The tax fiddling by many of the biggest companies in Britain on a monumental scale exposed by a lengthy and detailed Guardian investigation must rank as a final denunciation, second only to the credit crunch itself, of the corruption and greed embedded at the heart of the unfettered market fundamentalism of the last 30 years. It reveals that the vast tax gap left by these companies, which then has to be filled by other taxpayers paying far more tax than they otherwise should have to, amounts to a loss between £4bn and £13bn a year, with the likely true figure between £8bn and £12bn. But what is so devastating about this analysis is not just the scale of the tax avoidance which it exposes, but the contrived artificiality of the devices used to achieve the aim of evading tax.

The Guardian research has uncovered several facts which reveal a taxation system hobbled by political intervention and unable to compete with the enormous scale and complexity of corporate tax scams:
1 Several FTSE100 companies have offshored legal ownership of their valuable trademarks to low-tax locations, while still retaining the benefits of being headquartered in London. Shell for example, whilst still a British plc, has moved its trademarks to Switzerland and its main tax residence to the Netherlands. This means they can reduce their UK-based profits and hence their British tax bills by paying royalties to the subsidiary in the tax haven for use of the trademarks.
2 Using such devices and other forms of transfer pricing, nearly two-thirds of Britain’s biggest companies paid less than £10 million corporation tax in 2006, according to the National Audit Office, and 30% actually paid nothing.
3 Whilst Barack Obama has supported a crackdown on tax havens as well as on bank bonuses, and himself sponsored the US Stop Tax Havens Abuse Act in 2007, the UK has by contrast dragged its feet in resisting recent EU efforts to tackle financial secrecy and the use of tax havens. Gordon Brown himself when Chancellor blocked a proposed EU withholding tax designed to limit large-scale tax avoidance.
4 Extraordinarily, these companies are granted the legal fiction of being a ‘legal person’, and therefore entitled to total tax secrecy and even ‘human rights’. As a result HMRC refuses to identify the 12 major companies which used tax avoidance devices to avoid paying any corporation tax at all. It is also very difficult to unravel a company’s liability for tax when each company has its own method of accounting for tax and there is no standardised way of declaring it.
5 The sheer artificiality of many of the tax avoidance schemes thought up, by executives paid extremely high salaries to find ways to circumvent the law, resembles the similar contrivances and complexities devised in the banks, at extortionate cost in bonuses, to launch exotic and largely incomprehensible financial derivatives such as structured investment vehicles, collateralised debt obligations and other conduits. The trade in schemes to beat the Revenue is rife. Top accountancy firms now charge £500,000 a time to invent tax avoidance ideas to get past the tax authorities, including variations of tax arbitrage, dividend stripping, double dipping, and outward domestication.
6 What is perhaps most disturbing of all is that when those elements in business for whom aggressive tax planning is the norm complained to Gordon Brown about the attentions they received from HMRC, their lobbying paid off. A review was put in hand, under Dave Hartnett the permanent secretary at the Revenue, which was led to redefine the relationship between business and the tax authorities as one of ‘mutual trust’!
Action to counter this growing corporate threat, or at the very least their utter repudiation of their responsibilities to the country that protects them and to other taxpayers, is now a high political priority. A much more robust and determined political lead needs to be given in taking on this cancer of non-compliance. HMRC needs to be beefed up, not dumbed down as it is being at present with 25,000 job cuts which is both politically and financially counter-productive when the HMRC’s large business service last year recovered 92 times its costs. A general anti-avoidance rule, which was mooted in 1997 but shelved as a result of business pressure, should now be implemented in order to strike out any scheme where tax avoidance is clearly the motivation. Executives propagating such devices should be legally suspended from such activities for a deterrent period, perhaps 10 or 20 years. And to throw full transparency on all such conspiracies against the public interest, the absurd pretence that a company is a legal person should be removed. Moreover, there is a readily available opportunity to carry through all these reforms, namely the potentially explosive review of tax havens initiated by Alistair Darling last autumn which is due to report this spring. A Parliamentary lobby to meet Darling and enforce action on all these fronts is already under way.

Bookmark to: