The world’s richest man is seen as a secular saint. But he should question the example Microsoft is setting by avoiding tax

He made his name as a sharp-elbowed businessman who rode the technology revolution with such style. But these days he is far more famous for his philanthropy, as a saviour of the poor who has made it his life’s mission to change the world for the better. So it was something of a shock to see he is still the richest person on the planet, boosting his fortune by another £9.6bn last year to an astonishing £48bn after a big rise in the Microsoft share price.

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It is easy to forget that Gates remains chairman of the software giant he founded in 1975, the largest individual shareholder with some 4.5% of the company’s stock. He may have invested vast chunks of his cash mountains into other companies and may spend much of his time campaigning for poverty relief, but Microsoft remains the rock upon which he built those Croesus-like riches.

This presents a problem given the company’s controversial record on tax. Gates has become something of a secular saint as he jets around the world discussing social justice and disease eradication. The left loves him as a rich man giving away much of his fortune for good causes. The right respects a business brain imposing financial rigour on a spendthrift aid sector. Charity chiefs and celebrities adore him, while politicians jostle to join him in the spotlight.

Clearly, he relishes his latest role, becoming increasingly influential and outspoken. He loves to lecture nations on how they should give away more of their taxpayers’ money, urging them to hit the arbitrary and anachronistic target of handing over 0.7% of gross national income in foreign aid. He has applauded David Cameron for Britain’s embrace of the target, even condemning a Lords’ committee that criticised this cash cascade, while constantly telling other countries to do the same.

But like those other aid apostles Bono and Bob Geldof, he risks being perceived as a rank hypocrite. For he sees nothing wrong in complex tax avoidance schemes while telling nations how to spend their revenues, notwithstanding the growing body of opinion that aid undermines development and democracy by propping up poorly run regimes. The latest expert to highlight this “aid illusion” is Professor Angus Deaton, the leading expert on measuring global poverty and a former true believer, in his fine book The Great Escape.

Gates says he pays his personal taxes. Great. But he made all that money from Microsoft which, like other tax-avoiding technology giants such as Amazon, Facebook and Google, uses sophisticated systems to shift paper profits around the planet and evade the designs of governments. Indeed, so extreme are its methods the company was used as a case study in a Senate investigation into US corporate tax avoidance, which found one example of offshoring profits through a tiny Puerto Rico office alone saved it $4m a day in taxes.

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Moving earnings through low corporation tax countries such as Ireland, Luxembourg and Singapore means the company saved itself, according to one estimate, almost £3bn annually in tax. A Harvard law professor pointed out that Microsoft’s divisions in three low-tax nations employed fewer than 2,000 people, but supposedly recorded about £9.4bn of pre-tax profit in 2011 – more than the 88,000 employees working in all its other global divisions.

In Britain, Microsoft reported revenues of £1.7bn in a single year for online sales on which it paid no corporation tax. This is why if you look at the small print when buying software through its British website, you find you are dealing with a Luxembourg offshoot. A newspaper investigation found a small office there with just six staff handling online sales from around Europe.

None of this is illegal, however absurd it appears. But it is highly unethical, especially when the chairman is exhorting countries to hand over taxpayers’ cash to his pet causes – and it certainly tarnishes that saintly image. According to tax campaigner Richard Murphy, Microsoft avoids a sum in tax equivalent to more than 3% of the global aid budget. Despite this, Gates was star speaker at the IF campaign rally against hunger in Hyde Park last summer – although one of the four central issues was supposed to be corporate tax dodging.

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Gates, when pressed on his firm’s tax policies, gave the usual glib response that they play by the rules. “If people want taxes at certain levels, great, set them at those levels,” he said. “But it’s not incumbent on those companies to take shareholder money and pay huge sums that aren’t required.”

Yet we all know these behemoths employ the best accountants and lawyers to engage in financial wizardry, unlike most ordinary citizens handing over their full whack of hard-earned taxes each year. In doing so, these global corporations clearly subvert national governments. Close one loophole and they simply find another, shifting assets around on their spreadsheets. This is partly why congressional researchers have estimated that in less than six decades the share of federal tax revenue coming from corporate income taxes has fallen from 32.1% to 8.9%, forcing a far bigger burden on to other taxpayers.

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Governments could do far more to challenge tax-avoiding firms, not least refusing to award them state contracts. But given his status as a development guru, Gates should question the example his own firm is setting. One of the key problems facing the developing world is capital flight, which, according to one report, takes 10 times as much out of poor countries as they receive in aid. It is not just corrupt politicians and their cronies stashing stolen cash in secret accounts, but major companies using tax havens to boost profits at the expense of the poor.

Gates has every right to do what he wants with his wealth. It is to his credit he is giving away so much, persuading other billionaires to do the same and championing causes close to his heart – although as others have pointed out, even this is not immune to tax advantages. His determination to push vaccinations and prevent malaria is laudable. But if he wants to discuss development, preach about poverty and tell nations how to spend taxpayers’ money, he should put his own house in order first.

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Twitter: @ianbirrell

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