FT.com / Companies / Financial Services - ‘Enormous’ adviser fees spark warning.
City apologists who vist this bloog spend ages talkinmg about he incidence of taxes on companies - claiming they fall on law paid labour and pensioners and so should not be charged. This I dispute.
But I bet there will be silence from them on this report from the FT:
The “enormous” fees paid to investment banks for advising companies on deals might be skewing the outcome of takeovers, the UK’s leading group of institutional shareholders has warned.
The Association of British Insurers said companies and regulators needed to take a close look at the advisory arrangements. The fees were a “deadweight cost” on shareholders that could swallow a significant part of savings derived from mergers and acquisitions.
That means someone bears the incidence of these costs. There's no doubt who in this case - it is labour made unemployed to try to recoup these costs (note Cadbury / Kraft) and secondly pensioners etc who really own shares.
This charge is intended to shift wealth from the least well off to the most well off - in the financial services sector. That is obvious.
Just as it is obvious that corporation tax is needed as what is, in effect a withholding tax to ensure that capital that hides in tax havens and other untaxed structures makes its fair contribution to society.
But the obvious is not obvious when the self interest of bankers and their apologists is at issue, except to thje extent that we can obviously expect them to create any cock and bull story that disguises the truth.
As evidence - do you remember 'trickle down'?
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Richard,
Of course there will be ‘silence’ if you disallow comments.
Self-delusion eventually catches up.
Georges
All comments are welcome on this site subject to the entirely reasonable terms noted here http://www.taxresearch.org.uk/Blog/comments/
And thank heavens Richard is sticking to the terms. I now have much more free time:o)
The companies could perfectly reduce the “charge” represented by the “enormous” advisory fees by doing one of two things:
1. Not use an advisor at all, or insource the advisory services by hiring financial professionals;
2. Negotiate better fees from competing advisory services providers
The fact is not only that companies not only almost always hire one or more external advisers, but also that despite the presence a large field of firms potentially able to provide similar services even for a lower fee, they seem to consistently call on the same small number of Wall Street investment banks, complemented in Europe by a handful of local institutions.
This indicates to me that these companies find the external advisory services they receive to be valuable, and that the value is in many instances such that it is not worth bargaining for lower fees.
So it is unfair to only look at the “charge” from the advisory firms without looking at the value of the services received in return. After all, in the case on Cadbury/Kraft, Cadbury’s advisors helped achieve several increases in the offer for the company. This was valuable to the shareholders, and the total incidence of the “package” on stakeholders is likely to be positive.
A tax is fundamentally different; it is a “charge” imposed on a company which has no choice or ability to avoid it (or negotiate its terms down), other than by discontinuing the activity subject to the charge. Therefore the total incidence will always be negative.