Posts Tagged ‘Tax’

“The existence of tax havens, coupled with high mobility of capital, means governments are constrained in the tax rates they could otherwise apply – crucial for both wealth and job creation,” or so says the Institute of Economic Affairs.

These are brave words, given the current climate.

The Institute also said: “Without tax havens, big businesses would move away from the UK. If tax havens could not be used by multinational corporations in the UK, then a single rate of corporate tax would have to be set. If set too low, then corporations’ contribution to the overall tax take would fall. If too high, then business would move overseas, damaging the overall economy.”

And: “without tax havens, many innovative products would be stifled by punitive tax regimes. Offshore tax havens allow the UK to make the most of its comparative advantage in financial services and avoid potentially damaging double or triple taxation on investment returns.”

Maybe so, but remember corporate profits to GDP have hit an all-time high. You can’t blame companies for trying to squeeze wages, but when they all try to do that, the result is less demand across the economy, which in turn is bad for corporate profits in the long term.

Surely, we need higher corporate taxes across the world, not lower ones. Tax havens, however, are a distraction from the bigger issues. What we really need is for some kind of international agreement that any country wishing to participate in global trade to be required to sign up to a minimum level of corporate tax.

© Investment & Business News 2013

It has $144 billion in cash. Over the next few years it will no doubt bring in much more cash. Between now and 2015 it is giving away $100 billion in share buy-backs. That is no problem for Apple. Yet, to fund the share buy-back, Apple is going to have to borrow money. Why?

It doesn’t make sense does it? So I am going to give you £1,000 in 2015. I have £1,500 in the bank now, and each year my income is roughly £400 more than my spending. So what do I do, I ring my bank up and ask for a loan so I can pay you the money?

The thing is that around $100 billion of Apple’s $144 billion sits abroad. And if the company brought that money back into the US it would have to pay tax on it, and at a rate of 35 per cent.

This all begs the question: is this right? Is it right that a company can avoid tax by borrowing money, instead of drawing upon cash reserves?

Globalisation, ranks alongside the Internet as the greatest means for creating wealth invented since the end of the industrial revolution or at least since the age of symmetry.

But that does not mean globalisation is perfect. For one thing it has the effect of destroying the relationship between corporate profits and labour, so that wages have been falling to profits.

For another thing, it does play havoc with governments trying to enforce corporation tax.

Actually, for bringing in tax revenue, corporate tax is tiny. VAT, income tax and NI are what counts. This has led some to say get rid of corporation tax altogether. But maybe if companies paid the corporate tax they are supposed to pay, rather than using global markets to avoid it, tax receipts from this area would be much greater.

But now can it make sense to get rid of corporation tax at a time when corporate profits to GDP are rising? Remember, for an economy to grow it needs demand to increase, and that means it needs wages to rise. The answer is a minimum global corporation tax, but alas it is not an answer that the world’s leaders are even contemplating.

Apple’s cash pile is indicative of the single biggest problem with the global economy right now. Companies are sitting on cash and not spending it. Such a strategy may make sense for Apple, but it is playing havoc with the economy.