Tim Cook, Apple’s chief executive, told Congress this week that “we pay all the taxes we owe, every dollar”. Yet his company apparently earns tens of billions of dollars on which it pays little or no tax. Faced with this apparent contradiction, and similar stories about other companies appearing almost daily, it is not surprising that the public has lost trust in the ability of governments to tax multinational companies’ profits.
One reaction to this loss of trust is to complain that the public does not understand the complexities of international tax law. And since it is impossible to explain in a pithy way, the best response for a business in the line of fire of tax activists is to accept the short-term reputational hit, keep its head down, and wait for the media fuss to blow over.
After all, campaigners seem to hope that, by shaming businesses that pay little tax, they will create a public climate in which companies will voluntarily pay more than they are strictly required to by the law. But this is not an effective way to increase the taxes they will pay significantly nor is it a recipe for a fair tax system. Indeed, it implies that some part of the taxes paid by companies ought to be voluntary.
