The dangers of cherry picking on tax

Even with the increased focus in recent days on the UK’s relationship with Europe, a quick flick through the morning papers shows that the tax avoidance agenda remains stubbornly high on the news agenda.

A recent piece from the FT (“Business chairman split by company tax spat”, 10 January) warrants particular attention—though not necessarily for the reasons it authors may have expected. The report rightly highlights the invidious situation faced by many multinationals as a result of the current tax avoidance debate. But the reporting inadvertently highlights one of the root causes of growing public anger—specifically, the ease with which commentators, politicians and campaign groups are able to “cherry pick” companies and issues to criticise perfectly legal practice.

The report cites research from Oxford University to suggest that the largest UK companies pay lower rates of tax than small firms in most sectors. This is only one side of a particularly complex story. In most economies, it is to be expected that corporation tax bills will differ between various categories of tax payer—for example by business sector—partly as a result of the availability of reliefs, such as for capital investments and R&D.

Moreover, it is important to recognise that UK corporation tax revenues are overwhelmingly dominated by big businesses. This message appears to have been lost amidst the current furore. The UK’s largest companies pay more than 80% of all corporate tax receipts; while 60% of small firms pay no corporation tax at all.

A clear example—if one were needed—of the importance of a balanced and holistic debate about the taxation of global business activity.