Business bemoans lack of understanding as row about UK corporate tax intensifies

Last weekend Michael Devereux mused about the identity of the next company that would face public opprobrium over the size of its corporate tax payments and the rules it uses to reduce them.

Devereux, who heads the Centre for Business Taxation at the University of Oxford, thought the company would be visible on Britain’s shopping streets and thus vulnerable to consumer pressure.

By yesterday, the company had revealed itself: Marks & Spencer, which uses an Irish entity to reduce the tax bill it will incur from internet sales, even though the goods are shipped from a UK warehouse.

M&S Ireland pays wholesale prices to its UK sister for the goods shipped, leaving any profits generated from the difference between the wholesale and retail price taxed at Ireland’s 12.5 per cent corporation tax, rather than the current 24 per cent UK charge.

“I had wondered who it would be. But is anybody going to boycott life-saving drugs that are made by Novartis or GlaxoSmithKline if they were to use similar tax arrangements?” Devereux told a conference at King’s College, London.

Labour’s Margaret Hodge, who heads the House of Commons’ Public Accounts Committee, warned that business had to consider “the court of public opinion. Politicians have learned that, to their cost.”

Campaigners such as Christian Aid, UK Uncut or the Tax Justice Network have made business increasingly nervous, even if corporates insist ever more stridently that nothing is being done that is illegal, unethical or improper.

For exchequer secretary to the treasury David Gauke, the intensifying discussion creates difficulties – since he must both ensure that the maximum possible sums are raised without frightening off investment.

Subjects once regarded as arcane and obscure, such as transfer pricing and the definition of permanent establishment, are now discussed daily, he told senior accountancy figures and their clients.

Both are feeling under siege, with private mutterings that the UK debate, one that has been spurred on by charities and activist groups, will see companies reduce, or, at least, not expand their operations in the UK.

Public attention
For many of them, the bête noire is Margaret Hodge, since she has probably done most to focus public attention on the tax habits of multinationals such as Google, Amazon and Starbucks, bringing the story from the business pages to the front page.

MPs had become involved, she said, after a controversial deal between HM Revenue and Customs and Goldman Sachs – one that saved Goldman millions in interest payments – was revealed.

So far, the debate about corporate tax has pressured prime minister David Cameron into making ever more robust noises, calling on the Crown Dependencies, such as the Isle of Man, to “get our own house in order” before he hosts G8 talks next month.