#G8: Taxation should remain focused on capital and employees not where sales are generated…

Sammy Wilson’s negative comments re the Republic’s tax regime at the weekend, just before the G8 convened, was clearly jumping on board mumbling from the US Congress, and Westminster PAC…

…the British government does have some leverage on the Irish Government there, because they have a £7.5 billion loan, that is a lot of leverage. They should be saying to the government in the Republic, you cannot steal tax revenue from us in this way and that is in fact what has been happening.[emphasis added]

[Maybe that’s the reason Sammy’s bid to get Corpo Tax ramped down from Westminster is working so well? – Ed]

Yesterday, Senator Daragh O’Brien of Fianna Fail responded…

….perhaps the most concerning element of Minister Wilson’s intervention is the apparent contradiction between his comments and his previously expressed support for the campaign to reduce Northern Ireland’s corporation tax rate to bring it in line with the Republic.

Well, quite. Though Sammy is not known for nailing any flag to the political flagpole that cannot be quietly taken down afterwards [like Sammy’s signature on EDM 850? – Ed]. And he always has his weather eye open for any useful base pleasing passing bandwagon.

As Oliver Hill notes in the Telegraph, the immediate trigger for this particular bandwagon was Google’s recent grilling in Westminster:

Google’s tax arrangements have been at the centre of a public row over corporate tax after it emerged that the company had generated $18bn of revenue in Britain from 2006 to 2011 but only paid $16m in taxes to British authorities.

Though in yesterday’s FT, Eric Schmidt noted that it was the UK which pioneered some of the tax engineering that brought some substantive successes:

The UK led the way in Europe in the 1980s, with generous manufacturing incentives for carmakers. Nissan, for example, was given land at heavily subsidised rates to build its assembly plant in Sunderland. Thirty years on, this Japanese company is a mainstay of the UK’s manufacturing base, as well as a beacon of “British” productivity and innovation.

He went on…

It is why many European countries have created tax incentives specifically to encourage investment in research and development and intellectual “capital” – the ideas and innovation that are critical to many companies’ success in today’s information economy. In the UK, both the Labour party and the Conservatives have supported the idea of a so-called “patent box”, a tax incentive that was finally introduced in April and which halves corporation tax on profits from patented inventions to just 10 per cent. That is lower than Ireland’s headline rate of 12.5 per cent, and way less than Google’s overall global corporate tax rate of 19 per cent in 2012.

Still reading Sammy? The tax haven (a large number of the genuine articles of which are in British Overseas Territories) accusation against the south doesn’t stand up as anything more than a political play in Congress. It is nonetheless worrying for Ireland that has such deep links into US corporate business. As Arthur Beesley notes this morning:

…something which could yet cause problems for Ireland, given persistent political attacks in the US against the tax strategies deployed in Ireland by Apple Computer and other big multinationals.

Although Taoiseach Enda Kenny insists Ireland has nothing to fear, the reputational damage from the Apple revelations is quietly acknowledged in Dublin. As world leaders seek to boost their battered finances by collecting more tax from increasingly profitable big business, small tax payments from certain major multinationals expose Ireland to assault.

A paper published by the OECD (A step change in Tax Transparency) this morning and commissioned by the G8, poses perhaps a more direct threat to the Irish economic situation by proposing to tackle base erosion and profit shifting.

Angel Gurría, OECD secretary general:

“We will also need to close the tax avoidance loopholes used by multinational corporations, create a level playing field and help governments – – in developed and developing countries alike – to raise the revenues they need to provide their citizens with the services they deserve.”

The point made by John Gulliver on Morning Ireland this morning is a clear one. According to him the UK and France are looking for a cut corporate on profits and sales away from from the country is which they are headquartered…

[Ireland] should definitely steer clear of going down the sales route. I mean it is quite clear that what Europe has for sales tax is VAT. That’s an end user tax on people who buy the eventual product. The key is to look at who’s got the employees, who’s got the capital, who’s got the real base?

Some countries are better at certain industries than others. For example the UK has a very strong financial services base, a very strong car industry. So leave the car industry there, leave it in the UK [and let Ireland] play to our strengths.

Odd that no northern Irish nationalist voice was raised in defence of the Republic’s tax regime, although Gerry Adams did manage to extract his own clownish revenge on the DUP Finance Minister whilst they were waiting for the arrival of the President of the United States…

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  • Greenflag

    What is Sammy on about ? The Government of which he is a member gets not a loan but a £7.5 billion subvention every year so that living standards in Northern Ireland can remain at roughly 60% of those in the the South East of England .

    The problem for Ireland and Northern Ireland and indeed all those countries /states which want to attract FDI is that when every country becomes a low tax haven for multinational corporations then a race to the bottom ensues with revenue consequences which inevitably lead to cuts in basic services and an undermining of the social contract which many of us forget underpins what we call democracy.

    In the USA the Southern States have adopted similar low tax strategies . The evidence so far is that this kind of beggar my neighbour (state) has done nothing to improve educational standards or reduce the income gap between the minority who have taken most of the productivity gains of the last 20 years and the majority who have had no real benefit other than to see their ‘share’ of the real economy decline .

    Ireland (Republic ) was lucky to be among the first to see benefit from low corporation tax policies but 2013 is not the 1960’s ,

  • FuturePhysicist

    You can read the Sinn Féin and SDLP voices in this, both defending it.

    http://www.theyworkforyou.com/ni/?id=2012-10-08.6.39&s=Tax+Republic+Ireland+SDLP#g6.127

  • Morpheus

    I think before opening his mouth to accuse Northern Ireland’s biggest trading partners and the UK’s 5th biggest trading partner of theft Sammy ‘The Bluffer’ Wilson should look a little bit closer to home. One if five of the world’s tax havens are in the UK which facilitate an estimated £16,000m per year in lost revenue for HMRC. Only two of FTSE 100 have no subsidiaries in havens and the UK’s 100 biggest public companies are running more than 8,000 subsidiaries or joint ventures in onshore and offshore tax havens

    “Lord Oakeshott, the Liberal Democrat peer, who resigned as the party’s Treasury spokesman after criticising the government’s deal on banking regulation as “pitiful” said: “Tax transparency must start at home. ActionAid’s devastating research makes us ashamed to be British. Far too many of Britain’s top companies wash billions of profits through pipelines of British tax havens to vanish behind shiny brass plates in shady places. Cameron and Osborne can’t strut the world stage as fair tax crusaders until they end this tax abuse, starting with the banks we own, RBS and Lloyds.”

    How’s that for Patriotism?

    Stealing my backside, this was about taking a shot – any shot – at the ROI because that is the cut of the man. Northern Ireland PLC is running at a £10,500m loss every year with spending out of control – do your job and get that in order Sammy.

  • Mick Fealty

    GF,

    I think your last line speaks directly to Ireland’s real dilemma…

    The Nissan example succeeded I suspect for a couple of specific reasons. Ireland’s benefits, by comparison are likely to be small (close to zero corpo tax returns are not great advantage to the public purse) and may prove transient:

    – they actually make stuff for a large domestic (and overseas) market. There is a substantial saving on transport.

    – Japanese corporate culture is more committed to people and place and their UK counterparts, so a downturn in profits are dealt within a developmental cycle of 10-15 years, not over three or four quarters

    The real question is what does Ireland do now, before the climate changes? And what will it (and NI, if anything?) lose as a result of such changes?

  • http://gravatar.com/joeharron Mister_Joe

    As I said on another thread, Sammy, the Main man, is simply polishing his comedy routine. He got carried away after his interview by Ali G.

  • Old Mortality

    Sammy Wilson either hasn’t given much thought to this matter or it’s too complicated for him. The real issue with the RoI is not that it ‘steals’ corporate tax revenue from its neighbours but that it facilitates avoidance on an epic scale by large US technology companies without much direct benefit to its own revenues.
    Clearly, having a low rate of corporation tax isn’t good enough any more.

  • Neil

    without much direct benefit to its own revenues.

    Let’s look at that for a second. Google alone has 1500 employees. Assuming an average wage of around 100,000 euros a year that yields a miserly 150 million euros a year. So over a ten year period that amounts to 1.5 billion. Hardly peanuts, and that’s before corporation tax is paid, pittance or otherwise.

  • Morpheus

    “…without much direct benefit to its own revenues.”

    I think Ireland realized that the benefits received from having more people in work (Google 1900+, Microsoft 1200+, Dell 900+, Oracle 1000+ etc) and paying income tax, USC and having money in their pockets to buy things putting VAT, fuel duty etc. into the coffers far outweighed any loss made in a reduction in CT.

    Look at NI – in 2010/2011 we got 20.3% of our income from Income Tax and further 15.3% from NIC – when we compare that 35.6% to the 6.1% we got from CT then if a lower CT leads to more people in work the better it will be for the economy.

    http://www.dfpni.gov.uk/northern-ireland-net-fiscal-balance-report-09-10-10-11.pdf

  • Mick Fealty

    Not peanuts, no.

  • Mick Fealty

    Morph,

    You ought to tell that to Sammy… ;-)

  • FuturePhysicist

    What is Sammy on about ? The Government of which he is a member gets not a loan but a £7.5 billion subvention every year so that living standards in Northern Ireland can remain at roughly 60% of those in the the South East of England .

    The problem for Ireland and Northern Ireland and indeed all those countries /states which want to attract FDI is that when every country becomes a low tax haven for multinational corporations then a race to the bottom ensues with revenue consequences which inevitably lead to cuts in basic services and an undermining of the social contract which many of us forget underpins what we call democracy.

    The other problem is that by trying to beat the Republic in this race to the bottom is that it does not directly incentive FDI. The leverage arguement is ridiculous that somehow Northern Ireland would reap the rewards if corporation tax in the Republic go up, in that regard FDI will simply move to the Netherlands and Luxembourg, you never hear this “bottom shifting” argument from a Unionist politician though, if you can’t grow your own economy it’s better to destroy someone else’s even when the net effect is an increase of a decline on your own, I would call it a Conservative arguement but it even attacks the very ethos of that ideology.

    The alternative of trying to “harmonise corporation tax rate” as you have mentioned is that the Laffer Curve gains may be complex or indeed limited, revenue from private infrastructure substitutes state investment and brings in more from indirect taxes and financial liquidity increases, providing in market revenue for small businesses, charities and workers, it provides enterprise and expertise generally not provided by the state. However these tax avoidance measures are not down to paying low levels corporation tax, as even that tax rate is avoided by shuffling the books creating pseudo-businesses investments to protect profits from the taxman. That is a Europe wide problem of dodgery which is essentially a battle between regulators and accountants etc.

    Maybe lowering income tax to accountants on provision of good compliance and raising taxes on the basis of regulation might promote tax avoidance avoidance.

  • FuturePhysicist

    Basis of regulation needed to be used.

  • Alias

    “It’s actually a lot of leverage for the state that has the 7.5b on the state that lent it.”

    The Irish government know that offering nominal taxes to foreign companies to create jobs in Ireland became counterproductive in the early part of 2000s when the EU decided that free movement of labour within the EU was not to be controlled by Member States. The consequence of that policy was that Irish taxpayers were left paying huge grants for the sole purpose of creating jobs for foreign workers in Ireland. In addition, they were paying for associated health care, social welfare, and education costs. The foreign companies also used the pretext of not being able to secure suitable skills from Ireland or the rest of the EU to gain wholesale works visa for non-EU nationals. The result is that the Irish are typically the minority in these companies but that minority is funding the foreign majority. The dire dilemma for the Irish government is that any attempt to change a domestic policy that was defeated by the EU will trigger the exit of these companies, with nothing to replace them and with a massive increase in social security payments to unemployed workers.

    From the UK’s perspective 18 billion being sucked out of its domestic economy every year by a virtual service offered by Google is bound to be counterproductive to British national interests. Even if they could tax half of it they’d still be losing a vast amount from their vital domestic economy so taxation is only part of the solution. Unfortunately, they no longer have the sovereignty to fix the other part.

  • Alias

    Should read:

    “the British government does have some leverage on the Irish Government there, because they have a £7.5 billion loan, that is a lot of leverage.”

    It’s actually a lot of leverage for the state that has the 7.5b on the state that lent it.

  • Morpheus

    “Morph, You ought to tell that to Sammy”

    I was dialling and redialling to get on Nolan to have a go at the bluffer Mick. :)

  • Greenflag

    @ Mick ,
    It’s not just a dilemma for Ireland or a would be salve for Northern Ireland’s lack of FDI it’s a worldwide problem for nations trying to develop their economies in the absence of significant natural resources and access to capital . The strategy worked very well for the Republic up to the present and will continue to so for the immediate future .Beyond that much will depend on what is ‘regulated ‘ by the major financial powers re ‘tax havens ‘ , Crown colonies , Switzerland etc .

    Nissan succeeded in the UK North East -How could it not given that the area had been turned into an industrial wasteland during the Thatcher years .The real question to ask here is what happened to the British car industry overall ? and it’s shipbuilding and engineering during the 1980’s and 90’s . By comparison the German auto industry has never been stronger or bigger than it is today .

    ‘Japanese corporate culture is more committed to people and place and their UK counterparts, so a downturn in profits are dealt within a developmental cycle of 10-15 years, not over three or four quarters’

    Not as much as formerly Mick .I’ve lived and worked in Japan and have seen their corporate and industrial culture at work .At a time when it would have taken Harland & Wolf two years and 10,000 employees to build a 500,000 ton Oil tanker the Japanese Chita Shipyards were producing the same size tanker on an assembly line a mile and a half in length. in six months with a workforce of 1,760 . One of my colleagues at the time an NI man who had H&W connections paled visibly when he saw the operation in progress.

    But Japan 2013 is not the Japan of the 1980’s .The ‘guaranteed’ lifetime employment in return for absolute loyalty to the Kaisha (Company) has been on the wane . Now some 50% of new Japanese entrants to the workforce are ‘temporary ‘ -no guarantees -no automatic annual increases etc etc .

    ‘The real question is what does Ireland do now, before the climate changes? ‘

    Much will depend on how the major financial powers ‘reform ‘ the international currency system and the associated off shore tax avoidance business not excluding the very much onshore Delaware incentives for US based corporations .
    I have strong doubts that much of the political palaver and hype surrounding the ‘tax haven ‘ industry . will end upo being more than that.What got the subject on the agenda was of course the world wide financial chaos starting back in 2007 and that has still yet not worked it’s way back to ‘normality ‘ Just look at interest rates ffs .

    And what will it (and NI, if anything?) lose as a result of such changes?.

    Just as NI benefited when the Celtic tiger roared then it can expect to lose if the Republic ‘loses ‘ The ‘economy’ relationship between the Republic and NI is much like what used to be the situation between the UK and the Republic in the 1960’s and 1970’s .

    One thing is certain and that is that economic policy will need to favour small and medium sized Irish and other owned businesses much more so than in the past couple of decades if we are to get the economic growth needed to maintain and grow prosperity . The days of depending on manna from the Googles of the Earth are on the wane . But then nobody expected them to last forever either .Nothing does.

  • Greenflag

    @ future physicist ,

    The leverage arguement is ridiculous that somehow Northern Ireland would reap the rewards if corporation tax in the Republic go up, in that regard FDI will simply move to the Netherlands and Luxembourg, ‘

    Eh no . Luxembourg is too expensive and has virtual full emplyment and the Netherlands is almost as good . Poland , Slovenia , Slovakia or Hungary are more liklely destinations .

    ‘you never hear this “bottom shifting” argument from a Unionist politician ‘

    Do you ever hear anything from Unionist politicians on the NI economy other than pleas for Westminster to keep sending the dosh and more please :( To be fair they are between a rock and Whitehall which is also on the rocks ).

  • derrydave

    Sammy Wilsons idiotic pronouncement says more about him and his lack of understanding of international taxation and politics on a macro scale than it does about anything else. It is what you would expect from a school-teacher turned small-town DUP politician. rather than someone who was a finance minister in an executive. The fact that he was / is the finance minister in the NI executive unfortunately says a lot about us and the society we live in. That this the calibre of person we have serving as finance minister is just laughable really. I cringed with embarrassment when I read his statement – what must the world outside think when it reads nonsense like that and reflects on the fact that this idiot is / was the finance minister in the NI executive ? What must todays business leaders in NI think when this read this guff ? Just sooooo embarrassed to be from NI, and glad that my work colleagues do not pay any attention to the news that comes from our little corner of the earth.

  • Banjaxed

    Just when your blood vessels are about to burst at profligacy of the security machine around the G8 charade, we have the DUP’s Coco the Clown to lighten the discussion with his truly idiotic comments. Of course, Sammy, in his -ahem!- wisdom doesn’t see any irony or contradiction in his entreaties to Westminster to reduce Corporation Tax in the North to compete with the South and thus, in the end, ‘stealing’ (more) money from the British exchequer.

    Ah Jeeziz, stop it, Sammy, you’re killing me! Ho!, ho!, ho!….

  • Mick Fealty

    Just found this… Robert Shapiro, a senior economic advisor to Barack Obama back in 2008 (http://goo.gl/eRPKo), giving an early warning of the way things are going:

    “FDI was a transitional strategy, not an end-game strategy, that created a lasting impact. The key to Ireland’s next stage was to make the entire economy a modern economy and not one that depended on the success of foreign companies. The ability to develop ideas is the single most critical factor and source of wealth and growth for advanced economies today, replacing physical assets and this is what Ireland needed to focus on.”

  • Reader

    Banjaxed: Of course, Sammy, in his -ahem!- wisdom doesn’t see any irony or contradiction in his entreaties to Westminster to reduce Corporation Tax in the North to compete with the South and thus, in the end, ‘stealing’ (more) money from the British exchequer.
    Sammy may have spotted the subtle point that you missed: A low corporation tax rate in a small part of a large country may attract foreign investment that more than makes up for not raking in so much from existing taxpayers. Attracting the same foreign companies to England would not be worth the tax lost from existing companies in England. If it turns out that low corporation tax boosts local enterprise, that’s a bonus, but not to be counted on.
    The reasons that it probably won’t happen are: because Sammy etc. won’t take the tax gamble without underwriting from Westminster; because the Scots and Welsh will want the same; because the English will get resentful; because the great days of FDI and corporate tax tourism may be coming to a close; and because the EU will be unhappy.
    The possibility that the whole thing may make a loss to the exchequer is a risk that Stormont won’t take. Westminster reservations are very different.

  • Mick Fealty

    Oh, and… Better late than never… Sinn Fein finally got something moving on Sammy’s outburst a day after Fianna Fail at some point today…

    “Mr Wilson’s latest foray into fantasy economics was his inflammatory and insulting accusation that the Irish government is ‘stealing UK taxes’. He then – as he regularly does – grabs figures out of the air to support his penchant for exaggeration.

    “The Finance Minister’s claim that the Irish government obtained a £7.9 billion loan from Britain is way off the mark. In fact a law enacted in Westminster to give effect to the loan limited any lending to £3.2 billion (€3.76 billion), of which £2.42 billion (€2.85 billion) has so far been released and due for repayment in 2019 and 2020. A simple financial contractual transaction between two parties!

    Note there is no questioning of Sammy’s commitment to aligning northern and southern corporation tax regimes… And I love the fact that the ‘Brits owe us £6billion’ was taken directly from Sammy’s little book of made up figures and used without question in the Border poll debate…

    Which is exactly the point Daragh O’Brien went on to make yesterday…

    Fianna Fáil supports the campaign to introduce a new, lower corporation tax rate for Northern Ireland to support economic development in the region. We have also expressed concern about the slow pace of progress on the campaign.

    “Watching the Northern Executive’s Finance Minister distort the impact of the Irish tax system in the way he did yesterday raises further concerns about the effect his remarks will have on convincing British policy makers to move on the plan. Indeed, it also raises question marks about the Minister’s personal level of support for the campaign.”

  • Delphin

    Surely Sammy was tailoring his comments for consumption by the DUP faithful in Larne and environs and you don’t want or need to get to sophisticated for them.
    Ireland, north and south are fixated on FDI – it appears to be the main target of InvestNI. Locally grown businesses such as the pharmaceutical companies and Wright Bus offer a more sustainable way forward.

  • SDLP supporter

    Sammy Wilson’s comment is just the latest manifestation of the man’s atavistic and pathological bigotry. As my late Mum would have said, ‘a jumped-up corner-boy’. He is not stupid but would only be able to function as a Finance Minister in an entity as dysfunctional and as collectivlow-wattage as the NI Executive.
    What is more concerning is that none of the other parties, but particularly SDLP and Sinn Fein, appear to have an MLA/MP immediately capable of rebutting his remarks. As regards the SDLP, this mystifies me as there are people sympathetic to their POV who could give them a good steer. And, no, I’m not referring to myself
    The issues are reasonably complex, but in this matter you do need a spokesperson who is either competent in fiscal/taxation matters, or has access to such advice, and an MLA who is capable of taking a brief and able to understand the issues involved. The main points, additional to the ones already made on this thread are:
    1. the RoI gains significant employment from US multinationals, about 150,000 people, so that there is real value being added by the activities and the US has largely got itself to blame for the fact that their tax code facilitates their multinationals maximising their profits abroad and that these profits only become liable to US tax when they are re-patriated, so incentivising the multinationals to put them in tax havens.
    2. Individual national tax systems are a construct of nineteenth and early twentieth century capitalism and completely inadequate for a 21st century global economy when profits are made by Google and the like where the product that is sold is often literally intangible. The major economies will, of course, run a mile from a global tax system to make the Googles, Amazons and Starbucks accountable as it would mean taking a step towards genuine world government and ceding sovereignty.
    3. Nominal Corporation Tax rates also mean very little and the crucial rate is the effective one. Sammy may complain about RoI’s 12.5% but Chancellor Osborne has already committed to lowering the UK’s rate to 20% and France, for example, gives all sorts of allowances to lower their effective rate while the Netherlands does dodgy deals on royalties (Bono and U2 channel their revenues through there).
    4. As the Archbishop of York, John Sentanu rightly said “they’re all at it”.
    5. British Dependencies (Channel Islands, Bermuda, Caymans and the like) are the biggest global facilitators of tax evasion and money-laundering and it would be quite justifiable for any number of foreign governments to say that these dependencies are siphoning off their rightful tax revenues. Shaxson’s ‘Treasure Islands’ makes the point very well as well as the work of Richard Murphy and others. Private Eye magazine has done ground-breaking work in this area.
    All this being said, the campaign for 12.5% CT in NI is dead in the water: the whole zeitgeist is against it.

  • Banjaxed

    Reader

    1. Sammy, in his -ahem!- wisdom
    and
    2.
    Sammy may have spotted the subtle point that you missed ‘you’

    Thank you, Reader, for your help but, from my experience of Sammy/Coco, he doesn’t do subtlety either.
    Your point is well made nonetheless and, quite obviously, was the driving force behind the Minister deeply considered comments.

    (Noises off) Has Banjaxed’s keyboard been hijacked by DUP press office?

  • Banjaxed

    ‘Has Banjaxed’s keyboard been hijacked by DUP press office?’

    Clearly it has, as the formatting went doolally!.

  • aquifer

    Mick

    Thanks for the Robert Shapiro quote:

    £”The ability to develop ideas is the single most critical factor and source of wealth and growth for advanced economies today, replacing physical assets and this is what Ireland needed to focus on.”

    And the UK pays 10% corporation tax on patents.

    So if we fill in the ‘valley of death’ between idea and saleable product, and build expertise in testing and certification, we might have an economy.

    So what does an ideas farm look like?

    Lots of people getting together and talking?

    We have the hotels for the coffee breaks and the roads and budget airlines to get people home to all those spare houses afterwards, so what’s the problem?

    Unlikely combinations are a good source of ideas. Old sectors, new technologies, immigrants, academics and business people.

    Like speed dating for strange singles.

    Add big questions like: How do we get water and energy at the places that need it?

    THe £ was a typo but looks right so it stays in.

  • Greenflag

    @ SDLP supporter .

    Good post above @ 18 June 2013 at 7:46 pm.

    ‘As the Archbishop of York, John Sentanu rightly said “they’re all at it”.’

    I don’t often congratulate Archbishops of any denomination for speaking truth but in this case I’ll make an exception:)

    He might have added that not only are they (the politicians all at it ‘ but he could have added that in many cases their ‘re-election possibilities depend on it :( MInd you people have only themselves to blame as many won’t even bother to vote the ‘bought ‘politicians out of office .

    Sammy Wilson’s comment is just the latest manifestation of the man’s atavistic and

  • SDLP supporter

    With the prior knowledge of 416 jobs coming to his own constituency from the Japanese inward investment, we have some insight as to why Sammy Wilson chose to be triumphalist.

    Larne hasn’t exactly been starved of inward investment over the decades and DUP-friendly public servants are in place in all the inward investment command positions. At the moment McGuinness is being given the run-around by Robinson, of becoming Robin to Peter’s Batman.

    It’ll not be long before someone puts the ‘Uncle Tom’ tag on him.