Friday, 11 November 2011

Prem Sikka: I want the right to see Bob Diamond's tax return

Anti-capitalist protests are essentially demands for social justice, democracy and greater public accountability of corporations and their rich controllers. The issues are not hard to see. Major corporations dodge taxes through dubious schemes which create nothing of social value, but yield huge profit-related financial rewards for executives. Fearful of upsetting corporations and wealthy elites, successive governments have shifted taxes to less mobile capital, labour, consumption and savings, and attacked pensions, education, healthcare and other hard-won social rights. No policy to restrain executive remuneration has been developed.

So the protests need to be turned into a programme of reforms to enhance the accountability of corporations and their wealthy controllers.

First, the impulse of wealthy elites and large corporations to opt out of the tax-paying obligation needs to be checked by public scrutiny. As part of this, the tax returns of individuals with above-average annual income should be made publicly available. The tax returns of all UK registered corporations, together with details of tax avoidance schemes, should also be public.

Tax is the price that we pay for democracy, social rights and a civilised society. Our contribution towards that should be a matter of public record. The public availability of tax returns would enable citizens to alert, analyse and inform regulators of dubious practices and demand action.

There are already moves towards greater transparency and public accountability in other countries. Every year, around October/November, the Norwegian tax authority publishes the skattelister or "tax list" for almost all citizens. Finland also publishes the taxable income of citizens who earn more than €10,000. Through public disclosures, Norwegians and Finns are able to learn how much tax is paid by everyone from actor/director Liv Ullmann to the CEOs of Nokia.

Armed with the same standard of transparency, UK citizens could also ask searching questions about the taxes paid by MPs, political party funders, hedge-fund and private-equity entrepreneurs, speculators, wheelers and dealers of Private Finance Initiative schemes; banking fat cats, architects of tax-dodging schemes, and opinion formers.

Globalisation, meanwhile, has turned corporations into footloose multinational entities, but their accountability has hardly changed. Company accounts primarily publish one global figure for how much corporation tax a company pays even though it may be trading all over the world. How much corporation tax specifically is paid in the UK is not easy to ascertain.

This should be modernised by what is called country-by-country reporting. Corporations would be required to publish a table showing their sales, profits, costs, employees and tax paid in each geographical jurisdiction of their operations. This would immediately highlight anomalies of companies having a large volume of sales in one country but with revenues and profits booked at another place with relatively few employees.

Consider Google, which uses perfectly legal techniques to channel sales through offshore havens to shave its tax bills. The 2010 accounts for Google Ireland Limited show that an operation with around 1,500 staff generated a turnover of €10.9bn. Either the company has the most productive staff in the world, or there is more to it. The company reported pre-tax profits of only €18.5m and paid €5.6m in corporation tax. A key to reduction of taxable profits is the royalties paid to offshore subsidiaries, which count as deductible expense in one place, but tax-free income elsewhere.

Democracy can also be used to curb fat cat remuneration. Many front-line staff at banks earn under £17,000 a year. Banks pay measly interest on savings and have a history of abuses relating to mis-selling of pensions, endowment mortgages, loans, payment protection insurance and much more. Most of the banking risks, as evidenced by the banking crash, are borne by taxpayers rather than shareholders. So employees, savers, borrowers and shareholders should act as a proxy for taxpayers. If they think that Barclays chief executive Bob Diamond deserves £30m, then that is fine. But I think it would take some persuasion to convince poorly paid employees or victims of mis-selling to sanction mega-bonuses for executives.

With better information about organised tax avoidance, citizens can decide whether to support or boycott corporations. If the tax authorities reach secret agreements with say, Vodafone or Goldman Sachs, then that will be visible, too. And executives wanting mega-bonuses will need to ensure that employees and customers are also rewarded. Democracy and public accountability are the best antidotes for abuses.

Prem Sikka is Professor of Accounting at the University of Essex

This article first appeared in the Independent

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