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« Wearing woolly hats | Main | Politics in school »
Tuesday
Nov072006

Do corporations pay tax?

Richard Murphy campaigns for higher taxes at his blog called Tax Research UK. He is therefore a regular contributor to programmes on the BBC.

His offering today is on the subject of whether corporations pay tax. Richard believes that the idea that corporation tax is a tax on shareholders is a fiction put about by "economists and companies". He claims, without citing any examples, that these wicked people believe that that companies have no identity separate from their shareholders.

They cannot be sued for its actions. They cannot be held liable for its debts. And yet apparently they pay its tax. Shall we get real here? They don’t. It’s liabilities are not those of its members. That’s the whole purpose of a limited liability company.

I would have thought that it was patently obvious that the liabilities of the members were, well,  limited rather than nil. The clue's in the name really isn't it?

Richard seems to be labouring under a misconception of what a limited liability is. Sure, the company has separate legal identity. That doesn't imply that the assets and liabilities belong to anyone other than the members. We know this because if they like they can vote to wind the business up and have the net assets returned to them. They can't vote to have the assets returned without netting off the tax liabilities (they're not ours, they belong to the company, honest guv!). Do you see how ridiculous your suggestion is now Richard?

As a codicil, the idea that economists are a homogenous mass opposing right-thinking people like Richard comes across as rather flat-earthish. Perhaps we could call Richard and his ilk "economics deniers"?

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Reader Comments (3)

I understand that research indicates that 70% of corporation tax is effectively paid by the workforce (in the form of lower wages), 30% by shareholders in the form of lower dividends.
See http://gregmankiw.blogspot.com/2006/08/who-pays-corporate-income-tax.html
and Tim Worstall's commentary:
http://timworstall.typepad.com/timworstall/2006/10/why_so_tentativ.html

This is in the US, but there's no reason to assume that the UK is any different. The corporation is just where the cheque comes from.
Nov 8, 2006 at 6:26 PM | Unregistered CommenterPete In Dunbar
Ah yes, but that research is made by all those nasty economists isn't it. ;-)
Nov 8, 2006 at 8:00 PM | Registered CommenterBishop Hill
To say corporations do not pay tax would imply that they would otherwise have spent that money on themselves (on fast cars and loose women perhaps) as opposed to existing purely for the enrichment of individuals.
Nov 9, 2006 at 5:38 PM | Unregistered CommenterMark Adams

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