AS WE head towards Christmas, the austerity issues both here and in Euroland continue to rumble on with no major sign of any conclusion.
However, one thing that has progressed is the issue of taxation.
Spending money has never been an issue for governments, that’s easy, but raising money through taxation has been the Achilles heel, and it is the root of most of the problems particularly in Greece and Spain.
It’s a bit like trying to fill up your bath with water when you haven’t put the plug in.
Recent developments on the corporate front might give us a clue to where the future is going and at this stage it looks like a round of protectionism.
Taxing overseas companies that operate in the country in question is the easiest way to boost tax revenues through corporation tax.
Microsoft, based in the US, is the latest company to be drawn into this row in the UK after it emerged that that the company has been channelling online payments through Luxemberg and Ireland where corporation tax is considerably lower than in the UK.
Corporation tax in Ireland is 12.5% compared to the current rate in the UK of 24% Starbucks, another US company, has also been in the headlines for lack of tax payments to HRMC.
It has managed to pay only £8.5m in tax in 14 years of operation in the UK.
Caffe Nero which is also registered abroad reportedly paid no tax at all despite making profits in the UK of £40m last year.
Public outcry has led to a mini boycott of both these chains in favour of Whitbread-owned Costa Coffee.
Starbucks has offered to pay £20m in Corporation tax after the protests but this was seen by many as an admission of guilt.
Tax collection is without doubt the issue now for most major governments, not just spending less on various projects.
In the UK, quoted companies have a good track record of paying all taxes due and with all their operations home and abroad should command respect in the worldwide investment community.
Also the yields on our government debt is lower (and prices higher) than most developed countries which is another sign of faith.
No one likes paying tax, but if tax is due, then this should be paid.
Protectionism is likely to be the next step for major economies but for the UK this is much less likely to be a worry for our market.
Our tax rates are not punitive and we have the most respected stock exchange in Europe which should add support.
We may gain some competitive advantage to our European rivals. Shares still look cheap and offer a good alternative to money left with the bank.
