because it has a significant adverse effect on their revenues. In this instance, government anger is leading public opinion. In these times of austerity it will not be difficult to arouse customers’ indignation against huge corporations that have put themselves above the tax system. If Jock Tamson must scrupulously declare every penny he earns and pay tax, why should corporate tax-dodgers get away with it?

Of course, these companies are doing nothing illegal. Governments draft tax rules and then high-powered accountancy and law firms find loopholes. Corporations have more than 700 tax jurisdictions to choose from; it is arguably an extension of the market principles they apply to all their operations that they should cherry-pick the most advantageous fiscal regimes. But individuals and small businesses cannot do that, so this distorts the market and is morally inequitable. The best answer is transparency.

Forcing a corporation to disclose every deal it has negotiated, every sale it has made and every penny of profit it has generated within a particular country is not rocket science. There is also a widespread perception within the business community that if transparency were enforced corporations would comply; the reputational risk in non-compliance would be too severe.

For Britain the best solution is to pursue the transparency issue via the G8 and G20, beginning at next month’s G8 summit in Northern Ireland. The EU is pressing ahead with regulations to enforce transparency and that is a good thing. The UK, however, should be wary of a more ambitious EU agenda to impose tax harmonisation and promote the proposed Financial Transactions Tax, hugely inimical to Britain’s interests. In any case, corporate tax avoidance is a global problem; attempting to resolve it at European level localises the solution. Any new regime should target the offending corporations and the large accountancy firms that keep them one step ahead. Hard-pressed taxpayers have a legitimate expectation that the fiscal system should be a level playing field. It is the Prime Minister’s responsibility to start the levelling process at next month’s G8.

Healing together

There was so much of the better side of human nature on display yesterday. In Woolwich, the scene of last Wednesday’s brutal murder of Lee Rigby, a wall of colour blossomed as people, with their floral tributes and heartfelt messages, paid respects to a soldier who died in imaginable circumstances, yards from his home barracks. Hundreds of members of London’s Nigerian community – from which the parents of the two suspects are drawn – made their feelings clear by showing their own solidarity with the vast majority who have condemned the killing by marching through Woolwich streets. The ugly side was there too, in some parts of Britain where the ultra-right-wing and anti-immigrant English Defence League came out to exploit Rigby’s memory for political ends. Sowing the seeds of conflict between multi-racial groups is exactly what the two suspects currently under arrest in hospital would have wanted and the EDL, true to form, duly obliged, stoking up community tensions. If this tragic incident has one lasting legacy then the hope is that it will bring communities together rather then deepen divisions. As Dr Azeem Ibrahim, a Scottish muslim with the perspective of a soldier who has served in the British armed forces, writes today in our The Week section, it will be social integration as much as intelligence gathering that defeats the homegrown terrorism menace.