Cantillon: Squaring up to multinationals in the corporate tax debate

In the early part of the 20th century, the House of Commons held hearings into the tax affairs of the Vestey brothers, who had become enormously rich selling meat. The brothers had livestock in South America, abattoirs in various jurisdictions, ships, and a chain of butcher shops in the UK.

The question was: where did the profit arise when meat was sold in Aberdeen that had originated in Argentina?

How much more difficult a question the House of Commons Public Accounts Committee is currently investigating in its inquiries into multinationals and the tax they (don’t) pay.

As Google executive Matt Brittin explained on Thursday, the technology developed by Google's engineers in California allows customers around the globe to pitch for advertising using an ongoing, online auction that is handled by logarithms which set the prices customers are charged every time users of the Google site, wherever they may be around the globe, click on the advertisement.

So where should the tax charge fall? At matters stand, a Google operation in Dublin has the right to sell this service to clients in Europe, the Middle East and Africa, but pays dearly for the right to do so. It pays this fee to a fellow Google subsidiary, in Bermuda, where the income goes untaxed.

It is an affront to democratic governments that the largest and most profitable companies in the globe are gaming national tax systems at a time when so many countries are suffering from austerity. It is obvious, looking at the interchange between Brittin and the UK parliamentarians, that there is an inequality of arms at national levels that favours the multinationals.

This is where Josephine Feehily, the chairwoman of the Revenue Commissioners, comes in. She chaired a two-day meeting of the heads of tax administrations from 45 countries in Moscow that ended yesterday. Afterwards the group said it welcomed the work being done by the OECD on the issue of tax-base erosion and multinationals. Watch this space.