So Mike Devereux claims that it’s individuals and not companies that bear the
burden of corporation tax (10 May, page 12). In particular, he says academic
evidence strongly suggests that shareholders do not bear corporation tax and
that workers do.
The trouble with his analysis is that he assumes anyone but the company can
pay its tax bill. Companies can and do pay their tax bills. Devereux assumes
that companies are the collective agents for their members, and that although
companies have a legal and distinct personality and the capacity to exist
entirely independently of their owners, they behave as if that is not so. That’s
not true. Behavioural evidence shows that wherever a corporation exists,
behaviour changes, which is hardly surprising.
The evidence on this is clear. Management acts independently of owners and
contrary to their best interests. People take risks when there is limited
liability, which they would not do otherwise. People manage tax differently when
corporations come into play, even though most corporations do not admit to that
affect, and tax accounting does not require them to do so.
That lack of transparency does not alter the fact that it’s hard to shift
your personal profits out of the UK if you are an individual who wants to live
here (the domicile rules apart) but it’s quite easy to do so if you’re a company
that can establish subsidiaries wherever you want, provided some commercial
justification can be found. Companies aren’t tax neutral or transparent in this
sense. They let the place where profit is recorded and tax is paid be realigned
at the whim of management. Once that happens, they are far from ‘transparent
entities’ with no meaning of their own.
None of these factors contribute to the data Devereux used for his research.
More than 90% of that came from four countries. Tax haven subsidiaries look
likely to have been excluded from his consideration. Worse, he assumed that the
countries he studied (the UK, Italy, Spain and France) are ‘small open
economies’, meaning that they have no influence on the world economy, but have
prices dictated to them. That’s a false assumption.
Devereux suggests all corporate tax increases can be passed on by a company
onto labour. That would mean companies should be indifferent to them. That’s
obviously not true. They are active in managing the tax rates they pay. And they
lobby vigorously for reduced tax, which, if Devereux is right, is contrary to
their best interests. In the real world, tax doesn’t work on the assumptions he
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