The Guardian revelations about the receipt of donations and tax arrangements of Andrea Leadson, Osborne’s junior Treasury minister, raise again the murky influence of Tory money on British politics via such devices as family trusts, non-dom arrangements, offshore mortgages, and employee benefit trusts. But that does not reveal the real scandal, namely that so far from cracking down hard on tax avoidance in all its multi-headed forms as Osborne likes to boast, he has actually allowed a multitude of avoidance mechanisms to persist untouched and has even made the UK itself into a tax haven. Despite all the sanctimonious condemnation of tax avoidance, Osborne has been regularly adding aggressive tax breaks to the UK tax code.
The most egregious is the ‘patent box’. This offers companies that introduce a patent, even one that is insignificant to the broad operations of the company, a reduction in corporation tax from 23% to 10%. This idea of giving tax breaks to intellectual property-owning firms was attacked last year by Osborne’s German counterpart, Wolfgang Schauble, on the grounds that the UK is “doing it just to attract companies” which is of course entirely correct by giving the UK the characteristics of a tax haven. This was echoed last month by a US tax expert, Stephen Shay, who declared “the UK has made a very clear policy decision to engage in tax competition for multinationals. It’s fair to say it’s rivalling Ireland. People now talk about the UK as a tax haven. Osborne has also ruled that any multinational company which has a finance house in a tax haven (as 98% of the FTSE-100 companies do) shall from 2015 be entitled to a cut in corporation tax from 23% to – believe it or not – 5.5%.
All this makes a nonsense of Osborne pretending to be anti-avoidance. What Labour should be countering with are 3 key objectives. One is a General Anti-Tax Avoidance Act which pouts the onus on companies to prove that the primary purpose of any transactions they engage in are for a genuine economic purpose and not for avoidance of tax. A second is to instruct the 10 tax havens which the UK controls (Pitcairn Islands, Cayman Islands, Bermuda, Turks & Caicos Islands, British Virgin Islands, Falkland Islands, South Georgia, Saint Helena, Gibraltar, and the sovereign base areas in Cyprus) to provide full information about UK clients, otherwise they risk being closed down if they fail to comply. And third, preferably by international agreement, all multinationals should be required to switch to country by country reporting, so that they can no longer indulge in transfer pricing to the massive loss of the tax authorities.