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It's only a matter of time before robots are given human rights - By Kitty Miv, Editor

Kitty Miv, Editor
12 April, 2012

Britain's upmarket gutter press, aka the Grauniad, is never slow to jump on the back of a successful company, and this week it has attacked the sacred Apple, claiming that it is being pursued by HMRC for more corporation tax. Last week it was Amazon's turn.

This is not to argue about the rights and wrongs of these particular cases. For all I know, Apple and Amazon have sinned, and the UK's super-sleuth media equivalent of Eliot Spitzer may be right. In each case, it's at least obvious that a major international corporation has taken advantage of the chaotic EU company taxation regime to optimize their tax structure. On the other hand, both companies presumably have the very best tax attorneys that money can buy, so it's reasonable to assume that they haven't made elementary errors in their tax structuring.

No, this is to point out d. Rates currently vary from 10% (Cyprus) and 12.5% (Ireland) to 33.33% (France, plus surcharges). It hardly requires a mastermind to see that a company which makes and distributes small, expensive gizmos will choose to have them manufactured in Taiwan, imported to the EU, retailed from, say, Cyprus, and distributed by a 3rd party firm in destination countries such as the UK. In the case of Apple the intermediary country is Ireland, and in the case of Amazon it is Luxembourg. The result is a cheaper gizmo for the user, and more profit for the seller, or a combination of both. Apple's share price suggests that it's more of the second, of course, but what no-one can do, pace the sensation-seeking newspapers, is to claim that the company has done anything wrong, assuming that the tax lawyers haven't screwed up.

Of course, if we were talking about India, they would simply change the law and back-date it to 1851, or whenever it was that mobile phones were invented, in order to drive out every electronics manufacturer there is, and all of them would go to Taiwan, where their phones are made in the first place. But we're talking about the EU, which is both more coherent and less coherent than a place such as India. More coherent, because the EU does retain - just about - some sort of dim understanding that business is a Good Thing, and less coherent, because it has been quite unable to create a unified taxation regime. Whether that in itself is a Good Thing or a Bad Thing is more difficult to say.

It's a Good Thing in that it preserves competition, even if only tax competition. Most other types of competition have been stamped out in the EU, and it's only a matter of time before robots are given human rights and 35-hour work weeks (starting in France) in case they compete unfairly against agricultural labourers from the Auvergne. Probably the French will be the first nation on earth to apply income tax to robots' deemed earnings (see, M Sarkozy, I am helping you to win your election, because M Hollande won't think of that, and you can get in first).

It's a Bad Thing because it shepherds firms into over-priced nooks and crannies like Luxembourg, Cyprus and Andorra, driving up wages (Luxembourg has the highest GDP per capita in the world except for the Cayman Islands), and sucking employment away from the places that need it, like Leeds and Naples.

In the eyes of the Colbertian tax-meisters of the EU, the solution lies in something with the ungainly title of the CCCTB (Common Consolidated Corporate Tax Base), ie a harmonized method of calculating corporate taxability, and (although they don't say so) a further step onwards to harmonized tax rates. Does anyone now remember California's attempt to impose 'unitary taxation' on multinationals? It failed, of course, and that is what will happen to the CCCTB if it ever gets off the drawing board. But it won't, and Europe will stumble on incoherently, to the delight of tax advisers and their bank managers.

And of tax journalists, because what would I ever write about if tax was rational?





About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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