Is Cameron giving companies the mother of all tax breaks?
BBC business editor Robert Peston on territorial taxation
There was something of a tweeting storm when George Monbiot accused David Cameron of "plotting with banks and businesses to engineer the greatest transfer of wealth from the poor and middle to the ultra-rich that this country has seen in a century".
This was quite a claim. What is he talking about?
Well, Mr Monbiot's concern appears to be a plan to bring the tax treatment of overseas branches of multinational companies in line with the tax treatment of subsidiaries of multinationals.
Which probably sounds a bit dry and technical. But the government would explain what's happening as broadly completing reforms initiated by the last Labour government, which was to tax multinationals on a territorial rather than a global basis.
Or to express that in something that is a bit nearer to English, the thrust is to tax multinationals on the profits they make in the UK, rather than on the profits they generate outside the UK. In practice what it means is that income repatriated to the UK from overseas in the form of dividends will no longer be liable to corporation tax.
The reason for moving in that direction is that multinationals are pretty mobile businesses. If they feel that being headquartered in the UK means that they will pay more tax on their global earnings than would be the case if they were headquartered in Dublin or Zurich or Singapore, then chances are that they will move to Dublin or Zurich or Singapore.
Many may not like it that big companies can hold countries to ransom over tax policy in this way, that they put fiscal advantage over patriotic fervour. But given that company law obliges company directors to give greatest weight to the interests of their shareholders, criticising company boards for striving to minimise tax is a bit like attacking gravity for making the rain fall down rather than rise up.
So with most important economies - with the exception of the US - moving in the direction of taxing corporate earnings on a national rather than global basis, it is hard for UK to go in a different direction.
It's the price of globalisation, innit?
This is how the government justifies the reform in its own policy document:
"Globalisation has meant that the world's markets have become more open and competitive. As a result companies increasingly operate across national borders and the ownership of UK businesses has become more internationally diverse. A competitive tax system should recognise this. In particular, the Government needs to ensure that the way the tax system operates for UK headquartered multinationals does not inhibit commercial business practices or make them unattractive to international investment."
As it happens, big banks like Barclays often operate abroad through branches rather than subsidiaries, and any reform which appears to deliver tax advantages to banks tends to generate controversy.
But what are we talking about in terms of the scale of advantage to multinationals?
Well, before we get on to that, it is probably worth putting the receipts from corporation tax into some kind of context.
The first thing to point out is that although corporation tax is an important source of revenue for the Exchequer, it is a long way from being the most important.
The last Budget estimated that corporation tax would raise £43bn in the current fiscal year, compared with £150bn from income tax, £99bn from national insurance, and £81bn from VAT. Personal taxation is so much more substantial than corporate taxation.
Corporation tax would not even cover half the costs of the National Health Service.
It's the tax paid by the millions of us who work for companies and institutions which largely pays for the state, not the direct taxation of the companies themselves.
Which is one reason why it matters that big companies think that the UK is a reasonable place to have an HQ and employ people - like you and me - who provide most of the government's funds.
Second, and according to new research by Oxford University's Centre for Business Taxation, multinationals have contributed 85% of all UK corporation tax revenue over the past 10 years.
So, for example, in 2007 - the year before the crash and Great Recession - UK owned multinationals paid £16.5bn of corporation tax, foreign-owned multinationals paid £17.7bn, and "domestic groups" paid only £1.1bn.
In other words, without corporation tax paid by multinationals, British multinationals and foreign ones, there would be precious little revenue at all from this source. So it seems to make sense to encourage them to stay here.
That said, the Oxford research also indicates that as a proportion of trading profit, the tax liabilities of the UK's 100 biggest companies are lower than for other businesses: unsurprisingly, big companies have the wherewithal to engage in sophisticated tax planning that reduces their tax bills.
Even so the biggest 1% of companies pay 81% of all corporation tax. So although in an ideal world, some may want the corporation tax system to be more progressive, in this less-than-ideal world big businesses are making a non-trivial contribution.
For me perhaps the most striking finding, according to the Centre for Business Taxation, is that although the UK's corporation tax rate has been well below the average for the G7 biggest economies for more than 25 years, UK corporation tax revenues as a proportion of GDP have generally been well above the G7 average.
There is some evidence, therefore, that lower headline rates which reduce the incentives for avoidance or for relocation abroad increase the overall take from companies.
But back to where we started. What about the direct impact of the government's plan to tax the overseas branches of multinationals on the same basis as their overseas subsidiaries?
George Monbiot warns that if dividends from overseas branches of multinationals become exempt from tax, that will create an incentive for multinationals to relocate more of their operations to these overseas branches situated in low-tax countries, such as Switzerland, Ireland or Singapore.
But that is to ignore the enormous current incentive for multinationals right now to relocate every single bit of their operations to low-tax countries, irrespective of what happens to the taxation of dividends from branches.
In other words, the government seems to be trying to do precisely the opposite of what Mr Monbiot accuses it of doing: it is trying to stem the exodus of companies and their assets abroad.
Which is not to say there is no cost to exempting branch dividends from UK corporation tax. The Treasury estimates it at £100m per annum by 2014/15, subject to confirmation by the Office of Budget Responsibility
That's equivalent to 0.2% of all revenue raised through corporation tax, and 0.3% of UK corporation tax paid by multinationals, which will be the beneficiaries.
This is precious money given away at a time when the government is looking for brass farthings wherever they may lurk.
But unless you believe that a fiendish conspiracy of multinationals has somehow succeeding in gulling the Treasury and HMRC about the true cost of all this, it isn't - to quote Mr Monbiot - one of "the biggest and crudest corporate tax cuts in living memory".
You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.