Should we procure from firms who don’t pay tax in “our” country?

We introduced the concept of Procurement Activism last year – taking the sustainability and corporate social responsibility agendas to the next level through active procurement. We suggested that issues such as excessive pay for executives might start to feature in public procurement decisions – and maybe even private sector as well.

And perhaps there's another issue coming up the priority list. Is payment of tax going to become something else that starts comes into the picture when we make supplier selection decisions?

Over the last few days, two of the most successful and admired firms of the last decade have been accused of not paying their “fair share” of taxes in the UK and other major countries. Amazon avoids paying sales tax in many US States, and disclosed it was facing an investigation by British tax authorities over allegations it recorded almost £8bn of sales in Britain over the past three years without paying corporation tax.

And as the Telegraph reported:

Meanwhile Apple Accounts for the iPad maker's three main British subsidiaries show the Californian group paid just £10.3m in corporation tax in the year to September 25, 2010, according to reports. Apple's British turnover is thought to account for a tenth of worldwide sales, which hit $100bn (£63bn) in its last financial year. The US giant avoids paying higher taxes by using foreign subsidiaries, such as in Ireland and the British Virgin Islands.

Does this matter? We'd stress, the firms are not doing anything illegal. They're just taking sensible steps to maximise returns for their shareholders – that's what they're supposed to do, after all. Yet when times are tough for ordinary people, there's something that doesn't seem quite right here.

And let's be fair - corporation tax is not the only way in which these firms contribute to the economy. Apple and Amazon employ people in the UK (and elsewhere), and therefore directly and indirectly contribute though income tax and National Insurance. VAT is charged on most Apple products and some of what Amazon sell. They'll be paying some local and property based taxes no doubt.

But might this start rebounding on these firms and others that take similar measures? Now I can't see Apple suffering too much - Apple users are so fanatical I suspect they would still buy the products even if Apple were found to be using Panda fur and Rhino hide as packing material. But while I have been a huge Amazon fan over the years (although I've had my first ever problems with them in the last few months), they're perhaps more vulnerable to customer disaffection. I'm not sure I could give up Amazon completely, but the fact I'm even thinking about it... better check out that HMV website.

And what about the public sector? At what point might Governments say, “if you're going to avoid tax in our country, maybe we won't buy your products”. Apple equipment has never been a favourite in UK government but it is being tested in Whitehall now.

The UK Chancellor (Finance Minister) said yesterday he was "shocked" to see how little income tax some of the UK's top earners pay.  Now, there's a direct read-across here, as no doubt these individuals also pay taxes through other routes, such as VAT, and Capital Gains.  So is the Chancellor also shocked by how little Corporation Tax some of the world's largest firms pay? And if so, will he - indeed, can he - do anything about it?

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Voices (9)

  1. Phoenix:

    I’m still more concerned with the wider issue of our Government trading with suppliers of ethically-questionable pedigree. Lockheed Martin is still peddling cluster munitions, despite an international treaty signed in 2008 by 100 nations banning their use. And yet, following on Lockheed Martin UK’s award of the contract to run the 2011 census, it has now “been selected by the Cabinet Office to provide G-Cloud IT services across the full complement of Government departments and organisations”, according to its website. Cluster bombs kill and maim innocent people and it’s estimated that 60% of the victims are children.

  2. Clark Kent:

    Mapelys & trillium anyone?

  3. eSourcingSensei:

    Hi Peter
    Not completely sure where I sit with this one.
    I want to see the Government Procurement team in a position where they are able to obtain goods and services at the most competitive advantage to our country (UK) that in turn would reduce government spend or allow the spend to be used in more needy areas (health, education etc).
    If a company has legitamately and quite legally structured itself in such a way that it is able to reduce its outgoings, and that would include payment of tax, then that is surely their legal right to do so, and they should not be penalised for doing this.

  4. Ian Heptinstall:

    I understand the Japanese government do this – at least on construction projects. Tax paid is used as a measure of financial strength in pre-qualification. Those who pay little tax can only bid for little contracts!

    I came across it when researching the capital project improvement initiative they have implemented there. In the begining the government didnt demand to take a big share of the savings this approach brought. They rightly assumed this would generate huge resistance. They said they were happy for the early adopters to make shed-loads of profit…because they would pay more tax. When I tried to suggest business owners would use tricks to extract the money and make little profit, they told me about the above.

    Crafty I thought!

  5. huhh?:

    Companies should be forced to publish in their accounts a % of total possible tax paid. A social contribution rating we can use to assess them when buying from them.

  6. bitter and twisted:

    How about: evaluate quoted prices after considering the tax returned to the exchequer.

  7. TimBya:

    One of the things that annoyed me about Philip Green’s criticism of public sector buying and his concerns about Government value for money was how effective his corporations are in minimising their contribution to UK plc! If he wanted to call the tune, he ought to start paying the piper!

  8. Final Furlong:

    There are three layers that are exploited: tax planning (planning a tax efficient model before you set up your business…), tax avoidance (changing your business model to reduce your tax exposure…), and tax evasion (not paying your personal tax…).

    Many corporates use the phrase “we are not contravening any local or international tax laws….” which means they are operating within the law, but clearly not paying the amount of tax they should/could.

    Some corporates take steps to move their HQ to other countries (like the Netherlands) to reduce their exposure and ‘avoid’ paying the full (anticipated) corporation tax.

    As you know Peter, this includes musicians, such as the Rolling Stones and U2, for example.

    So you might wish to avoid buying their albums (via Amazon), or their individual tracks, over i-tunes (via Apple)…

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