Just as yesterday’s announcement on the private and carefully stage-managed inquiry into the Iraq War immediately blew a hole in Gordon Brown’s protestations the week before about a more open and democratic Parliamentary system, so today the revelation that the UK is seeking to promote its much-heralded crackdown on tax havens through an extremely weak double-taxation exchange agreement with the Cayman Islands threatens to do exactly the same on the taxation front. Both these cases generate a very unfortunate impression that worthy and ponderous Ministerial statements and media releases are somehow seen as sufficient in their own right without the need for the follow-through in effective and radical action on the ground. At the G20 Gordon Brown gained much credit for promising a real clampdown on tax havens, but the resultant double-taxation exchange agreements have to be robust, enforceable and capable of raising revenue very substantially. The agreement which the UK Treasury has just signed with the Caymans fails on all these grounds. So what should be done?

Three key policies are needed to deal effectively with tax havens. The first, which the tax expert Richard Murphy of Tax Justice Network has consistently championed for years, is country-by-country reporting. This would stop the present enormous abuse whereby the world’s multi-national corporations, which are responsible for one-sixth of global trading in the form of internal transactions between their own subsidiaries, use a complex web of companies between these subsidiaries across the world to manipulate pricing so as to maximize profits. The potential for this manipulation is huge (BP for example is not one company, but an umbrella comprising 3,000 subsidiaries) and the scale of cheating national Treasuries throughout the world of their due tax revenue is truly colossal. Out of the total estimated $255bn tax avoidance by Big Business and super-rich individuals, no less than $160bn (£97bn) is derived from the systematic exploitation of this transfer mispricing loophole. If then companies were obliged to report annually what level of profits they made in each country where they operated and how much tax they paid there, this abuse would be ended, and many developing countries would then receive billions in tax each year of which they are currently deprived.
Secondly, the UK Government could unilaterally, without waiting for tortuous post-G20 negotiations to be completed, end the status of the City of London as one of the world’s biggest tax havens. At present it is doing the opposite. It is blocking the EU withholding tax on remittances sent to known tax havens in order to preserve the low tax/zero tax status of the British Overseas Territories and Dependencies including the Channel Islands, the Isle of Man, the Cayman Islands, and Bermuda. It is also challenging an EU proposal for stricter regulation of hedge funds and private equity, which clearly do need regulating to stop practices against the public interest like shorting and asset stripping, in order again to keep these firms in London. And notoriously the UK Government cut CGT to as low as 10% on hedge fund and private equity gains (when even Nigel Lawson had always aligned CGT with income tax at 40%) so that billionaires and millionaires, as one of them John Moulton of APEX admitted, ended up paying less tax than their cleaning ladies.
Third, transparency over tax payments is crucial, and double-taxation agreements, of which Britain currently has 113, clearly require exchange of information that is comprehensive and watertight. At present, very few meet this test. The overall question still therefore remains: are we really serious about stamping out widespread tax avoidance via tax havens? The answer on current form is No.

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