Sunday, December 05, 2010

Kraft deploys the Bono defence in Cadbury move to Switzerland

The Guardian has reported that American food giant Kraft which bought chocolate manufacturer Cadbury in a controversial takeover, is planning to move that company's headquarters to Switzerland. The move is expected to significantly reduce Cadbury's corporation tax payments in the United Kingdom.

According to Kraft the shift to a holding company based in Zurich will promote "tax efficiency". This is a term we hear rather frequently from the tax avoiding community. It does not mean that there will be any improvement in manufacturing productivity. No energy will be saved. No new jobs created. The quality of Cadbury chocolate will not improve, in fact, in conventional economic terms there will be no efficiency gain whatsoever.

When tax lawyers and corporate spokespersons utter the term "tax efficiency" what they really mean is that corporate shareholders - in this instance largely Americans - will pay less tax by shifting profits to tax haven Switzerland. The inevitable outcome of such "efficiency" gains is that British citizens will either face further public service cuts or higher household tax bills.

What this reveals is a major flaw in the current structure of globalisation. Companies and rich people can locate wherever they are "tax efficient". Ordinary people lose out from the process. There is a term for this: its called the Bono Defence. Named after the Irish rock musician whose band shifted its tax base from now bankrupt Ireland to the Netherlands in the name of "tax efficiency", the Bono Defence provides stark warning that tax dodging doesn't promote better economics; it promotes failed states.


Blogger Physiocrat said...

Multinational firms can always shift their profits to suit themselves, but they cannot shift their land, so tax that instead. If they go away, the sites will still be available for people to work on - someone might even start a chocolate factory on one of them!

3:33 am  

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