An article in Bloomberg on April 6th ( The Sharing Economy Doesn’t Share the Wealth ) discussed the nature of the tax arrangements for the new “Sharing Economy” companies including:
“Uber processes payments for rides outside the U.S. through the Netherlands, a company official testified at the hearing in Australia. Last fall, Fortune reported that, according to presentations to investors, Uber had assigned its IP to the tax haven of Bermuda, leaving less than 2 percent of its net revenue taxable by the U.S.”
Tax officials are concerned that as these companies move to profit tax revenues will be lost.
In a related response to the Panama Papers on the ABC’s Drum entitled Are the Panama Papers really such a scandal? Chris Berg of the Institute of Public Affairs made the interesting claim that:
“Tax havens perform an important function by putting downwards pressure on domestic tax rates. They are the global economy’s escape valve – preventing sclerotic Western welfare states from pushing taxes up and up.”
While this is a clearly arguable position a counterpoint was put up by commenter Forrest Gardener:
“Strange. I would have thought the reverse would be true. Nations must tax more to compensate for revenue forgone”
I am fair and square in that camp. Surely if everyone pays their fair share of tax then the average tax burden on everyone is lower.
But what to do about it? There has been a huge and meandering debate about tax policy in Australia over the last few months with lots of things being ruled out and I think that Chris Berg makes a good point when he says governments and oppositions are better at putting out press releases about cracking down on this sort of behaviour rather than actually collecting the money.
I am very cynical about changes from governments working given the huge incentive companies and people have to game the rules I have a proposal for businesses selling directly to the consumer, especially those that rely on media, social media, and word of mouth the thrive. We, the consumer must simply insist that they pay tax on revenue gained in our country or we will move our business to those that will.
There is a precedent for this in the UK :
Starbucks moves to UK in tax climbdown following threatened consumer boycott
but maybe we need to go further.
I am a big advocate for social enterprises run as best in class businesses having a commercial advantage over standard corporate models. If a social enterprise business provides me a service or product as good as its competitor and does some social good at the same time then I will buy their product every day of the week over their commercial competitor’s offering.
I think there is a definite space for an ethical investment fund supporting such businesses. If a competitor wants to establish itself against Uber in Melbourne and guarantee it will pay all relevant taxes in Australia on revenue gained in Australia I will invest in it and transfer my purchases to that business – with the caveat that it must provide a great service.
We must counter the incentive for tax avoidance with a larger incentive – customers!!
Who wants my money?