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Thursday, September 8, 2016

Strategic CSR - Facebook

The article in the url below demonstrates (more specifically than most discussions I have seen) the real effects of corporate tax avoidance/evasion (e.g., Apple’s recent spat with the EU). It does so particularly effectively by contrasting the amount of taxes paid by small business with the amount of taxes paid by large multi-nationals. Specifically, it contrasts the amount of tax paid by Steven Lewis (a small business owner of a cafĂ© in Crickhowell, Wales) with the amount of tax paid by Facebook for its operations throughout the whole of the UK:
 
“Mr. Lewis said he paid the 21 percent corporate tax rate on his profits last year, equivalent to 31,000 pounds, or $45,200. By contrast, Facebook — which is based in the United States but does business in Britain and is therefore subject to British taxes — paid just £4,327, or $6,274, in corporate tax in 2014, or about one-seventh of what Mr. Lewis paid. Facebook’s bill was also less than the average personal income tax payment and the national insurance contributions that individual British employees pay, which amount to about $7,800 a year for someone making the median income of $40,000.”
 
As a result of this discrepancy, Mr Lewis is leading a “revolt” of the small businesses in this small Welsh town:
 
“Mr. Lewis, 63, a broad-chested former military man, has helped turn Crickhowell into ground zero for a revolt by small-business owners in Britain against a tax system they see as rigged against them in favor of multinational corporations like Facebook, Google and Starbucks. The town, population 2,063, has become famous for being one of Britain’s last holdouts against the encroachment of big retail chains.”
 
Unfortunately, I think the revolutionaries have misidentified the culprit that is the main cause of the problem:
 
“Mr. Lewis, who retired from the army as a major and fought in Northern Ireland and the Middle East, is working with his regiment of shopkeepers to stoke public indignation across Britain so that consumers, and ultimately shareholders, will pressure company executives to change the way they do business.”
 
While this is certainly a possible outcome, it is an indirect route to instituting change. Rather than the businesses (which are merely employing strategic assets to exploit loopholes for competitive advantage), the real target should be the government that wrote the flawed laws (either deliberately or incompetently) in the first place. It is the government that has the power to change the situation by rewriting the laws, if it chooses to do so. Mr Lewis is at least being creative in his protests:
 
“His most recent effort at consciousness-raising came late last year, when he tried to replicate a favored financial tactic of multinationals and have Crickhowell and its businesses incorporate in tax havens. No dice, said the British tax authorities: Towns, unlike companies, are not allowed to register offshore, and Crickhowell’s small businesses did not meet the legal definitions necessary to qualify for such a move.”
 
Either way, the effect on the UK economy of corporate tax manipulation is significant:
 
“Britain’s tax authority, Her Majesty’s Revenue and Customs, said in a recent report that the amount of tax lost to Britain because of avoidance schemes was an estimated $4.3 billion in 2014.”
 
Take care
David
 
 
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Welsh Town Revolts Against Taxes and Chains
By Kimiko De Freytas-Tamura
February 22, 2016
The New York Times
Late Edition – Final
A4