Net closes on digital firms

THE digital giants are an integral part of all of our lives. In much the same way as the online champions claim that the freedom of the web is sacrosanct and resist blocking unacceptable material, so they also believe that they have the right to arbitrage national tax regimes.

President Trump seeks to combat the problem by dramatically lowering corporate taxes and offering big concessions to firms which repatriate funds to the US.

The European Commission is using competition law to force Apple to pay up to £11.5bn of what it regards as tax subsidies.

Britain wants to get in on the act. As the biggest host in Europe to the Silicon Valley giants, it has been reluctant.

Big digital employs 1.5m people across the UK and invested some £6.8bn in 2016.

But with other enterprises complaining that disrupters unfairly destroy business models, the Treasury is closing in.

Ultimately the UK’s favoured approach would be an international deal which taxed user participation. But that looks incredibly difficult to operate. So Chancellor Philip Hammond looks to have settled on an interim measure which would tax national turnover rather than profits which are so easily shifted. The idea of such an imputed tax is not a new idea. But the UK is loath to move alone and would like the support of the G20 and the OECD which is tasked with ending global tax avoidance.

Winning allied support is going to be a mountain to climb. But if the UK goes it alone it will risk sacrificing future investment to tax-free locations. Failure to take steps could make life more difficult for ordinary tax paying bricks-and-mortar firms such as department stores.

The Chancellor needs to grit his teeth and go ahead. It may be necessary to assuage business and public anger.

Aviva votes

THE speed with which David Cumming, chief investment officer of Aviva, voted the fund manager’s shares in favour of the £8bn hostile Melrose bid for GKN is curious.

As the holder of a 5pc-plus stake in Melrose and negligible holding in GKN, arguably Aviva may have felt it had no choice.

But as a UK-based long investor which subscribes to better governance, the vote damages the credibility of Cumming and doesn’t do much for Aviva’s reputation.

Melrose has well established management skills. But that is not a licence to flout governance codes.

The group’s executive team stands to collect £285m in incentive shares if it delivers on reshaping GKN in addition to the £487m collected on past transactions.

Chaired by Chris Miller, Melrose makes no secret of the fact that it likes to use a ‘private equity’ model.

Nevertheless, payments on this scale within the context of a quoted enterprise are unhelpful.

What is disturbing about Aviva’s vote is the approach of Cumming.

For many years he was the voice of Standard Life Investments, standing up for shareholders in the face of rapacious management. Among other things, Standard Life was brave enough to travel to the Hague in the Netherlands to speak up against fat cattery in the Shell boardroom.

Cumming inveighed against the Shell takeover of the exploration firm BG Group. He was also at the forefront of the battle against ‘golden handcuffs’ for Xstrata bosses at the time of Glencore’s takeover in 2012.

The transformation of Cumming as a battler for shareholder rights into a backer of a Melrose which doesn’t do normal governance is extraordinary.

Aviva does have a record of backing activists over long term investors. It sided with corporate raider Ed Bramson when it took control of one of the UK’s oldest names, F&C Asset Management, in 2010. Investors in Aviva and General Accident’s high yielding Irredeemable Preference shares are fearful of an attempt to buy them out.

The financial community expects its biggest players to be good corporate citizens.

Aviva risks being linked too closely with the get-rich-quick culture.

Joys of Spring

FULL marks to PR chiefs at Glaxosmithkline and Lloyds for recognising the Cheltenham Festival and the Chancellor’s Spring Statement offered a great opportunity to avoid headlines.

Both chose to release annual reports detailing bosses’ pay.

For the record, Emma Walmsley at GSK picked up £4.9m and Antonio Horta Osorio at Lloyds received £7.2m.

All fantastically deserved no doubt.