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Economics no image

Published on November 28th, 2012 | by Iain Waterman
Image © You guessed it, this article is about tax. Wait! Before you close the page, just have a think about how much you hate Google, Amazon, Starbucks, Apple, Ebay and all the others right now; God I hate them – they’re causing us all a lot of pain. Their tax dodging is worsening the austerity that we are being forced to endure. The injustice of it! But then again, I do like them too. In the free market, these companies should be punished as consumers take their business elsewhere. Most people are too lazy however. My time is precious, so rather than find an alternate search engine/document sharer I obviously just use Google. My money is even more precious, so inevitably I use Amazon and Ebay. Any tax revenue I would be losing to them (if I earned enough) is made up by the more direct benefit of costing me less in the short term. Of course, we are all affected:  Last month it was announced that HMRC received 10% less from companies than it did in 2011. For those interested, I have compiled a short list of those guilty:

Tax year 2010 2011 2012 2013
UK Corporation tax rate 28% 26% 24% 23%
Source: http://www.taxresearch.org.uk/Blog/2012/11/26/laffer-said-when-tax-rates-are-cut-tax-revenues-will-rise/
Company UK Profits (2011) Tax paid Percentage
Amazon £3.3bn £0.00 0.0%
Google £2.6bn £6m 0.18%
Facebook £175m £238,000 0.14%
Apple Declared £81.3m of profit (estimate turnover of £6.7bn) £14.4m 17.71% (on declared) (0.21% on estimate)
Starbucks Declared zero in profits (sales of £1.2bn 2008-2011) £0.00 0.0%
Sources: http://www.thesundaytimes.co.uk/sto/news/focus/article1164961.ece, http://www.guardian.co.uk/business/shortcuts/2012/oct/17/boycotting-tax-avoiding-companies It seems to be getting worse and worse: This week a joint investigation by The Guardian and the BBC’s Panorama has found that more than 21,500 companies are using a group of just 28 offshore individual ‘directors’ for the purposes of tax avoidance. The Guardian itself even holds assets through companies located in Luxembourg and the Cayman Islands. So what can be done? We can talk broadly about the need to move towards a more responsible model of capitalism: Since companies owe responsibility to shareholders, it is advantageous, even obligatory, that they avoid tax in order to maximise share value. The more Left-minded among you may advocate a complete replacement of the system - I don’t. Nevertheless a significant overhaul is needed. Tax avoidance makes austerity worse and distorts competition. It should not be down to working people and small and medium sized companies, the ‘strivers’ that the Tories so adore, to fill the void left by companies large enough to afford a headquarters in a haven. George Osborne has a chance to lay down a marker on December 5th when he makes his autumn statement; tackling tax avoidance is both good for revenue and good for votes. The problem is tax avoidance, although ‘morally wrong’, is also technically legal. HMRC has been struggling to close tax loopholes through the courts; it has failed to such an extent that last week it aimed a letter sending campaign towards companies pleading for them to pay tax. Osborne has to get behind a programme of reforming the Revenue and bulk up its capacity before a significant re-wiring of the tax system can take place. So let’s start with HMRC. The Prime Minister bragged at PMQs last week that he was putting an additional £900m into the Revenue to tackle tax avoidance. This isn’t exactly true. Under the 2010 spending review the Revenue’s budget has been cut by 25% - the £900m is actually a reinvestment of those savings and means the overall budget cut will still be around 15%. Perhaps more pressing however is the need to revamp the management of HMRC, which has come under massive fire of late. The National Audit Office slammed Revenue bosses for their ineffectual management in generating a backlog of 41,000 cases worth over £10bn. Both these trends need to be reversed. There are wider solutions too. The US has a piece of legislation, FACTA, which allows it to demand transparency from multinationals over assets in specific countries. This week Osborne will meet with representatives of Guernsey and Jersey to demand they come clean about the accounts they harbour – something that the US is already doing with FACTA. The UK needs to have a piece of legislation to allow it to target the profit of companies that is moved out of the country; the Guernsey and Jersey cases should be a precedent that is extended to others within our sphere such as the British Virgin Islands. As Richard Murphy says, this would “transform the debate” over offshore avoidance. Richard Murphy also makes a case for a system of ‘Unitary taxation’ to replace the current system. Corporations would be taxed on where they make their sales and where their assets and workforce are actually based. Thus far, there seems little will from our leaders to really get to the bottom of this. Cross-country co-operation has been talked about; but in reality too few resources are pledged to it. Tax reform could be the defining issue of the next decade; it could help break a stubborn depression and create the fairer society needed whilst keeping the dynamism of our capitalist system. In a month when rulings on press regulation, prisoner’s rights and female bishops could define those issues for years to come, the Government’s approach to corporate tax evasion will be central to any upcoming economic debate. I know it’s boring, but it’s imperative that tax stays in the public eye.

1

Tax should be taxing

You guessed it, this article is about tax. Wait! Before you close the page, just have a think about how much you hate Google, Amazon, Starbucks, Apple, Ebay and all the others right now; God I hate them – they’re causing us all a lot of pain. Their tax dodging is worsening the austerity that we are being forced to endure. The injustice of it! But then again, I do like them too.

In the free market, these companies should be punished as consumers take their business elsewhere. Most people are too lazy however. My time is precious, so rather than find an alternate search engine/document sharer I obviously just use Google. My money is even more precious, so inevitably I use Amazon and Ebay. Any tax revenue I would be losing to them (if I earned enough) is made up by the more direct benefit of costing me less in the short term. Of course, we are all affected:  Last month it was announced that HMRC received 10% less from companies than it did in 2011. For those interested, I have compiled a short list of those guilty:

Tax year 2010 2011 2012 2013
UK Corporation tax rate 28% 26% 24% 23%

Source: http://www.taxresearch.org.uk/Blog/2012/11/26/laffer-said-when-tax-rates-are-cut-tax-revenues-will-rise/

Company UK Profits (2011) Tax paid Percentage
Amazon £3.3bn £0.00 0.0%
Google £2.6bn £6m 0.18%
Facebook £175m £238,000 0.14%
Apple Declared £81.3m of profit (estimate turnover of £6.7bn) £14.4m 17.71% (on declared)

(0.21% on estimate)

Starbucks Declared zero in profits (sales of £1.2bn 2008-2011) £0.00 0.0%

Sources: http://www.thesundaytimes.co.uk/sto/news/focus/article1164961.ece, http://www.guardian.co.uk/business/shortcuts/2012/oct/17/boycotting-tax-avoiding-companies

It seems to be getting worse and worse: This week a joint investigation by The Guardian and the BBC’s Panorama has found that more than 21,500 companies are using a group of just 28 offshore individual ‘directors’ for the purposes of tax avoidance. The Guardian itself even holds assets through companies located in Luxembourg and the Cayman Islands.

So what can be done? We can talk broadly about the need to move towards a more responsible model of capitalism: Since companies owe responsibility to shareholders, it is advantageous, even obligatory, that they avoid tax in order to maximise share value. The more Left-minded among you may advocate a complete replacement of the system – I don’t. Nevertheless a significant overhaul is needed. Tax avoidance makes austerity worse and distorts competition. It should not be down to working people and small and medium sized companies, the ‘strivers’ that the Tories so adore, to fill the void left by companies large enough to afford a headquarters in a haven.

George Osborne has a chance to lay down a marker on December 5th when he makes his autumn statement; tackling tax avoidance is both good for revenue and good for votes. The problem is tax avoidance, although ‘morally wrong’, is also technically legal. HMRC has been struggling to close tax loopholes through the courts; it has failed to such an extent that last week it aimed a letter sending campaign towards companies pleading for them to pay tax. Osborne has to get behind a programme of reforming the Revenue and bulk up its capacity before a significant re-wiring of the tax system can take place.

So let’s start with HMRC. The Prime Minister bragged at PMQs last week that he was putting an additional £900m into the Revenue to tackle tax avoidance. This isn’t exactly true. Under the 2010 spending review the Revenue’s budget has been cut by 25% – the £900m is actually a reinvestment of those savings and means the overall budget cut will still be around 15%. Perhaps more pressing however is the need to revamp the management of HMRC, which has come under massive fire of late. The National Audit Office slammed Revenue bosses for their ineffectual management in generating a backlog of 41,000 cases worth over £10bn. Both these trends need to be reversed.

There are wider solutions too. The US has a piece of legislation, FACTA, which allows it to demand transparency from multinationals over assets in specific countries. This week Osborne will meet with representatives of Guernsey and Jersey to demand they come clean about the accounts they harbour – something that the US is already doing with FACTA. The UK needs to have a piece of legislation to allow it to target the profit of companies that is moved out of the country; the Guernsey and Jersey cases should be a precedent that is extended to others within our sphere such as the British Virgin Islands. As Richard Murphy says, this would “transform the debate” over offshore avoidance.

Richard Murphy also makes a case for a system of ‘Unitary taxation’ to replace the current system. Corporations would be taxed on where they make their sales and where their assets and workforce are actually based. Thus far, there seems little will from our leaders to really get to the bottom of this. Cross-country co-operation has been talked about; but in reality too few resources are pledged to it. Tax reform could be the defining issue of the next decade; it could help break a stubborn depression and create the fairer society needed whilst keeping the dynamism of our capitalist system. In a month when rulings on press regulation, prisoner’s rights and female bishops could define those issues for years to come, the Government’s approach to corporate tax evasion will be central to any upcoming economic debate. I know it’s boring, but it’s imperative that tax stays in the public eye.

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About the Author

Iain Waterman

Iain recently graduated from the University of Leeds in History and worked at Dods Political Communications (www.politicshome.com) and The Times newspaper before Catch21. He began writing about politics whilst in his final undergraduate year and founded a blog that he still edits today (http://cromerterrace.wordpress.com/). His primary focus is British domestic politics but he is also very interested in American and Russian politics, as well as the broader themes of international relations, development and social progress. Iain supports a range of policies from across the three main British parties and therefore does not consider himself to be aligned to an ideology, instead he believes that a pragmatic, evidence based approach is most essential to good government.



  • They might be tax-dodging, but it shows proof that it is doable even under the circumstances of being in the 'lime-light'

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