Treasure Islands - Nicholas Shaxson [26]
They tried lobbying against being taxed—which, in the new wartime environment, was doomed to look unpatriotic and to fail. As Britain’s tax authorities noted, taxes on business profits never stop you from earning the profits—they only kick in once there are profits.
But William and Edmund Vestey were having none of it. In November 1915, as fifty thousand British soldiers died at the Battle of Loos, the brothers moved overseas to cut their tax bill. Their first stop after leaving was Chicago, where they found they weren’t the first wealthy Britons to move for tax reasons. “What’s the matter with your people?” a local tax lawyer asked. “You are the third Englishman I’ve had in here this week in the same business.” From there they moved to Argentina, where they paid no income tax at all—and even then, they fought to cut the residual company taxes they still had to pay in Britain.
As the war progressed, however, the brothers increasingly started to wish they could return home, closer to their food empire’s real profit center. So they began to hatch up a new scheme to return and still escape the tax net.
They put into place a two-stage plan. First they returned temporarily in February 1919, taking careful legal precautions to ensure they continued to be treated as visitors, not taxable residents, and they began lobbying. They wrote an impassioned plea to the prime minister, dressed up with appeals to patriotism and claiming their return would contribute to local employment—arguments that multinational corporations still routinely make today. They also complained bitterly about how unfair it was that their big competitor, the American Beef Trust, faced lower taxes and gained a big competitive advantage from it.
They had pointed to one of the great problems in international tax. Each country taxes its citizens, residents, and corporations in different ways, and different countries’ tax systems often clash in unpredictable ways. Multinationals based in these different countries face very different tax bills on similar incomes, enabling one to out-compete another on a factor that has nothing to do with efficient management or real productivity.
U.S. citizens and corporations formed under U.S. laws were taxed on their income from all sources worldwide, and the test of whether one was a U.S. taxpayer was based on citizenship, not on residence—a subtle but important difference. But if the corporation—even a subsidiary of a U.S.-based corporation—was formed overseas, it did not pay taxes to the United States but to the foreign country where it was incorporated. The Chicago-based Beef Trust used this to avoid paying taxes in the United States—and then used various loopholes to avoid tax in Britain, too, where it sold a lot of its meat.
The Vesteys, who were paying significant taxes, did not like it, and the British prime minster referred their claims to an official commission. William’s testimony to that commission was to become a classic in the tax world, cited in academic tax papers ever since. He posed the question of double taxation that I referred to in chapter 1: When a business is spread across several countries, which country gets to tax which bit of it?
“In a business of this nature you cannot say how much is made in one country and how much is made in another,” said William Vestey. “You kill an animal and the product of that animal is sold in fifty different countries. You cannot say how much is made in England and how much abroad.” He had put his finger on the central problem with taxing multinational corporations today. By their nature they are integrated global businesses, but tax is national. Taxing a corporation straddling multiple jurisdictions involves gruesome complications, and if each country scrambles to get