Category Archives: G8

Britain, Economic, Foreign Affairs, G8, Government, Russia, Society, Ukraine, United Nations, United States

Restraint by the West over Ukraine is needed…

UKRAINE

Intro: Mr Kerry infers a Russian policy of the playground bully, laying claim to another country’s territory and assets, because – perhaps accurately in calculation – there is no one with the strength to defy him

Throughout history, a host of rules have been built up about how nations should relate to one another. International diplomacy, largely a game of manners and etiquette, seeks to operate through points of protocol. A president, for example, as head of state, will outrank the standing of that country’s prime minister. But these rules may also be fundamental points of law, where the use of force, say, removes another country’s territorial sovereignty. In such circumstances, ostracism has to be the best punishment.

Diplomacy, as it happens, is also a game of power. When a nation with vast power and strength confronts one that has very little, there is not much the weaker party can do. This is reflective of what we are now seeing between Russia and Ukraine.

The Russian president, Vladimir Putin, is likely to claim that by occupying Crimea is solely to do with protecting ethnic Russians and his country’s strategic interests. Such an argument was used by Mr Putin when Russian forces invaded Georgia in 2008 (in claiming the tiny mountain enclave of South Ossetia). The US Secretary of State, John Kerry, has said, however, that this should be deemed in the pretext of being ‘completely trumped-up.’ Mr Kerry infers a Russian policy of the playground bully, laying claim to another country’s territory and assets, because – perhaps accurately in calculation – there is no one with the strength to defy him.

This has become a crucial question for the West. Russia refuses to be constrained by international niceties, not only with its neighbours, but others too. Consider the example in Britain. Even if the Kremlin did not sanction the murder of Alexander Litvinenko, a Russian turned British spy, on British soil, it certainly did its level best to block and impede the investigation. If Mr Putin is willing to flagrantly breach the rules of the club of nations, why, then, should he be allowed to profit from membership?

While we should not be arguing that East-West relations be thrown back towards a Cold War philosophy, it is right that Western leaders question why Russia is worthy of G8 membership on its current form. Sochi was to play host to G8 in June, but that is now in jeopardy following Russian military manoeuvres in Ukraine.

It is generally accepted that there is little we or our allies can do, other than supporting the new government as best we can on the ground in Ukraine. Whether Mr Putin aims to seize wider territory in Ukraine, a gamble which seems unlikely, there is little doubt that Crimea is now de facto Russian territory and has been annexed.

Western countries will be fearful of confrontation with Russia, because it can seriously hurt Europe (at least in the short-term, economically). Russia controls the levers of oil and gas that flows through the Siberian Straits, any disruption to Europe would be hugely costly.

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Britain, Economic, G8, Government, Politics

G8 Summit: Making taxation fair…

VIEW

People are often curious and sceptical of global summits. A view often expressed is that they are grand talking shops that produce little in the way of real change.

But in the case of the G8 Summit being held in Loch Erne, Northern Ireland, this might not necessarily be a bad thing. It might even prove to be the best possible outcome.

David Cameron has listed three priorities of the summit: to advance trade, ensuring tax compliance and promoting greater transparency.

The subject of corporation tax, despite seeming staid and dry, is likely to feature at the top of this list. The issue of whether multinational businesses in particular should pay more has turned into a highly-emotive issue.

There is widespread indignation at companies’ minimal corporation tax contributions on multi-billion pound sales in the UK, but the issue is not as simple and straightforward as has been portrayed.

It may appear there is an open-and-shut-case for forcing multinationals to pay more but, as any company executive will know, turnover does not automatically convert into profit.

Sadly, taxes are ultimately borne by shareholders, business owners, employees and customers; some are merely collected by businesses.

It is good in many respects to hear the prime minister professing himself ‘proud to be a low-tax, free-enterprise politician’ and he is right when he says that ‘low taxes are only sustainable if what is owed is actually paid.’

Mr Cameron is on shakier ground, though, when he differentiates between the compliance of small firms and multinational conglomerates, painting the later as simply abusive.

Tax experts will acknowledge that there is no real difference in attitude between large global corporations, small business owners and individuals towards paying tax. They all want to pay as little as possible within the confines of the law, if this maintains an acceptable relationship with Her Majesty’s Customs & Revenue (HMRC).

Global businesses may have more opportunities to manage the system, by channelling payments and receipts to the most tax friendly countries.

Equally, large firms have to contend with a great deal of bureaucracy due to the complexities of operating in different regimes.

It probably would be best if the leaders at the G8 Summit resist the temptation to announce anything but the vaguest form of agreement and focus, instead, on three areas of concern. The first should be to introduce additional measures to prevent tax evasion. Secondly, measures should also be introduced to increase the exchange of information between countries to improve cross-border transparency. And, thirdly, an agreement should be aimed for that sets out a common vocabulary that recognises the public desire to prevent abusive tax practices. Such an agreement should also discourage individual countries from labelling routine and accepted tax planning as avoidance.

The problem, however, is that there is no prospect of an event such as the G8 Summit defining even in the broadest terms, what might be meant by tax avoidance or, indeed ‘aggressive tax avoidance’, because the meaning of these concepts is highly subjective. For example, the coalition government has rightly introduced a number of tax reliefs to promote the UK as an attractive country for business investment. The Patent Box tax regime, introduced to boost research and development in the UK, is seen here as a worthwhile tax incentive, but other countries may believe it promotes tax avoidance. Clearly, then, what one country’s perception of what is a valid and desirable tax break may often be regarded by other countries as an incentive to avoid tax.

The worst outcome of the G8 Summit would be an ill-conceived proposal to change the global approach to taxing businesses, focusing solely on where turnover is generated rather than where profits are earned.

There are plenty of valid reasons to resist a proposal such as this, including the damage this would inflict upon UK companies whose primary sources of revenue lie in overseas markets.

We should hope the prime minister and other G8 leaders resist the urge to make global tax policy on the hoof to provide some popular but transient sound-bites.

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Britain, G8, Google, Government, Politics

Google’s tax ploys criticised by MPs…

GOOGLE has been accused of ‘relying on deeply unconvincing arguments’ to avoid paying millions of pounds in British taxes.

The online search engine was described as ‘brazen’ for denying ‘clear evidence’ that it made millions from selling advertising in the UK, a powerful body of MPs found.

Last year, Google paid just £7.3 million in corporation tax on sales of £3 billion. Tax analysts say the figure should have been at least £200 million higher.

The shortfall deprives Her Majesty’s Revenue and Customs (HMRC) of money to fund public services, leaving ordinary taxpayers in Britain to make up the difference.

Matt Brittin, former Managing Director of Google in the UK and current Vice President of the company, last year told MPs all of its sales were made from its European HQ in Dublin, and its British subsidiary was merely a ‘service company’. This allows it to pay tax in Ireland, which has a corporation tax rate of just 12.5 per cent compared with Britain’s 23 per cent.

But Google was hauled back in front of MPs last month after fresh evidence emerged UK staff were involved in selling.

In its report published this week, the Public Accounts Committee found Google’s arrangements were ‘manifestly artificial’ and ‘have no purpose other than tax to enable it to avoid UK corporation tax’.

Margaret Hodge MP, who chairs the committee, said:

… Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful… This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK-based staff are engaged in selling.

She previously said that, contrary to its corporate motto, Google ‘does do evil’ by avoiding taxes in the UK.

Her comments come ahead of the G8 meeting next week hosted by Britain, where global leaders will come under pressure to crack down on tax havens and tax dodging by multinational corporations.

Google openly admits using Bermuda to lower its global tax bill, and last year funnelled more than £6 billion into the offshore haven.

There were ‘clear discrepancies with the claims made to us by Mr Brittin in November 2012’, the report said. It found 70 per cent of Google’s sales involve UK staff as well as Irish workers, and its UK workers are largely paid by commission and have monthly sales targets.

Evidence also emerged of Google invoices sent out bearing British addresses, and Mr Brittin admitted ‘a lot of the aspects of selling’ did take place in the UK.

Mrs Hodge also criticised HMRC, saying:

… It is extraordinary that the department did not challenge Google over the complete mismatch between the company’s supposed structure and the substance of its activities. We could not understand how a few journalists, whistleblowers and MPs have uncovered what the department could not.

Google has said that it complies with all the tax rules in the UK, and it is politicians who make those rules. It added:

… It’s clear from this report the Public Accounts Committee wants to see international companies paying more tax where their customers are located, but that’s not how the rules operate today. We welcome the call to make the current system simpler and more transparent.

David Cameron, the British Prime Minister, said he would use the G8 summit to try to broker a deal on tax avoidance. Mr Cameron said that in a globalised world, no one country can on their own effectively stamp out either tax evasion or aggressive tax avoidance and this is exactly the sort of issue the leaders of the eight major economies should be addressing.

Conservative MP Stewart Jackson, who sits on the committee, said:

… The Government must look again at multilateral and bilateral tax protocols via the chairmanship of the G8, strengthen capacity at HMRC and look at simplified tax legislation as a matter of urgency.

Mr Jackson’s colleague, Steve Barclay MP, said there’s clear evidence Google is conducting sales operations and making astronomical profits in the UK – to suggest otherwise is plain fantasy.

A statement from the Treasury has said that the Government remains committed to creating the most competitive corporate tax system in the G20, but says this goes hand in hand with our call for strong international standards to make sure global companies, like everyone else, pay the taxes they owe.

HMRC says that, since 2010, it has collected over £23 billion in extra tax through challenging large businesses’ tax arrangements. It insists it will relentlessly pursue businesses that don’t play by the rules.

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