Opinion: Tackling tax avoidance should be a top manifesto issue 

pre manifesto documentIn the flurry of press coverage over recent UKIP success, the steady rise of the Greens is usually ignored (including by the broadcast media who are excluding them from the pre-election debates).

The Greens have taken the left-wing protest vote which of course we used to get.  On the doorsteps in Hornsey and Wood Green, disillusionment with politics is clear to see – not because of immigration or Europe, but because the burdens of austerity are not seen to be shared equally.  One of the main sources of outrage is tax avoidance.  Major corporations are still paying minimal amounts of tax, and this means that the Exchequer is getting many billions less than it should be.  Local government spending continues to be cut, public sector pay continues to be almost flat, and the pressure on benefits for those of working age remains.

The Conservatives have made considerable noise on the subject of tax avoidance.  But as of 2013, the UK’s top 100 companies still had over 8000 subsidiaries in onshore or offshore tax havens, and the ‘tax efficiency’ industry continues to flourish.  The lobbying by large corporate donors to the Conservative party means that although some of the more outrageous tax avoidance schemes have been shut down there remains a huge discrepancy between the profits made and the tax paid by many companies. There is some good news on a proposed ‘Google tax’ which aims to clamp down on companies shifting profits between different countries; however the danger is that it will be significantly watered down after the big corporates have had their say, in the way that the new General Anti Abuse Rule (GAAR) has been.

Tackling tax avoidance and should sit naturally with Lib Dem values.  Our independence from vested corporate interests should enable us to do the right thing.  There have been good words from Danny Alexander, as well as some good deeds – there are more HMRC staff tackling tax avoidance, and some loopholes have been stopped.  But we need to be doing more.  The General Anti-Abuse Rule needs to be strengthened including hefty fines for those found to be avoiding tax, and for any professional firms who have provided advice leading to tax avoidance.  More action is needed on tax havens, particularly clamping down on the secrecy rules that prevent developing countries see where multinationals are transferring their profits. And policy to tackle tax avoidance needs to figure as a top priority in our manifesto.

Much was made in our recent Conference of the extra £1billion that we will give to the NHS.  But if serious inroads to tax avoidance are made the reward could be multiple billions to spend on services.  And voters may become just a bit less disillusioned.

 

* Cara Jenkinson is Vice-Chair of Haringey Liberal Democrats and PPC for Enfield North

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42 Comments

  • Councils wasting tax payers money and exploiting residents should make it a scrum!

  • martin Sear 20th Oct '14 - 2:30pm

    couldnt agree more

  • >”Our independence from vested corporate interests should enable us to do the right thing.”

    Factual inaccuracy there Cara, we’re not independent from corporate interests, some LD MPs put the words of the corporations you specifically mentioned into an EDM recently : http://www.parliament.uk/edm/2013-14/869. Note who this recommendation was written by, for and how it applies only to our government, not businesses…in particular not those major tech businesses that are running our planet now and writing our legislation.

    I agree with much of the thrust of your piece but I don’t agree that we’re whiter than white and have no truck with corporate interests, the Hansard says different and I have several different demonstrations of this, which I won’t bore you with unless you’re interested.

  • Cara Jenkinson 20th Oct '14 - 4:09pm

    Chris – my understanding is that the aim of the EDM you point to was to limit government surveillance of our (the users) data. It happens that our views on this coalesce with those of the tech companies. However I doubt that this would influence the views of MPs like Julian Huppert on the tax practices of those companies.

  • jedibeeftrix 20th Oct '14 - 4:30pm

    “One of the main sources of outrage is tax avoidance.”

    If you want to minimise avoidance then only three things are needed:
    1. Simplify the tax code (fewer reliefs and exemptions).
    2. Keep it competitive (in relative term internationally).
    3. Avoid punitive measures (don’t lump it on business).

    Do that, and much will have been achieved already.

  • Gwynfor Tyley 20th Oct '14 - 5:23pm

    Any country attempting to tackle tax avoidance by itself will fail.

    If the EU wants to prove it’s worth, it needs to accelerate moves to harmonise tax policies to make it pointless for the multinationals or even individuals to shift their profits, capital, assets and income around just to minimise the tax they pay. That will also open up the ability to increase top rates of tax, should countries wish to, or introduce, more generally, wealth taxes. These are easy ways of boosting the total tax take with minimum impact on economic activity.

    As for the tax havens, they are increasingly an abomination in the modern world and the hypocrisy of predominantly EU governments that complain about them but do nothing is stunning. They should be forced to open up or any entity based in them will be assumed to be avoiding tax and be treated as such. The multinationals and super rich will squeal until they realise there is nowhere else for them to run to.

  • Anyone wanting to read about how our democracy (and parts of our own party) have been “bought” bythenelite of international corporations and tax dodgers should read this book, published a few days ago —

    https://www.facebook.com/pages/The-Prostitute-State-How-Britains-Democracy-Has-Been-Bought/305771012945726?ref=br_rs

    Many of the tax havens around the world are UK territories, for example The Caymans, The Channel Isles. Gibraltar.

    The English establishment is up to its neck in large scale tax dodging, it is not just the Belize Banker (the guy who provides the political classes and LDV with all those nice opinion polls).

  • Eddie Sammon 20th Oct '14 - 6:21pm

    I very much like the sentiment of the article, but as a former tax adviser I don’t agree with some of the details. I didn’t realise the General Anti Abuse Rule had been watered down, but it had to. I seen this whilst I was still practicing and it was a “guilty unless proven innocent” approach to fair tax work and would have led to lots of public money being wasted on losing court battles and increased resentment in society. It is not fair to take tax that is not due.

    The simple solution is for HMRC to employ one top class accountant and that is all it would take. I spotted two tax loop holes in my time and I was only doing the job for two years. Someone with as little experience as me shouldn’t have been able to spot holes in the tax system.

    I’m all for tackling tax avoidance, but it needs to be fair and not start taking tax that isn’t due.

  • jedibeeftrix 20th Oct '14 - 6:55pm

    @ Gwynfor – “If the EU wants to prove it’s worth, it needs to accelerate moves to harmonise tax policies to make it pointless for the multinationals or even individuals to shift their profits, capital, assets and income around just to minimise the tax they pay. That will also open up the ability to increase top rates of tax, should countries wish to, or introduce, more generally, wealth taxes.”

    This precisely why I oppose tax harmonisation at an EU level:
    1. the compromise position is likely to be higher than have now
    2. it will be used to justify taxation at a level that the electorate would not choose to mandate themselves

  • Gwynfor Tyley 20th Oct '14 - 7:11pm

    @ jedibeeftrix

    1. For some of the very wealthy or high income, I hope so. For corporates, don’t see why not.
    2. It should be set at the level that optimises tax revenue – I fully appreciate that raising taxes to excessive levels decreases the take.

    But 3 – I believe the electorate would be all for it as there is nothing that sticks in their craw more than the super wealthy and Googles of this world avoiding tax.

  • John Critchley 20th Oct '14 - 8:12pm

    Jedibeeftrix is right in two respects. Harmonisation across the EU is not the answer (though agreement to stamp out abuse may be), and making the UK tax system simpler is a start. Making the rules and legislation watertight is something else. Does any politician really have the will and energy to do it? There was an interesting series on R4 by Evan Davis a few years ago about tax where he said that every Chancellor comes into power saying that he will change and simplify UK tax but not one has actually done anything but make it more complicated.
    How is Danny Alexander on this?
    One further comment to Cara: whatever we may think about it morally, tax avoidance is legal. It’s up to the powers that be to stop it.

  • A Social Liberal 20th Oct '14 - 11:17pm

    Jedi
    1. Simplify the tax code (fewer reliefs and exemptions).
    Quite, so long as the expectation is that the burden that businesses and the wealthy should rightly bear does not go down.

    2. Keep it competitive (in relative term internationally).
    Why? If Amazon and the other corporate piggies don’t want to trade in the UK because they have to pay their fair share then I can only say, ‘trot on’. Their corner of the market would be taken within months by others who would want to pay their tax. But they won’t go – because even with their paying the tax that they ought they would still be making more than a buck.

    3. Avoid punitive measures (don’t lump it on business).
    So long as business pays the fair share of the tax take that would be envisioned if Lib Dems simplified the tax system for the wealthy then I have no problem with your point. It must be ‘socially responsible’ fair though, and not ‘Tory’ fair.

  • Cara Jenkinson 21st Oct '14 - 7:39am

    Jedi – you compare corporates to private tax payers wanting to maximise the amount they can pass on to their children. I guess one difference is that even with ISAs etc, the average private tax payer is still (mostly through income tax) going to pay a good proportion of their income in tax. Whereas many corporates are paying a tiny fraction. Of course corporates are benefiting from an educated workforce, infrastructure etc that other peoples tax receipts pay for, but it is unrealistic to think that a sense of obligation will make them pay. So yes, it would come down to regulation and tough enforcement.
    Eddie – I’m not sure that a guilty until proven innocent approach is necessarily wrong in this situation. If you take school inspections, the school must demonstrate to Ofsted that they are delivering a good education, including showing exhaustive pupil tracking data etc. Is it unreasonable to suggest that corporates should prove that they are not seeking to avoid tax – ie. putting the burden on them (with their high paid tax accountants) rather than HMRC? Though I would agree it would be worth HMRC paying for some top-notch people.
    In terms of international action – no doubt that it is needed eg. on clamping down on tax havens. But as John Tilley says many of the tax havens around the world are UK territories, so no reason why we shouldn’t take action.

  • John Critchley 21st Oct '14 - 8:43am

    Cara, I agree that this is an issue that has to be dealt with and that international agreement is necessary. Are politicians tough enough to take on the huge commercial interests for this to be successful? Should we look again at how business is taxed so that they cannot get around paying their fair share? I’m in favour of transparency as well, but guilty before the event – I don’t think so.
    In the end it really is up to Governments to stop the colander leaking because it is not possible to make avoidance illegal.
    It’s much the same as welfare ‘abuse’ – they are our rules, and they could be changed!

  • Daniel Jones 21st Oct '14 - 8:56am

    The author appears to have either confused/conflated tax avoidance and tax evasion, or is frankly illiberal in desiring to legally punish people for legal activity. Solving tax avoidance should start with a reform of the incompetence of HMRC (including separating it back out) and a new tax code that is written for purpose by experts – when HMRC or it’s predecessors last ‘streamlined’ tax law it was done so badly that it went from one or two books on the shelf to whole shelves.

    What we should not be about is going ‘We framed the law badly so we will punish you for our incompetance’.

  • Eddie Sammon 21st Oct '14 - 9:15am

    Hi Cara, thanks for your reply. The problem with GAAR was that rather than get rid of the loop-holes that already existed the government lazily said everyone is going to have to pay tax up front and then make an appeal and then if it is legal then you will win it back. They didn’t even close the loop-holes, just introduced a load of bureaucracy in the hope it would deter some people from making an appeal, but these appeals cost the government money, so I don’t see where the net benefit to the Treasury is, unlike with my clean idea of simply closing the loop-holes.

    I remember reading a wording saying “if people use schemes in ways that they are unintended then it is illegal”, but even that has a loophole, because the government often doesn’t say which way they are intended.

    I appreciate trying to clamp down on avoidance and evasion, I would just close the loop-holes.

    Regards

  • Eddie Sammon 21st Oct '14 - 10:08am

    Both loop-holes I spotted, one of which every major tax adviser jumped on within an hour of the budget in 2012, were based on investment tax reliefs. My knowledge is rusty, but from what I can see the government has introduced another one: “Social Investment Tax Relief”. It is a bit of a misnomer, because once social enterprise becomes a vehicle for tax avoidance then they seek to become social. Ahh, governments never learn! 🙂

    This is not a loop-hole as such, but it is the same sort of thing that has led to loop-holes in the past.

    https://www.gov.uk/government/collections/social-investment-tax-relief

  • Gwynfor Tyley 21st Oct '14 - 10:21am

    @jedibeeftrix

    Whilst the system is full of holes and our government incapable of collecting the tax it is already due, there seems little point in pushing taxes higher and asking for the mandate pointless.

    Once the holes are plugged (which will require international cooperation) and the tax havens closed then the option will be there for any political party to seek a mandate for higher taxes

  • Reading between the lines, it would seem the legal way for companies to avoid paying tax and one that the LibDems (?) would support, would be employ lots of people on low pay. Obviously this approach doesn’t result in monies accumulating in a bank account somewhere, but it will result in significant reductions in tax revenues and hence the governments ability to fund welfare and pensions…

  • even with ISAs etc, the average private tax payer is still (mostly through income tax) going to pay a good proportion of their income in tax. Whereas many corporates are paying a tiny fraction

    That’s because we don’t tax corporate income, we tax corporate profits. And profits are often a small fraction of income, so logically tax will be an even smaller fraction of that.

    Do you really think that we should move to taxing corporate income, not profits?

  • >Do you really think that we should move to taxing corporate income, not profits?
    Effectively with VAT and other transactional taxes, we’re already doing this.

  • Effectively with VAT and other transactional taxes, we’re already doing this

    No, we’re not: VAT is paid by consumers, not by companies.

  • Dav, the key word is effectively.

  • the key word is effectively

    VAT is effectively a tax paid by consumers; it is not a tax paid by companies on income, effectively or non-effectively.

    Adding the word ‘effectively’ doesn’t change the reality of the situation.

    (You can tell that because if VAT were to be abolished, it wouldn’t mean companies would make more income: it would mean that prices for consumers would fall, as any competitor which did not reduce prices by the amount of VAT would see its market share instantly fall to zero. Therefore VAT is ‘effectively’ paid by consumers; it does not reduce producers’ income, which would be the same whether there was VAT or not.)

  • Hi Cara,

    Thanks for you reply, you’re insinuating you believe the government should have no access to our data, but that the tech giants should because that’s what it means to have views that coalesce with those companies (and indeed the substance of that EDM). This isn’t the only attempt to create policy that will ultimately make taxation an unimportant factor, or hedgeable.

    “I doubt that this would influence the views of MPs like Julian Huppert on the tax practices of those companies.”

    Surely if you have access to all the data, taxation is moot? Why can’t they just sell the data the governments need back to them for slightly above the tax charged? Maybe I’m missing something, but that seems like the obvious outcome to me, I hope you can put me straight! 🙂

  • Cara Jenkinson 21st Oct '14 - 1:50pm

    Chris, the whole issue of data access is complex and one that I’m no expert in! However I think we should be concerned about any access Government has to personal data through the ISPs and other tech providers, and furthermore that the access that the tech companies have is also limited. The issue of tax is separate.
    Dav, I’m not proposing that companies pay tax on income made – just paying the right amount of tax on their profits would be good enough.

  • I’m not proposing that companies pay tax on income made – just paying the right amount of tax on their profits would be good enough

    I suspected that was what you meant, but you did write ‘income’ where you meant ‘profit’ above; it’s as well to get them right as they are very different things!

    But, what is ‘the right amount of tax on their profits’? Amazon, for example, often comes up in these discussions. Now, Amazon is a company with a vast income but which makes hardly any profit (because they re-invest almost every penny they make into growing the business). What is the ‘right amount of tax’ for them to pay on their profit?

  • “No, we’re not: VAT is paid by consumers, not by companies.”
    That old chestnut – obviously not run a VAT registered business! You are assuming that who notionally pays and how it is presented on the invoice/receipt makes a difference; it doesn’t. A retail business for example, will derive the vast majority of its income through the tills, all of that income will be subject to VAT (paid by consumers). From HMRC’s viewpoint there is little difference between income tax and VAT, just two different systems of taxation, under either the gross amount owed is based on income.

  • Julian Tisi 21st Oct '14 - 5:59pm

    I’m all for strong anti-avoidance and certainly our party has led well on this. Of course there’s more that we can do, such as improving transparency – there always will be. The GAAR was a huge step forward. Previously it was generally accepted by courts that an individual or company could legitimately arrange their affairs in a way to reduce their tax bill. Now unless there’s a good commercial or legal reason behind an arrangement or there is a specific known tax concession (e.g. Pensions, ISAs…) then the GAAR can often be used. It isn’t acceptable any more to enter into an arrangement which has the prime aim of reducing the tax bill.

    While I’m all for the principle of this, I’d caution against the idea that we can suddenly generate £billions more tax revenues if only we were to take anti-avoidance seriously. There are problems, mostly international – we aren’t for example going to get Ireland or other tax havens to massively increase their Corporation tax rate, Ireland would need to agree (and they won’t). There are other unsolved issues (such as taxing internet-based companies – who can easily base their operations in low tax regimes and generally do). None of this is to say more can’t be done, but all governments claim they’re going to be tough on avoidance and typically all governments tend to at least try.

    After all, why wouldn’t they? Many on the left claim that avoidance is a big conspiracy in which our governments are complicit, but what government is going to choose not to rake in £billions more, if such £billions were indeed available. If they were able to generate more via anti-avoidance they could cut taxes and/or increase services and become popular with their voters as a result? It’s a no-brainer. The reality is that it’s far easier said than done.

  • My point, wasn’t about data access – it was specifically that the issue of tax can’t be separated from legislation, corporate interests and lobbying. If we legislate ourselves into a position of dependency on any company for a required commodity (whether that be medicine, arms or big data), what we tax them becomes less important because they have a method of taxing us in return.

  • The UK, through it’s non-dom policy is the best tax haven in the world. As London is a major business and cultural centre and the UK has good private schools it is very difficult for foreign tax offices to argue that someone has moved their tax residence to the UK purely to avoid tax and that the move should be disregarded.

    If you are not willing to change the non-dom policy, because the indirect money it brings (through foreign millionaires employing people, paying VAT etc) is paying for a few of your nurses and teachers, then please don’t expect any of the small island tax havens, which without offshore banking would be 3rd world tourist destinations, to do anything at all which is in your interests but against theirs.

  • “No, we’re not: VAT is paid by consumers, not by companies.”
    That old chestnut – obviously not run a VAT registered business! You are assuming that who notionally pays and how it is presented on the invoice/receipt makes a difference; it doesn’t. A retail business for example, will derive the vast majority of its income through the tills, all of that income will be subject to VAT (paid by consumers).

    I don’t understand the objection.

    Yes, the VAT is paid by consumers. It is collected (on behalf of the government) by the shop; it does not form part of the shop’s income.

    Now, I can see shops might be annoyed at acting as unpaid tax collectors from HMRC, but to say that the VAT is part of ‘their income’ is simple economic illiteracy. The incidence of VAT is entirely on the consumer.

  • Dav – You need to step back from the spin and details of VAT.

    Fundamentally, there is a transaction between a consumer and a supplier, money goes one way and goods/services the other. The government has effectively decided to levy two sets of taxes on this transaction: The first was simply on the monies received by supplier (ie. income/corporation tax), the second on the money transacted (ie. VAT); with each tax having their own set of accounting rules that determine the net amount the supplier actually needs to pay to the government. Where the supplier’s income is derived from such transactions, both taxes are effectively taxes on income.

    Note I haven’t said “VAT is part of their [the supplier’s] income”, I said that VAT is effectively a tax on [the supplier’s] income, an important difference.

    Remember you poised the question “Do you really think that we should move to taxing corporate income, not profits?” Perhaps you need to try and answer your own question and see if you can delivery something that is fundamentally any different to what we do today with Corporation/income tax, NI and VAT, because as far as I can see the only tax that generates revenue regardless of a company’s declared profitability are those based on sale price (ie. transactions) which brings us back to VAT…

  • Where the supplier’s income is derived from such transactions, both taxes are effectively taxes on income.

    No, the other way around. It’s not a tax on the company’s income; it’s a tax on the consumer’s spending. It’s paid by the consumer, not the company; and the amount it is related to is the amount the consumer spends.

    Remember you poised the question “Do you really think that we should move to taxing corporate income, not profits?”

    I did. Though it was rhetorical; I assumed everyone could see the answer was clearly, ‘No,’ as it is profits that should be taxed, not bare income.

    Do you think that a company just breaking even (or making a loss) should have to pay tax on its income? I suggest that is a ludicrous idea.

  • David Evans 23rd Oct '14 - 7:55pm

    Dav, your lack of understanding of economics is exemplified by your comment “as any competitor which did not reduce prices by the amount of VAT would see its market share instantly fall to zero.” As my old dad used to say, “If you believe that, you will believe anything.”

  • Dav – “No, the other way around. It’s not a tax on the company’s income; it’s a tax on the consumer’s spending. ”

    As VAT is a tax on the transaction, there are three viewpoints, namely those of the supplier, consumer and tax collector. all are valid and the end result is the same. The way you have clung to the mantra “It’s paid by the consumer” indicates that your knowledge and understanding is wholly book based which hasn’t been informed by daily real world handling of VAT transactions.

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