As Parliament prepares to debate corporate tax avoidance next Monday (7th), the charitable view is that government does the best it can, but is outmanoeuvred and outgunned by all those smart tycoons and multinationals who employ an army of accountants and lawyers to run rings round flat-footed regulators and tax inspectors who are always behind the curve. This is a pastiche of the truth. The reality is that government, so far from cracking down on tax dodgers, not only turns a blind eye to all but the most egregious examples of tax misfeasance, but actually promotes some of the most brazen examples of tax scamming itself. This scarcely surprising when the whole apparatus of tax policy has been captured by corporate interests. The so-called crackdown will be run by the former City corporate tax lawyer and ex-Tory special adviser, Edward Troup, who now heads up tax at the HMRC, and will be overseen by HMRC chairman Ian Barlow who ran the most aggressive tax avoidance schemes for KPMG. Even HMRC’s ‘ethics’ committee is chaired by Phil Hodkinson, director of Resolution insurance company based in a tax haven.
Both parties have been at it to assist tax dodging. New Labour removed the tax on dividends which provided Philip Green’s wife in Monaco with a £300m gift she would otherwise have had to pay on the £1.2bn dividend from his Oxford Street ratail empire. Gordon Brown as Chancellor in 2000 cut capital gains tax for private equity from 40% to just 10% which enabled them through financial engineering to transform income into capital gains and thus famously pay tax at a lower rate than their cleaning ladies – a process that turned much of the City of London into a tax haven. New Labour also exempted from tax the profits returned to the UK from overseas subsidiary companies , thus encouraging industrial-scale tax avoidance by sending income offshore.
The present Tory government has taken this further still. Osborne was lobbied in Opposition by Lord Fink, then Tory party treasurer, to provide a level playing field for UK companies with competitors in tax havens (!), and he promptly followed this through in Government with tax exemptions for companies’ tax haven branches. In 2011-12 he went even further by (staggeringly) cutting corporation tax for companies that opened a financial subsidiary in a tax haven from the current 23% to just 5%. And his latest tax wheeze is the so-called patent box, which will allow companies with a product that contains even just a small patented component to qualify for a new much lower rate of corporation (10% by 2017) on all of its profits.
With government itself deliberately opening up massive tax loopholes like this, do multinationals and the hyper-rich need to bother with tax avoidance themselves at all?