Category Archives: Tax Avoidance

The Paradise Papers and Tax Avoidance

People will by now have grown well-used to revelations about Tax Avoidance by large corporations and the wealthy elite. However this week’s BBC Panorama programs on the so-called Paradise Papers (available to watch here and here), about the widespread use of offshore Tax Havens, will have shocked many by the sheer scale of the avoidance that is going on – and not just by the usual suspects of large corporates like Apple, or corrupt individuals like ex-Tory Treasurer Lord Ashcroft, but also including much-admired sports stars like Lewis Hamilton, and much-loved celebrities like the cast of Mrs Brown’s Boys.

However the program unfortunately failed to explain just why such Tax Avoidance is so prevalent, and how nothing will change until we make fundamental reforms to our parliamentary system.

Some may think that Tax Avoidance is so devilishly complicated that it is very difficult for governments to come up with an effective way of dealing with it; or alternatively that it has up until now been very well hidden, but once exposed effective action can be taken. Neither of those points is true.

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Tropical paradise Bermuda is one of many British Overseas Territories that facilitates widespread Tax Avoidance. Picture © Mike Oropeza

The reality is that legislation, though complex, is easily within the capability of government experts to deal with. However they don’t, because successive governments have been absolutely complicit in facilitating Tax Avoidance, and will undoubtedly continue to be so, while all the time trying to fool us by making statements to the contrary. The reason is very simple – in a system of government where our political parties are reliant on private funding to run their operations and fight election campaigns, they are completely beholden to the providers of that money as to what legislation they enact. Take for example ex-Tory Treasurer Lord Ashcroft, who is one of the worst individuals for avoiding tax and featured in the recent program. He has donated over £10 million to the Tories over the years, and indeed contributed £500,000 to their recent General Election campaign. ‘He Who Pays the Piper Calls the Tune’, and his involvement in Tory funding therefore represents a massive conflict of interest. What chance is there of the Tories, even if they have a fit of good conscience and want to take action on Tax Avoidance, being actually able to do so, when their ability to win general elections is dependent on the continued financial support of someone who clearly doesn’t want such changes to be made? It obviously isn’t going to happen. And it’s not just Lord Ashcroft – over half of all Tory funding comes from the financial sector*, providing a relentless source of pressure to keep such Tax Avoidance loopholes open. (I’m afraid it’s not just a Tory problem either – the last Labour administration under Tony Blair was similarly reliant on donations from wealthy business people).

So what will actually happen? There will be many outraged speeches in Parliament, closely followed by promises of firm action by the government. There will then be the ritual punishment of some of the more minor players (the cast of Mrs Brown’s Boys better watch out), followed by some relatively insignificant changes to legislation which the government will talk up to make us believe the problem is solved. However behind the scenes the government will be reassuring people like Lord Ashcroft not to worry, be patient, and soon all will be well. Then, in a year or two’s time, when it’s all blown over, the government will quietly make some more changes to tax legislation, with a couple of loopholes deliberately included to help their wealthy friends. And that will be it – back to business as usual.

Don’t forget, whenever the government makes cutbacks on benefits, refuses to pay public sector workers a fair wage, cuts payments to local authorities, or generally does anything in the name of Austerity – justified by saying that state finances are in a mess and the deficit is too high – the real reason there is a shortage of money is because the wealthy elite are being allowed to get away without paying their fair-share of tax (Tax Avoidance is estimated to cost the country £95bn/year) and the rest of us all have to pay for it. And that won’t change until we stop political parties being funded, and therefore controlled, by the wealthy elite.

https://www.theguardian.com/politics/2011/feb/08/tory-funds-half-city-banks-financial-sector

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The Panama Tax Scandal

This week we have been rocked by the Tax Avoidance scandal coming out of Panama, after a whistle-blower leaked more than 11 million documents from the law-firm Mossack Fonseca. This firm has spent the last 40 years helping their wealthy clients worldwide to hide money and so avoid tax, and the leaked documents revealed the names of many people from the world of business and politics who have benefited. It will come as no surprise that the wealthy business elite do whatever they can to avoid tax, nor will it surprise many people that the leaders of countries like Russia, the Ukraine and Argentina do similar things. However what is shocking is that Western leaders like the Prime Minister of Iceland (who has now resigned) and even our own Prime Minister David Cameron have also been implicated.

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David Cameron has got caught up in the ‘Panama Papers’ scandal. Picture © Willwal

We in the West have come to believe that institutionalised government corruption is essentially a Third World problem, but this leak reveals that not to be the case. Though it may be true that blatant corruption (involving ‘backhanders’, ‘cash in brown envelopes’, ‘family favours’ and the like) is virtually absent from Western politics, it has been replaced by a far cleverer but more insidious form of wrong-doing. Nowadays our wealthy elites employ armies of lawyers to find loopholes in the legislation, which mean they can avoid tax without actually breaking the law, and that often involves taking their money offshore to some tax-haven where rates are artificially low. Added to that many of these tax havens employ high levels of secrecy which mean it can be very difficult for the taxman to get to the bottom of what is really going on, and in such circumstances, with limited resources, the revenue services are often forced to abandon any investigations.

Many people have said that this is even more evidence that the government should change the law and clamp down on these loopholes, but what incentive is there for them to do that if our own leaders are using the loopholes themselves? Even worse, the fact that many Tory (and Labour) donors are also using tax havens and other tax avoidance techniques, creates a massive conflict of interest right at the heart of our democratic system. ‘He who pays the piper calls the tune’, and Party donations would soon dry up if any government made serious efforts to tackle the illicit wealth of their own donors (it’s worth remembering at this point that over 50% of Tory Party funding comes from the financial sector.*)

Consequently though our politicians love to make all sorts of statements about the ‘moral repugnance’ of tax avoidance, the reality is they do the minimum required to keep the public happy, while they and their mates carry on as usual. An example of this is the government’s recent clampdown on tax avoidance by small businesses, while at the same time blocking EU legislation to clamp down on abuse by offshore trusts, which is a much bigger problem*. The nett result? The government trumpets the fact it aims to cut tax avoidance by £12bn, which sounds huge, but neglects to mention that with tax avoidance running at an estimated £95bn/year, that represents only 13% of the total. Until we have sorted out the conflict of interest created by the private funding of our political parties, legislation will continue to be enacted (or not enacted) which puts the needs of the privileged and wealthy over the needs of ordinary people. And this tax avoidance scandal is just one more symptom of that.

* Tory Funding  http://www.theguardian.com/politics/2011/feb/08/tory-funds-half-city-banks-financial-sector

* Trusts http://www.independent.co.uk/news/uk/politics/david-cameron-intervened-stop-tax-crackdown-offshore-trusts-panama-papers-eu-a6972311.html

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Google – Tax Avoider

The news this week has been full of comment about Google, its dreadful tax avoidance, and the way it managed to strike a cosy deal with the Inland Revenue to get away with paying only 10% of the tax that should have been due on its colossal UK profits. It’s certainly been one-in-the-eye for George Osborne, who started the week proclaiming the deal as ‘a major success’, though it became increasingly clear the words ‘abject failure’ would have been more appropriate.

Much has been written about where the fault lies, and it can certainly seem difficult to get to the core of the issue. However, as with many things in our corrupted political and economic system, the criminals at the top like to make a simple issue complicated, in order to hide and so sustain their continuing bad behaviour. So let’s look at what’s actually happening here.

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Google are only the latest in a long line of corporates to pay little tax on their vast UK profits.

Firstly, though Google has undoubtedly behaved abysmally, they are not responsible for the well-being of ordinary British people, nor for maintaining our public services, and nor has anyone at Google been ‘elected’ on any such promises. Therefore although it is certainly easy to point the finger at their moral bankruptcy, one can really expect little more from a corporation whose main objective is to maximise profits for its shareholders and staff. The responsibility for ensuring fairness in our society lies with our government and their agents (in this case the Inland Revenue), and if there has been failure (and there undoubtedly has been failure) it is they who are ultimately responsible. However it is here that things get murky.

Our current system of government allows for the private funding of political parties, and that inevitably creates a massive conflict of interest. The Tory party for example gets over half its funding from the financial services sector alone – so to whom do their loyalties lie? The people who fund them or we who elect them? Or to put it another way – if the Tory party were to seriously start clamping down on all the egregious behaviour in the corporate sector, to what extent would that impact their political donations, and consequently their ability to win elections? Such a conflict of interest would be unthinkable in any other area of society, and yet in politics it has become so ingrained that people rarely discuss it.

Make no mistake, clamping down on all the various tax-avoidance measures that companies like Google utilise is actually very easy (and don’t believe for one instance the politicians who say nothing can be done without international co-operation either). Systems have already been devised (for example Unitary Taxation, see link here), which would deal with most of the shifted profits/tax haven nonsense. The fact of the matter is that our leaders don’t want to clamp down on corporate tax avoidance in any meaningful way, because to do so would alienate the very people whose money they need to stay in power. Of course public opinion has to be kept compliant, and so occasional token efforts are made (eg the ‘major success’ of getting Google to pay £130 million tax, when closer examination reveals that £1 billion would have been a more accurate figure), in order to stop the masses getting too restless. However the fact remains that the government, and in particular the Tory Party, are totally hand-in-glove with the corporate sector, and assist them in their continued efforts to rip-off ordinary people.

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George Osborne proclaims ‘major success’ against corporates, but is actually helping them rip us all off. Picture © M. Holland

The sheer hypocrisy of all this of course is that when the government continues to make cutbacks and impose Austerity, justifying it with statements about balancing the books, the reality is that the books could just as easily be balanced by simply dealing with the issue of tax avoidance (which runs at about £95 billion per year* – easily enough to sort out the government finances). Or to put it another way, the Tory party would rather make cuts to the NHS, local government, in-work benefits and a whole host of other social services, all the while increasing the misery for millions of ordinary people, rather than do anything to annoy their fat-cat friends.

As long as private money remains in politics, it means that our so-called democratic processes have been completely hijacked by the wealthiest members of society, and legislation will continue to be enacted (or not enacted) that enables the very-rich to get even richer while ordinary people suffer, and see their standard of living steadily diminished.

* http://www.taxresearch.org.uk/Blog/2013/10/11/hmrcs-new-tax-gap-report-a-work-of-fiction-and-guess-work/

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Non-Dom Tax Avoiders

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Multi-Billionaire Football Club Owner and London resident Roman Abramovich is registered ‘Non-Dom’. Picture © Mark Freeman

This week the Labour Party made a manifesto pledge to abolish the scandalous ‘Non-Dom’ rule, which allows wealthy individuals to avoid paying tax on their foreign earnings, while the rest of us ordinary mortals have to pay all our tax in full. This rule is long-overdue for abolition, as it means that certain people who live here permanently (and in some cases were born here), can enjoy all the benefits and privileges residency in this country brings, but none-the-less dodge tax by shifting their cash abroad and stating that at some unspecified point in the future they intend to leave the country.* (The list of people benefiting from ‘Non-Dom’ status is quite shocking, and includes the Governor of the Bank of England and the chief execs of 3 of the 4 big high street banks.*)

The Labour announcement produced the predictable cries and squeals from the well-off, who now face the prospect of being slightly less well-off. However it also threw up some well-worn arguments about the generation of wealth, which are often deployed by those defending Free Market Capitalism. Namely:

1. If the wealthy are taxed too much they’ll all flee abroad, taking their money and talent with them, leaving us all destitute.

2. We need to attract wealthy foreigners to this country as without them our economy will collapse.

Both these arguments are utterly ridiculous, but show the extent to which Free Market Capitalist thinking has entered our consciousness, and brainwashed large sectors of the population.

Firstly, it is nonsensical to believe that this country needs foreign money in order to thrive. The people of this country have a long and proud history of success, and have for centuries succeeded in generating wealth through their own talent, effort and hard work. To now suggest that we need wealthy foreigners to guide us is to somehow suggest we’ve all suddenly become useless, lazy and incompetent.

Secondly, the idea that a few ‘talented’ people are the ones who generate all the wealth is also complete rubbish. The wealth of this country is generated by the combined efforts of every man, woman and child who contributes their labours to the general good and well-being. To suggest otherwise is to dismiss the priceless contributions so many of us make. And even though it may be true that we need bright brains to drive industry, technology or become entrepreneurs, this country has never been short of such talented people, and if a few of them do up-sticks and leave there are plenty more to take their place. In fact, personally speaking, if a few selfish individuals do put their own personal wealth ahead of any care for the society they live in, then I don’t want them here anyway.

Two more points it’s worth bearing in mind. This argument about ‘Talent’ forgets to mention that it was our ‘Talented’ bankers who led us into the financial crash of 2008. So ‘Talented’, but apparently they never saw that coming (or maybe they did but were too busy filling their boots to care). And many corporate disasters have been overseen by management who afterwards claimed the business was too big or complicated for them to fully understand what was going on. Again, talented? Or just enjoying the privileges and good fortune of being part of the wealthy elite.

Finally, in recent years the massive influx of foreign money has been a huge contributor to the increase in house prices, and consequently rents. That may have benefited property owners, but for the majority of the population all it’s done is lead to increased hardship, and in the case of central London, a form of social cleansing.

This argument that we somehow ‘need’ the rich is a complete lie put about by, not surprisingly, the rich (and those they’ve brainwashed) to justify them increasing their wealth while the rest of us are forced to suffer endless Austerity.

* Non-Dom fully explained: http://www.bbc.co.uk/news/business-32216346 Bank Chiefs: http://www.bmmagazine.co.uk/newswire/labour-non-dom-threat-hits-rbs-barclays-lloyds-boe-governor-carney/

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Free Markets Just Mean Corporate Corruption

This week we saw yet another scandal involving our banking system, when it turned out that HSBC have not only been facilitating large-scale tax avoidance and tax evasion via their Swiss subsidiary, but have even been advising their wealthy clients on how is the best way to go about it.* It is estimated that up to $21.7bn has been sheltered from the treasury in this way, at a vast cost to the British taxpayer.

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HSBC: Yet another massive banking scandal. Picture © Danesman1

This all came to light as the result of a leak from a whistleblower in 2007, details of which were passed to the Inland Revenue in 2010. However, despite an estimated 1100 individuals being guilty of underpaying their tax, to date there has only been one prosecution. Even more scandalous, the man in charge of HSBC during this period, Lord Green, was made a Conservative peer and appointed to the government as minister for Trade & Investment 8 months after the Inland Revenue was made aware of wrongdoing at the bank. Far from being punished for his misdemeanors, Lord Green was handsomely rewarded with a position in the heart of government. HSBC’s response to all this is to admit to ‘past failures’ but assures us all that things have now changed. Lord Green himself has consistently said ‘no comment’. Full details of the scandal are in this BBC Panorama documentary.

Of course we all know this is far from being a one-off, as it comes hot on the heels of various other banking scandals including fiddlng interest rates (Lloyds, Barclays, Royal Bank of Scotland); fixing foreign exchange rates (HSBC, Barclays, Royal Bank of Scotland); money laundering (HSBC); sanctions busting (Standard Chartered); ‘dark pool manipulation‘ (Barclays); and fiddling precious metal prices (Barclays, HSBC).

The reality is that the priority of companies, and in particular banks, is to make money for themselves, and to do it they will employ whatever dodgy practices they think they can get away with. The less regulation there is the more corrupt they can become, so this idea that ‘light touch’ regulation and free markets is the best way to run things is a complete nonsense, and is in effect just putting the foxes in charge of the chicken coop. Given the chance, the clever and the unscrupulous will just fleece us all, and that is exactly what they are doing.

Even more evidence of how corrupt our system has become was produced a couple of weeks ago when it was announced that Price Waterhouse Coopers (PwC), the accountancy firm, has also been facilitating corporate tax avoidance on ‘an industrial scale’.* PwC is also a major corporate donor to both the Labour and the Conservative parties. Why would anyone support both the major parties? Ah yes… that’ll be a bribe, so that whichever party gets into power lets them carry on with their corrupt business practices. What a rotten system we live in, that allows such things to go on while poor people are forced to undergo ever-increasing Austerity.

And the government’s response? At a business leaders’ meeting recently David Cameron pathetically asked bosses if they would give their staff a pay-rise, and so spread their ever-increasing wealth around*. I thought in a Free Market Economic system wealth was supposed to naturally ‘trickle down’ anyway? Clearly not, and if Cameron thinks his desperate pleas will make any difference to their behaviour, he clearly has little understanding of the business community he claims to represent.

* HSBC: http://www.bbc.co.uk/news/business-31248913

* PwC:  http://www.independent.co.uk/news/uk/politics/pricewaterhousecoopers-condemned-for-giving-misleading-evidence-to-parliament-and-promoting-tax-avoidance-on-an-industrial-scale-10027344.html

* David Cameron Speech: http://www.theguardian.com/politics/2015/feb/10/david-cameron-urges-business-pay-rises-thwart-labour

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Our Disgraceful Finance Sector

People would have been shocked today to hear of yet another scandal involving our beloved banks*. Apparently they’ve now been caught fixing foreign exchange rates, and fines totalling £2bn are being handed out to all the usual suspects including HSBC, Barclays, Royal Bank of Scotland (being owned by the taxpayer doesn’t seem to inhibit their criminal activity), plus UBS of Switzerland and America’s J P Morgan and Citibank. We’ve become used to hearing these tales of financial malpractice, but what was particularly galling in this case was the fact that the rate-fixing was going on until October last year. ie 5 years after the crash of 2008, and even after the previous LIBOR fixing scandal involving the exact same banks. In other words, these people have no intention of changing their behaviour no matter what happens around them. Of course criminal prosecutions might change their behaviour, but as usual, although the banks have been fined, no individuals have been held criminally accountable for what in everyone else’s eyes is blatant fraud.

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Price Waterhouse – helping write tax laws and then advising companies how to avoid the laws they’ve just written! Picture © Unshaken City

However, as shocking as all this is, far more insidious was the announcement earlier this week that the Labour Party has received £600,000 worth of free advice from PwC (Price Waterhouse Coopers) the accountancy firm, to help formulate its tax policy*. Now, why would PwC want to give free advice to the Labour Party? Ah yes, that’ll be because PwC makes a lot of money advising businesses on how to avoid tax, and that job will be much easier for them if they get to help write the legislation which they can then advise businesses how to avoid. Absolutely disgraceful, and Labour’s justification for it that PwC are experts in the field holds no water whatsoever. PwC, like all the big accountancy firms, are a threat to the very fabric of our society, as they are at the heart of the system which undermines government revenue collection, and so forces Austerity and poverty on millions of ordinary people. To have them help formulate tax legislation is simply putting the fox in the charge of the chicken coop. Just imagine if the government wanted to formulate new legislation on paedophiles, and put Gary Glitter in charge of the inquiry. And then justified it by saying Gary Glitter was chosen because he’s an expert in paedophilia! There would be justifiable outrage at such nonsensical logic, and yet the government does this all the time with financial legislation, completely undermining our democratic processes. Whether it’s through companies framing legislation like this, or the so-called ‘revolving doors’, where individuals pass effortlessly between Whitehall and the corporate world, the tentacles of business are firmly entwined in our legislative processes, ensuring we now live in world where those with money control all the levers of power.

We need change. The Tory Party, as the party of business, are of course beyond hope in this area, but with the Labour Party now acting in exactly the same way it should be absolutely clear, if it wasn’t before, that they offer no meaningful alternative either. The only hope for getting a government which represents the interests of ordinary people is to sweep both these parties into the dustbin, and start afresh with a completely new breed of politician, driven by a desire to help other people rather than just to look after the interests of themselves and their cronies.

* Bank Fines: http://www.dailymail.co.uk/news/article-2832260/Why-aren-t-crooked-bankers-prison-banks-fined-2bn-fixing-currency-rates-clamour-grows-dozens-traders-face-prosecution.html Labour Party/Price Waterhouse Coopers: http://www.theguardian.com/politics/2014/nov/12/pricewaterhousecoopers-tax-structures-politics-influence?CMP=twt_gu

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Governments and Tax

This week the issue of corporate Tax Avoidance was in the news – again. Firstly it was reported that Thames Water, despite making profits of £259m, will not being paying any tax this year*. (With corporation tax at 20% that’s a loss to the taxpayer of £52m – even more galling when you consider that Thames is intending to pay £100m in dividends to its various shareholders.) Thames has managed to do this by making judicious use of ‘capital allowances’.

Next up, there were protests outside high-street favourite Boots, following on from a campaign to get the government to investigate the company’s tax affairs. Since being taken private in 2007 it is estimated that the company has avoided about £1.3bn in tax* (enough to cover 3 years of NHS prescription fees) by channeling its profits through Tax Havens and using Limited Liability Partnerships .

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Vodafone: The frequent target of anti-tax-avoidance protestors. Picture © Jonathandeamer

And finally Vodafone were in the frame again, and the subject of a series of protests by UK Uncut about their perpetual tax avoidance tactics. Despite being headquartered in the UK, they  run large amounts of their profits through the tax haven of Luxembourg, the result of which is that, even though the UK is highly profitable for them, they haven’t paid any corporation tax here since 2011. They are also still bearing bad blood after a dodgy tax deal with the Inland Revenue in 2001 let them off £6bn in tax.

These are of course only the latest in a long series of scandals involving companies such as Starbucks, Google, Amazon, Facebook,  Apple etc – all companies which have extensive operations in this country but claim, incredibly, to make almost no profit here. There are many legal loopholes they can use to avoid tax, the most common of which is Transfer Pricing. However the crucial point is this – although it is very easy to point the finger of blame at these outfits, ultimate responsibility for all this deception lies with the government. Legislation can easily be made to deal with tax loopholes, but the government simply refuses to do it  – in fact, worse, they help facilitate it (for example George Osborne’s recent changes to the Controlled Foreign Companies act has made tax avoidance by UK-based multinationals much easier.) The excuse they give is that the UK must be ‘competitive’ on tax law in order to attract businesses. Competitive on tax of course means competing with other countries to see who can charge the least tax and, by necessity, who can make the largest cutbacks to public services; and as all countries are doing this it becomes nothing other than a  perpetual spiral of decline – the so-called ‘race to the bottom’ – the main tool of which is Austerity. (It’s also worth remembering that with tax avoidance costing the economy £95bn/year, clamping down on that would remove the requirement for austerity completely). In addition, and ironically for those who support the idea of free markets, such practices by  multinationals give them a huge advantage over smaller UK companies who can’t avoid tax, the result of which is that many small UK businesses could be driven into bankruptcy.

It is obviously unacceptable that large, unaccountable corporations should be able to hold governments to ransom in this way, but they can only do it because governments allow them to, under the guise of being ‘pro-business’. (Helped along with a fair bit of funding for their political parties  and some strong behind-the-scenes lobbying as well.) In this way our whole democratic system has been corrupted by the power of money, and true power now lies with those who control the politicians, not we who elect them. And until people wake up and stop voting for the same old parties, this situation will continue indefinitely, with ever increasing wealth for those at the top, and ever-declining living-standards for those at the bottom.

* Thames Water: http://www.standard.co.uk/business/business-news/more-taxfree-profits-for-thames-water-as-it-rakes-in-the-cash-9527543.html Boots: http://www.bloomberg.com/news/2014-05-29/u-k-government-urged-to-probe-alliance-boots-over-tax-affairs.html Vodafone: http://www.ukuncut.org.uk/blog/press-release-uk-uncut-set-to-tackle-vodafone-stores-over-tax-avoidance-

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