UKIP frequently describe the EU as a large, expensive, bureaucratic nightmare, stating that we pay into the EU more than we get out. Yet at a time when the EU seeks to change that, by tackling tax evasion and avoidance, potentially saving member states in total 7 times the EU’s annual budget, UKIP vote en masse against it.
This week the EU Parliament voted to halve the €1 tn lost due to tax evasion and avoidance by 2020 by closing tax loopholes and tax havens. This is to be achieved by tightening some of the agreements between tax havens such as Lichtenstein, Switzerland, Monaco, San Marino and Andorra. It will also aim to increase the transparency of banking and reported incomes between tax regimes. The purpose is not to harmonise tax regime across the EU, but to give member states’ tax authorities full access to the financial information they require.
In the UK the estimated cost of tax evasion to the Inland Revenue is £4 bn. This isn’t taking into account the cost of tax avoidance. In 2012 the UK contributed £6.5 bn to the EU budget. This motion if passed would effectively bring an extra £2 bn (at least) to the UK economy – one third of the UK contribution to the EU!
This is hugely popular policy. As many people are feeling the effects of austerity there is something inherently unfair when large international companies are able to avoid paying their tax through accounting loopholes.
However, I agree with Eric Schmidt, the CEO of Google who told Ed Miliband it was the politicians who are responsible for setting tax law. It isn’t the responsibility of the company to tell governments how they should act. This why I am extremely supportive of this current proposal which would aim to determine where profits are made, to enable tax authorities to have full information on financials and to curb tax havens by working cooperatively across nations to ensure companies pay their fair share of tax. Google and the like will remain in the UK, it is too important a market for them not to, but it is our job as politicians to ensure that the tax laws are simple and unavoidable so that they must pay their way.
It is for this reason I am disappointed with UKIP’s reaction. Why would they seek to stop the EU from aiding in member states ending tax evasion? The only reason I can see is a political one. This is yet another example of where the EU can demonstrate its international strength to increase member states’ revenue. How can UKIP portray the EU as a waste of time and money when it is aiding member states overcome such a huge problem?
In the end this passed in the European Parliament with 582 votes for and 35 votes against (9 of these coming from UKIP).
* Richard Davis is a prospective Member of the European Parliament for London. His website is here.
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21 Comments
Well let me tell you a lot of these anti avoidance measures are just wasting taxpayers’ money, despite the inflated figures quoted.
I would have voted against the general anti avoidance rule, but it doesn’t make me unconcerned about tax avoidance. Sometimes there are just better solutions that require a little bit more courage.
Will this measure make Google, Amazon, Starbucks or Apple pay more tax? Or are you just fiddling with the edges?
I’m furious when it comes to people grandstanding over this issue. The Liberal Democrats have increased corporate tax reliefs so we obviously don’t care too much. How is it that Amazon can receive more in tax relief than tax paid? This makes me furious at politicians, NOT AMAZON!
And Mr. Sammon, your answer is?
Eddie,
I suspect that you have slightly missed the point here, having been led astray by the article.
One of the key difficulties facing national tax authorities when tackling evasion, as opposed to avoidance, is a lack of transparency. If a company tells HMRC that most of its income is actually that of a foreign group member, how can you be certain that they are telling the relevant overseas authority the same thing?
This proposal therefore provides greater clarity as to where the profits are being declared, allowing the various national tax authorities to ensure that the correct amount of tax is paid in each jurisdiction. Tax planning is therefore not affected, but tax evasion is more effectively attacked.
Funnily enough, I don’t take a particularly emotional view about tax avoidance, especially where a company takes advantage of differences in national rates of taxation – that’s what a free market is all about, after all. Where companies are creating wholly artificial structures in order to avoid tax, tax law does already allow collaboration to challenge it.
The second element is overcoming secrecy rules in countries such as Liechtenstein and Andorra, but also places like Austria. The United Kingdom is undertaking similar exercises with regards to places such as the British Virgin Islands and the Turks and Caicos Islands, which have banking and corporate law regimes that allow money to be hidden and ownership obscured.
So, none of this has anything to do with a general anti avoidance law, but allows easier supervision to ensure compliance with existing legislation.
And as for wasting taxpayers’ money, the Liechtenstein Disclosure Facility is expected to bring in about £3 billion in additional tax revenues in return for very little in the way of additional HMRC resourcing, and the recent deal agreed with the Swiss authorities is expected to raise an additional £5 billion.
So, in summary, the proposals improve transparency, address the issue of the use of havens to hide capital and income, but have little or no impact on the ability of national tax authorities to act independently otherwise. Indeed, exchange of information is already envisaged by the network of Double Taxation Conventions already in existence.
Mark
“And as for wasting taxpayers’ money, the Liechtenstein Disclosure Facility is expected to bring in about £3 billion in additional tax revenues in return for very little in the way of additional HMRC resourcing, and the recent deal agreed with the Swiss authorities is expected to raise an additional £5 billion.”
I think it would be very interesting to look at the calculations used to justify these ‘expectations’; the methodology used; the proposed methodology to determine whether they do deliver these amounts; and the extent to which these things can be independently verified. Judging by the misinformation routinely given to parliamentarians from HMRC and the cosy relationships between government auditors and the HMRC, I do have some doubts as to the veracity of such grand numbers.
David,
I think that you make a interesting point. Of course, due to taxpayer confidentiality, there is very little to be done in terms of independent verification, and the final figure won’t be known until 2016/17 in any event.
But, regardless, the estimate of £3 billion is an increase from the original estimate of £1 billion, and was based on the data from 1,200 taxpayers who had already used it as at January 2011 .(http://www.guardian.co.uk/business/2011/jan/11/liechtenstein-offshore-tax-havens)
Good article Richard,
while I would make a clear distinction between illegal tax evasion and legal tax avoiidance (aggresive or not) there are huge gains to be made in tacking organised crime at a European level in the area of VAT fraud alone.
The so called Carousel or Missing Trader Fraud is a particular problem in the UK, costijng tens of billions in lost revenues, that can only be effectively combatted by the establishment of agreements with other EU member states.
The tax haven report by UK union Public & Commercial Services – aka PCS, The Tax Justice Network and War on Want, accuses the Government of actively encouraging the use of tax havens and sets out a number of reforms to plug a tax gap that it believes currently amounts to £120 billion.
The above report is about Osborne’s attempt at window dressing his attempts at getting back some of that £120 billion- which he has NO INTENTION of doing….But it just might recover a few billion a year. One of the Apple companies manages to tell different stories to each tax authority … and ends up paying zero tax to everybody !
One Irish subsidiary that the investigators singled out is Apple Operations International (AOI), which had not filed a tax return in Ireland, America or any other country for the past five years. Although it was incorporated in Ireland, AOI kept its bank accounts and other financial matters in America. Given the differing ways in which both countries assess whether a firm is liable for tax, this allowed Apple to avoid paying tax on AOI’s income of $30 billion between 2009 and 2012.
Bit puzzled by the €1trillion figure. The EU GDP is (according to wikipedia) €16tn – so it seems very high. Any source ?
Mark, thanks for your measured response and explanation. I think the transparency measures will be good for tackling tax evasion.
I have to admit to my views being clouded with anger due to previous talk and actions on tax avoidance. I suppose I overreacted to the general tone of the article, so I am sorry for that. However I do think we need to stop saying that legally minimising your tax bill is wrong.
I’m shocked.
Nine UKIP MEPs actually turned up for a vote???
Eddie,
I tend to agree with you that there is a lot of very inaccurate talk about tax avoidance, as opposed to tax evasion, mostly wrapped up in talk of ‘morality’. And, of course, morality is rather subjective. Most avoidance via transfer pricing arises because countries set different rates of corporate taxation, as is their right. The resultant incentive to seek assessment of profits in low-tax jurisdictions is an obvious one, leaving the onus on tax authorities to prove to a sufficient degree that income claimed to be taxable in country A is in fact taxable in country B.
I’m hopeful that greater transparency, combined with pressure on tax havens, will make that task easier, but when the likes of Margaret Hodge use the platform of Parliament to misrepresent corporate behaviour when the issue is as much one of tax codes failing to move with the times, it can be quite depressing sometimes.
@ Eddie and Mark
I think the tone of Eddie’s responce was the correct one. Richard clearly understands the difference between avoidence and evasion but chooses to conflate the two.
Politicians (and those aspiring to be) shoulb be publicly shamed for deliberately misleading people.
Of course transparency is important and tackling evasion is vital for many reasons. However articles like this that suggest companies using rules (most of the time intended to be used they way they are) are amoung the reason politicians are held in such low regard.
Achieving both more consistency and transparency across the EU are necessary to tackle tax avoidance. Although UKIP’s opposition is consistent with their standpoint it does reveal its hopeless inadequacy.
What does not make sense is if UKIP start to complain about tax avoidance, unless they also intend to go for isolated protectionism. On the other hand I do not really think that making sense is a UKIP priority.
Surely, psi, another reason why politicians are held in low regard is because they have allowed big, corporate business to set the political weather on this. Now people are suffering on a much broader basis than before (previously it was the lower quartile or so which had had its real earnings static or falling), people are demanding of their politicians that they rein the companies in tax wise. Because of forces and pressures on them to become “business friendly”, they have been pushed hard down this line (a la nuLabour), and until politically and in the wider community that this is recognised as a serious mistake, we won’t get anywhere with this. Anger and pain will be stoked in the wider community. I suspect, also that Eric Schmidt of Google was being disingenuous with his remark about paying whatever tax is required by the tax regime set by countries. You bet he and others will rail to try to force changes on the EU and their attempt to “close loopholes” (ie to tax higher and to remove opportunities to move money around to avoid tax – that is what we are talking about here, or at least what underlies it, Eddie and others).
I am sorry, I have overreacted to the tone of this discussion. I can also see why people are conflating both tax avoidance and tax evasion. It is the rules, and the failure, in particular, to develop globalisation in a balanced way, which has caused such hardship. In the same way as people have complained that the Eurozone had become imbalanced with a common currency but no coordination of fiscal rules, so globalisation was allowed to develop without balancing supranational democracy or tax regimes. At least UKIP are being honest to their right wing, freewheeling, devil-take-the hindmost principles here. We all have it in our power to tell those most affected (the lower half or two thirds of our population) what they have done, loud and clear.
@ Tim13
But ask your self this, who produced the complex tax laws? The politicians!
If we take the example of the Jimmy Carr fuss (I am no fan of the man or his tax arangements) but why did the rule exist? Because politicians wanted to give film companies a tax cut over other companies. Why was that? Do they spend lots on RnD trying to cure illness? Nope. How about spending lots training the low skilled? No more than industrial businesses.
Or perhaps is it that fils are cool? The chancelor can sit and have chats with some luvvies from the film companies. He may even get a pass from being slagged of by some famous actor, for a few weeks.
We have rightly moved away from a situation where politicians try and pick winners through subsidy. But we have now developed picking winners by tax loophole.
Richard, maybe a simplified version of your arguement that could be used by activists across the land to put the contructive case against UKIP, PLEASE 🙂
Shows what UKIP really are, a front for the Tory (corporate supporting) right. Certainly not a party of the common people that they like to portray themselves as.
The Lib Dems should tell the public about this in their election material in the run up to 2014
I think we should get ATOS to chase tax avoiders, giving them permission to nose around tax haven banks etc. They have the right attitude “Guilty unless proven innocent”. They will then be able to scrap their wasteful and unjust checks on benefit claimants and get them to chase the real “scroungers” .