Wednesday, 24 October 2012

What is Hickey's problem? (updated)

Bernard Hickey is getting all upsetting because he thinks companies are not paying enough tax.

Now there is the obvious point that people don't invest in companies to increase the government's income, they invest to increase their own income. Thus as an investor you would want firms to pay as little tax as possible.

But consider some of the arguments Hickey uses to back up this claim of too little tax being paid. Try this one
Starbucks was in the crosshairs in Britain this week after Reuters reported Starbucks had racked up over 3 billion pounds (NZ$5.88 billion) in sales since 1998, but had paid just 8.6 million pounds (NZ$16.8 million) in taxes.
But what has revenue got to do with tax? Tax is paid on profits not revenue, so the size of Starbucks revenues is irrelevant to what taxes they should pay.

Over the last three years its paid no income tax, despite comments from management to shareholders that its British operation was so successful and profitable that it was moving its British CEO to head up the American operation.
Starbuck may pay little in U.K. taxes but if its profits are consolidated in the home office, which I guess is in the U.S., what are their U.S. tax payments? Is Hickey really suggesting that Starbucks be taxed twice?
Starbucks forces its British operation to pay 'intellectual property' fees to its Dutch operation, from where it's unclear where the money goes.
In which case the question would be how much tax did Starbucks pay in Holland.
Starbucks is not alone among many multi-nationals who use perfectly legal but morally questionable tactics to shuffle money through tax havens and structures that have the effect of reducing their overall tax rates. Google, Apple and Facebook are masters at it.
Note the "perfectly legal" bit. You should also ask "morally questionable" to whom? Not to me. As noted above people invest in companies to increase their income and less tax means more income.

Hickey also says
Google, for example, made losses for tax purposes in New Zealand in the last two years, despite advertising industry estimates that it made revenues from New Zealand of over NZ$100 million last year. Last year it paid just NZ$109,000 in tax in New Zealand.
Again we have a meaningless comparison of revenues and taxes. And the revenues figures are just guesses!

Hickey ends by saying,
Perhaps it's time New Zealand consumers and taxpayers started targeting companies such as Google and Facebook that don't pay their fair share of tax globally.
And "fair" means what?

And if Bernard thinks the amount of tax paid by a firm is too low, that is, the dividends paid to investors is too high, he has the option of becoming an investor in a low taxed firm and taking the dividends and writing a cheque to the IRD. This should in a small way redress the balance and make Bernard feel morally superior.

You may well think firms should pay more tax, but if you do you need to use better arguments than Bernard Hickey has put forward to back up that claim.

Update: Mark Hubbard writes on Bernard Hickey’s Latest Outage, Sorry, Outrage


Mark Hubbard said...

Good points Paul.

I put up my own blog this morning about Hickey's latest outage.

" ... Tax is a cost: what you’re telling consumers to do is boycott firms until they increase their costs, and so, necessarily the prices they charge for their goods and services sold to consumers. You’re asking consumers to protest against not being charged more for what they buy from private companies." :)

Strange way to help the poor.

Horace the Grump said...

In the tech space some website are oft accused of being page view whores - spinning stories a particular way to drive page view/hits/whatever, which drives averting - Business Insider is probably the worst offender/best exponent of this business model.

Seems that Hickey is following the same business strategy - get loads of hits/page views by writing some crap that sounds good but is completely flawed and watch the revenue roll in.

Talk about a chunalist (hat tip Whale Oil)