The Power of Modern Corporations: Sean McDonagh SSC

Every now and then we get a glimpse of the power of the modern corporation and how often the behaviour of these giant economic enterprises appears to be morally questionable. Transnational Corporations (TNCs) are very powerful economic entities in the modern world.  One way to get a picture of the pervasive presence of corporations is to realise that in the year 2000, the sales of the world’s ten largest TNCs exceeded that of the combined GDP of the world’s 100 ‘least developed’ (economically) countries. TNCs are very demanding: They expect that the countries in which they operate will have excellent educational and health systems. They also  expect an efficient transport system which will allow them  to move their goods and services quickly around the world.  Providing these services and building up a viable infrastructure costs money.  It seems that many corporations are unwilling to pay their fair share of taxes to the British government to maintain these services.

For example, in October 2012, it emerged that powerful wealthy corporations such as Microsoft, Amazon, Starbucks, Google and Facebook were either not paying taxes in Britain or were only paying a pittance.  Starbucks arrived in Britain in 1998. Since then it has only paid £8.6 million in taxes to the British government.

According to Lawrence Latif of The Inquirer, Microsoft has not been paying taxes to the British government on its £1.7 billion revenues in the United Kingdom.  Microsoft in Britain seems to have a complex and convoluted tax arrangement which involves declaring its profits in Ireland and Luxemburg.  The company’s  operation in the United Kingdom comes under the umbrella of Microsoft Ireland Ltd. which is registered in Ireland where corporation tax is a meagre 12.5 percent. Naturally, the British government and other European governments are not happy that the corporation tax policy of countries such as Ireland is facilitating the non-payment of tax by giant, wealthy corporations.[1] 

In response to the negative publicity, Microsoft issued a statement in which it claimed to have abided by all laws. The firm said, “Microsoft pays all due taxes, as required by law, worldwide. Microsoft subsidiaries are fully subject to tax in the jurisdictions in which we operate. We are regularly audited by major tax jurisdictions, which ensure the company is complying with all rules and regulations.”

The Inquirer also asked Microsoft to confirm whether it had paid any UK corporation tax, a question the firm did not answer. However, the firm published a statement in which said that it abides by all tax laws.

During the Prime Minister’s question-time at the end of  October 2012. Margaret Hodge, who chairs the public accounts committee at Westminster asked David Cameron why he had criticised commedian Jimmy Carr for avoiding £3.3m of tax – when large companies were avoiding much larger sums. “Apple, Google, Facebook, eBay and Starbucks have avoided nearly £900m. Will the prime minister now take this opportunity to condemn their behaviour as morally wrong?” she asked.

Mr Cameron replied that he was “not happy with the current situation” and he wanted governments to tackle the problem of companies not paying the appropriate amount of tax.[2]  The Revenue estimates that tax avoidance costs the UK £5bn each year.

At a public accounts committee meeting on November 12, 2012, MPs grilled executives from Amazon, Google and Starbucks about their financial practices. They accused them of diverting hundreds of millions of pounds of profits which were made in Britain to secretive tax havens. An executive of Starbucks which employs more than 7,000 workers at 800 cafes across Britain was told that his assertion that Starbucks was not making a profit in Britain was simply unbelievable. Google’s bosses agreed that they operated in Ireland because of the low corporation tax there.[3] Andrew Cecil, Amazon’s director of public policy, was accused of being “totally evasive” after failing to explain who owned the company, and was unable to give details of the income made by his company in Britain.

Hodge told the executives that UK taxpayers are increasingly frustrated by the use of tax havens and creative accounting by large firms trading in Britain. “People want to know why companies which benefit from an infrastructure paid for by them and are paying people low wages who receive taxpayer-funded tax credits from the exchequer are not paying their fair share,” [4]

[1] By Lawrence Latif, “Microsoft is accused of not paying UK corporation tax,” The Inquirer, December 10th 2012.

[2] Jim Pickard and Vanessa Houlder, “Google and Starbucks face tax questions,” The Financial Times, October 30th 2012.

[3] Rajeev Syal, “Amazon, Google and Starbucks accused of diverting UK profits,” The Guardian, November 12th 2012.


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