Time To Get Tough On Tax

by Joe

First published: 04 February, 2015 | Category: Activism, Economy, The State

A guest post from Natalie Sharples*

Tax is a hot topic. From the political parties to the Archbishop of Canterbury, today everyone is talking tough on corporate tax dodgers. But whilst words are good, we need action to match them. That’s where the campaign for a Tax Dodging Bill comes in.

As we know, every year the UK loses billions of pounds whilst developing countries lose an estimated $160 billion a year from corporate tax dodging[1].

A National Audit Office report showed that more than 400 of the 800 largest businesses in the UK paid less than £10 million in corporation tax in the 2012/13 fiscal year and around 160 paid no corporation tax at all.[2] Big accounting firms still co-write British tax rules while making £2 billion a year in fees from providing tax advice to companies.[3]

None of this is news. But what’s the solution? The campaign, launched last week with members including Health Poverty Action, Oxfam, the Equality Trust, Christian Aid, NUS and ActionAid, believes that a comprehensive Tax Dodging Bill could bring in at least £3.6 billion a year to the UK treasury - the equivalent of £600 for every household living below the poverty line. It could also raise billions for developing countries.

With this campaign we are calling on all political parties to pledge to introduce such a bill in the first 100 days after the election, and to use the funds generated to tackle poverty.

Key measure for the bill must include:

·       Clamping down on foreign multinationals using tax havens to avoid paying their fair share of tax in the UK. Whilst this is what the proposed Diverted Profits Tax or ‘Google Tax’ aims to do, its draft includes a major loophole  - it does not apply to “loan arrangements.” [4] This means it its current form it fails to prevent companies in tax havens lending to subsidiaries in high tax countries and benefiting from tax breaks on the interest.

·       Review the tax breaks given by the UK and introduce a full cost benefit analysis of any major new tax breaks. This would include the controversial “Patent Box” -  a tax break that allows companies to pay a reduced tax rate on all profits from products that contain a qualifying patent. The Treasury estimated that this tax break would cost the UK nearly £2 billion in its first three years and just under a billion pounds a year thereafter,[5] without clarity about the benefits it would bring.  In fact, a report by the Public Accounts Committee suggests that the government may not know if and how tax breaks across the board benefit Britain’s economy. [6]

·       Remove the incentive for UK multinationals to dodge tax in developing countries by strengthening the Controlled Foreign Companies rules to apply to profits made anywhere, not just the UK, and conduct a “spillover analysis” of UK corporate tax rules in order to assess whether they have harmful knock-on effects on the ability of developing countries to collect their own taxes.

·       Make the UK tax regime more transparent by requiring companies to publish their taxes, profits and other key data for each country where they do business, and making tax avoidance schemes riskier and more costly.

As we approach the general election, this bill is timely. Polling conducted by COMRES for ActionAid and Christian Aid found real public disgust  towards tax dodging. 85 per cent of respondents said that tax avoidance by large companies is morally wrong even if it is legal and 73 per cent said it was personally important for them that the next government legislates to discourage UK companies from avoiding tax in the developing countries in which they operate.

As the public goes to the polls it is time to tap into this anger and secure firm commitments to tackle tax dodging.  Join us at taxdodgingbill.org.uk.

* Natalie Sharples is Senior Policy Advisor at Health Poverty Action, an NGO working to tackle the political, social and economic determinants of health. Follow her/them on @Nshar9 and @HealthPoverty

[1] Tax Dodging Bill campaign policy brief, 2015

[2] National Audit Office. Report by the Comptroller and Auditor General. The Exchequer departments. Tax reliefs. HC 1256 Session 2013-14. 7th April 2014. Page 22. Our reference to “around 160 companies” is derived from the statement in this report that: “Around 20 per cent of these 800 businesses paid no corporation tax in 2012-13”

[3] Public Accounts Committee – Forty-Fourth Report. Tax avoidance. The role of large accountancy firms. April 2013. Summary.

[4] HM Revenue and Customs. Diverted Profits Tax (Tax Impact Information Note). 10th December 2014.

[5] HM Revenue and Customs. Patent Box. Summary of Impacts. The “steady-state cost” of the Patent Box to the UK Exchequer is given as £1.1 billion a year.

[6] House of Commons Committee of Public Accounts. Tax reliefs. Third Report of Session 2014-15. 9th June 2014. Page 15. The cost of a new tax break is estimated by the government at its introduction but these estimates are often not reviewed later on.

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