With one of the world’s most well-known companies, Apple, pulled in front of a US Senate hearing over the amount of tax it pays, there comes a greater question: who owns the corporate tax problem, particularly for multinationals? Have no doubt: this is not a problem confined to Apple. Even a casual search will show many large multinational corporations questioned by governments on their tax processes. Australia and the UK have been asking questions for a while, and now the home government for many of these companies – the United States – is also getting involved.
And there’s usually just a single, core question being asked – why doesn’t your company pay enough taxes?
Within this question, there are two key considerations:
- What is a primary responsibility of a company towards its shareholders? (Either public or private.)
- Who makes laws?
For the first consideration, from a financial perspective, it’s to maximise profit. The end result of which should be maximised return on investment for shareholders within the bounds of the law.
For the second consideration, it’s obvious: the politicians.
So where, pray tell, is the logic of politicians summonsing the CEOs and CFOs of companies to grill them about why they don’t pay “enough” tax?
Regardless of any ideals about ethics, history shows us that corporations will seek to maximise profits through whatever legal means available to them.
So the answer to the question, why doesn’t your company pay enough taxes? is clear – because governments don’t care. Adequate taxes will be paid when tax laws are adequate, and tax laws will only become adequate when governments set appropriate tax laws. If you think this is unachievable – that taxing multinationals across international borders is impossible, you need to rethink the word impossible. An example of impossible is “An unmodified 1991 Mazda MX-5 can be driven faster than the speed of light”. Cross-country tax laws? Hell, multinationals are subject to a swathe of laws that affect them regardless of their location; Sebanes-Oxley has implications for any public company that operates in the USA, irrespective of the amount of business they do there. Governments (such as the United States) have complex search and seizure laws that allow them access to cloud data, regardless of where it’s stored, if the cloud services company is American or even owned by an American company.
Taxing appropriately across international borders? Sure, it may be hard, but it’s hardly impossible.
So the next time you hear of a politician grilling a CEO or CFO about the amount of tax their company is paying, remember the person being grilled is just doing his or her job. The person doing the grilling isn’t.