Party-time in the playground of billionaires and multinationals
What a ten days it’s been in the billionaires’ playground. Sir Richard Branson became the first “space tourist” by reaching the edge of space on 11 July, followed by Amazon founder Jeff Bezos’ trip on 20 July. Elon Musk isn’t far behind having bought his own ticket to play at being an astronaut on Branson’s Virgin Atlantic rocket plane.
I’m not prone to envy — but in this case, I’ll make an exception. Who wouldn’t want to view our planet from the edge of space? However, unless you are fortunate enough to be very wealthy, this dream is likely to remain where it is — in the stars!
I can live with that. What I find more difficult to accept, and where global discontent is growing, is the amount of tax the companies these billionaires own, and many others like them, are paying each year. It may surprise you what they do, or rather what they don’t, end up paying.
Death and taxes
Let’s face it, no one enjoys paying taxes or going through the annual process of filling out a tax return. Yet it is something we all have to do and one of the few constants in life, a fact Benjamin Franklin noted in 1789.
“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
How much tax do you pay per year? What percentage rate are you giving back to the government to fund essential services?
Let’s look at a few examples for the average worker.
In the UK, the average married worker with two children was paying 26.4% tax in 2020 with single workers coughing up 23.3%.
For OECD countries (Organisation for Economic Co-operation and Development) the comparison is 24.4% and 24.8%.
In the world’s largest economy, the US, the same averages in 2020 were 14.0% and 22.4%
While there are some expected variations between countries and their financial approaches, there is a ballpark area where the “average citizen” pays tax.
How much are the big corporations paying?
You work hard; you pay your taxes; you don’t like it but you can see where your money goes by the provision of public services. This is the social contract between worker and state.
Agree?
Well, just keep the figures above in mind as we examine what the major companies that are just as much part of our lives pay in comparison.
While in no way alone, a 2019 report by campaign group Fair Tax Mark, profiled the tax activities of “The Silicon Six”. I’m guessing you’ll know a few of the companies in the spotlight. I have an account with every one of them.
- Amazon
- Netflix
- Apple
- Microsoft
The headline findings of Fair Tax Mark’s analysis of tax conduct for these companies between 2010–2019 states:
the gap between the expected headline rates of tax and the cash taxes actually paid was $155.3bn
the gap between the current tax provisions and the cash taxes actually paid was $100.2bn
The report makes interesting reading and asserts the following figures in tax payments for each company.
“Amazon — the cash tax paid was 12.7% of profit over the decade, at a time when the federal headline rate of tax in the United States was 35% for seven of the eight years under examination.”
“Facebook — the cash tax paid as a percentage of profit was just 10.2% over the period of study (the lowest of any of the Silicon Six).”
“Google — the cash tax paid as a percentage of profit was just 15.8%.”
“Netflix — the cash tax paid as a percentage of profit was just 15.8% (the same as Google). Operate thin margins (just 5.3%) and as a result the cash taxes paid as a percentage of revenue are a tiny 0.8%.”
“Apple — cash tax paid as a percentage of profit over the decade is still a relatively low 17.1%.”
“Microsoft — the cash tax paid as a percentage of profit is still a relatively low 16.8%.”
The overall analysis of these firms identifies Amazon as the company with the most aggressive tax avoidance approach. The companies refute this, with their own explanations for how they manage their financial affairs.
It is striking that the “average worker” pays a lot more personal tax in percentage terms than these global players. Is this a surprise? I’ll come to that in a moment.
Let’s consider a couple of other examples outside “The Silicon Six”.
An investigation by ProPublica that reviewed IRS records said of Elon Musk, the world’s second-richest person:
“[He] paid less than $70,000 in federal income taxes between 2015 and 2017, and he did not pay anything in 2018, according to recent reports.”
So why such a low level of tax payment? Here’s how:
He borrows money from Tesla without taking a salary from his own company. Through stock options, Musk takes out loans against his company’s shares to fund his Tesla projects, which he does not owe income taxes for, and also deducts some of the interest on those loans on his taxes.
What about the world’s first “space tourist” — Sir Richard Branson — and one of the world’s richest people? Well, he has been a tax exile on the British Virgin Islands since 2006, where there is no income tax.
Lucky for some, eh? Are you feeling angry yet? I am, and the sense of injustice that huge corporations and their owners aren’t paying their fair share is growing.
In the case of Amazon, Progressive International launched a campaign — Make Amazon Pay — last December. An action backed by over 400 elected parliamentary officials in 34 countries to not only pay more tax but to address the working conditions of Amazon workers.
We shouldn’t forget at the same that the levels of tax paid are being scrutinised the wealth of billionaires has skyrocketed during the pandemic. A report by Swiss bank UBS estimates billionaires have increased their wealth by 27.5% or $10.8tn.
These are astonishing sums, yet not reflected in comparable tax bills. So why is this?
We’re just working the system
We’ve all heard the term “tax havens”, but it wasn’t until recently I realised just how pervasive these were, and the role my country has in these. If you’ve got a spare hour, I would recommend watching: “The Spider’s Web: Britain’s Second Empire” on YouTube and reading this article from the campaign group, Tax Justice Network, for a real eye-opener on the UK’s role in creating these.
Earlier this year, Tax Justice Network ranked Britain’s overseas territories as the top tax haven destinations in the world. The report notes the British Virgin Islands is:
“the greatest enabler of corporate tax abuse”, with the Cayman Islands in second place and Bermuda third.
All three locations are British-owned territories and UK tax havens overall account for 29% of the $245bn in lost tax according to Tax Justice Network.
Commentators are pointing out the dilemma that Britain in particular, with its glut of tax havens, is now facing following the recent G7 meeting where “member states agreed in principle a global minimum corporation tax rate of 15% for all corporations so that they no longer play one country against another in an attempt to minimise their taxes.”
Many of the multinationals and corporations benefiting from the use of these tax havens are also the same companies who are generous donors to political parties. Changes in tax laws and contributions will not go down well, although as Professor Prem Sikka, an Emeritus Professor of Accounting, notes “Britain is a nation of accountants”, and that there is a global army of accountants ready to undermine the tax system through new and innovative avoidance approaches.
You got me to space!
Whether the G7 tax deal and champions of tax justice make inroads on the practices of major corporations remains to be seen. But I’ll leave you with an interesting quote from Jeff Bezos when he returned from his trip to the stars.
“I want to thank every Amazon employee, and every Amazon customer, because you guys paid for all this.”
My suspicion is Amazon employees forced to work in low-paid jobs, in warehouses without windows and denied the right to union representation might have a different take on this.
As a customer of Amazon — yes I realise the hypocrisy — I take no pride in knowing my purchases helped propel Mr Bezos to the edge of space. I think we’d all feel a lot happier about it if billionaires and multinational companies stopped finding ways to avoid their tax obligations when the rest of us have no choice but to pay our fair share.
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