Business schools help create a culture where the profit justifies the means

Business students learn accounting techniques, but not ethical decision-making. This is why corporate scandals persist writes Berend van der Kolk in The Guardian

 

‘When I hear about the complex transfer pricing schemes at companies such as Amazon and Starbucks, I start wondering whether the accountants knew they were avoiding tax.’ Photograph: Mike Blake/Reuters


As a university teacher of accounting, I see the world through a particular lens. When I read about the sales scandal at Wells Fargo, I can’t help but think about the people who naively designed the incentive schemes that triggered this type of unethical behaviour. When I hear about the complex transfer pricing schemes at companies such as Amazon and Starbucks that enable them to avoid tax, I start wondering which accounting techniques they used. In short, I see the strong connection between unethical business practices and accounting techniques.

One reason why these problems persist is that the textbooks used in most elementary management accounting courses ignore this connection. They tend to focus on the technical aspects of accounting – understanding the formulas, definitions, mechanics and calculations – while ignoring its ethical aspects. The ethical dimension is usually nothing more than an add-on in an isolated chapter, introduction paragraph, or in a separate course on business ethics. This makes ethics an afterthought detached from the topics it is intended to reflect on.

Take the example of transfer pricing – the practice of setting a price for a good or service delivered by one part of an organisation to another. When these units are located in different tax regions, the chosen transfer price affects the amount of tax that has to be paid. Various accounting textbooks discuss the technical aspects of transfer pricing, framed with questions such as “how can multinationals minimise their taxes payable?”. The ethics of whether it’s fair to avoid paying taxes – like how many developing companies are harmed by tax-avoiding multinationals - are rarely discussed.

This may lead students to believe that business decisions are only technical, and bear no ethical implications. In fact, business decisions almost always bear ethical implications: they may deteriorate work conditions elsewhere in the supply chain, create a profit-justifies-the-means culture or increase inequality on a global level.

We need to see a much stronger integration of ethical considerations into business education. This is how managers make real-life business decisions. This could be achieved through a discussion on the techniques and ethics of transfer pricing in one and the same accounting class, using a case that highlights both aspects. Business education should also challenge its own underlying assumptions about human behaviour, and bring in other disciplines such as the humanities to help students think critically about business practices that are taken for granted.

Of course it’s important that business students acquire technical skills, and universities shouldn’t be paternalising students by dictating what is and isn’t ethical. Instead, a more critical and integrated debate about the moral implications of financial instruments, accounting techniques and new technologies should play a central role in business education.

In the film Jurassic Park, Dr Ian Malcolm says: “Scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.” I would like us – business educators, but also students, managers and accountants – to not make that same mistake. Let’s take that step back every once in a while to reflect on the ethics of the technics.

Adani mining giant faces financial fraud claims as it bids for Australian coal loan

by Michael Safi in The Guardian


Exclusive: Allegations by Indian customs of huge sums being siphoned off to tax havens from projects are contained in legal documents but denied by company 


 

Men wearing masks of Australian prime minister Malcolm Turnbull and Adani chairman Gautam Adani protest outside Parliament House in Canberra. Photograph: Lukas Coch/AAP


A global mining giant seeking public funds to develop one of the world’s largest coal mines in Australia has been accused of fraudulently siphoning hundreds of millions of dollars of borrowed money into overseas tax havens.

Indian conglomerate the Adani Group is expecting a legal decision in the “near future” in connection with allegations it inflated invoices for an electricity project in India to shift huge sums of money into offshore bank accounts.

Details of the alleged 15bn rupee (US$235m) fraud are contained in an Indian customs intelligence notice obtained by the Guardian, excerpts of which are published for the first time here.

The directorate of revenue intelligence (DRI) file, compiled in 2014, maps out a complex money trail from India through South Korea and Dubai, and eventually to an offshore company in Mauritius allegedly controlled by Vinod Shantilal Adani, the older brother of the billionaire Adani Group chief executive, Gautam Adani.


Vinod Adani is the director of four companies proposing to build a railway line and expand a coal port attached to Queensland’s vast Carmichael mine project.

The proposed mine, which would be Australia’s largest, has been the source of years of intense controversy, legal challenges and protests over its possible environmental impact.

 Abbot Point, surrounded by wetlands and coral reefs, is set to become the world’s largest coal port should the proposed Adani expansion go ahead. Photograph: Tom Jefferson / Greenpeace

Expanding the coal port to accommodate the mine will require dredging an estimated 1.1m cubic metres of spoil near the Great Barrier Reef marine park. Coal from the mine will also produce annual emissions equivalent to those of Malaysia or Austria according to one study.

One of the few remaining hurdles for the Adani Group is to raise finance to build the mine as well as a railway line to transport coal from the site to a port at Abbot Point on the Queensland coast.

To finance the railway Adani hopes to persuade the Northern Australia Infrastructure Facility (Naif), an Australian government-backed investment fund, to loan the Adani Group or a related entity about US$700m (A$900m) in public money.


While it awaits the decision on the loan, in Delhi the company is also expecting the judgment of a legal authority appointed under Indian financial crime laws in connection to allegations it siphoned borrowed money overseas.

The Adani Group fully denies the accusations, which it has challenged in submissions to the authority.

The investigation

News of the investigation was first reported in India three years ago, but the full customs intelligence document reveals forensic details of the workings of the alleged fraud which have not been publicly revealed.

The 97-page file accuses the Adani Group of ordering hundreds of millions of dollars’ worth of equipment for an electricity project in western India’s Maharashtra state using a front company in Dubai.

To read the pdf click here.

The Dubai company allegedly sold the exact same equipment back to Adani Group-controlled businesses in India at massively inflated prices, in some instances said to be eight times the sale price.

According to the allegations in the file, the effect of these transactions was that the Adani Group spent an average 400% more for the materials. That money was allegedly paid to a company Indian authorities allege was owned through a series of shell companies leading to a Mauritius trust controlled by Vinod Adani.

If true, one effect of the alleged scheme would have been to move vast sums of money from the Adani Group’s domestic accounts into offshore bank accounts where it could no longer be taxed or accounted for.

Because tariffs for using electricity transmission networks are determined partly by what they cost to build, if the DRI’s accusations are correct, the overvaluation of capital goods would have been likely to have led to higher power prices for Indian consumers.

 Adani Power company thermal power plant at Mundra, India. Photograph: Sam Panthaky/AFP/Getty Images

A significant proportion of the money the Adani Group allegedly siphoned out of India was provided by taxpayers in the form of loans from the publicly-owned State Bank of India and ICICI, a private bank. There is no suggestion either bank was aware of or involved in any illegal activity.
‘We are cooperating with investigating agencies’

The Adani Group said in a statement to the Guardian on behalf of itself, its subsidiaries, and Vinod Adani that it “strongly denies the allegations of overvaluation”.

Government loan to Adani could be tainted by interference, economists say



“It is a standard procedure for the group to follow international competitive bidding route for major capital expenditures to ensure transparency and competitiveness in the process. All our transactions are always conducted within the framework of extant regulatory guidelines and provisions,” it said.

“The fact that our projects have incurred the lowest cost across central, state and private utility players has gone to establish the robustness of the processes followed by our group.

“It may be noted that Mr Vinod Adani who is the elder brother of Mr Gautam Adani has been a non-resident Indian for about 30 years and has his own established business interests outside India,” the statement said.

“Adani Group is aware of the investigations being conducted by the DRI, and has fully cooperated, and shall continue to cooperate with the investigating agencies.”
The Australian loan

The Adani Group, or a linked entity, has reportedly been granted “conditional approval” for the US$700m (AU$900m) concessional loan from Naif, the Australian government investment fund.


But due to secrecy around the operation of the investment fund, it is not clear whether the loan application discloses the existence of the DRI notice or the ongoing legal proceedings, or whether the applicant is required to do so under the Naif’s anti-money laundering provisions.

  Adani Group chairman Gautam Adani meets with Queensland premier Annastacia Palaszczuk in 2016. Photograph: Cameron Laird/AAP

Adani Group did not clarify whether it had informed Naif about the allegations when asked by the Guardian.

Naif’s investment mandate includes a clause preventing it from “act[ing] in a way that is likely to cause damage to the commonwealth government’s reputation, or that of a relevant state or territory government”.

Vinod Adani is currently listed as the sole director of four Singapore-based companies which, through their Australian subsidiaries, are proposing to build the railway line using the government loan. The companies also control a project to expand the Abbot Point port.

All four entities are ultimately owned by Atulya Resources Limited, an Adani-controlled company in the Cayman Islands.

Status of the Indian investigation

The Guardian understands the allegations of over-invoicing have been passed from the DRI to the Enforcement Directorate (ED), an Indian agency tasked with investigating financial crimes.

The Adani Group says the case is currently before a legal authority, the Adjudicating Authority, indicating that Indian officials are pressing either to seize assets they regard as being connected to money laundering or to levy a fine up to three times the sum allegedly siphoned overseas.

The company declined requests to clarify what if any penalty the authorities are seeking, but a spokesman said a decision was expected shortly. “We follow the process of corporate governance and comply with the applicable laws,” he said.

“All our transactions are always conducted within the framework of law. We have already submitted our detailed reply. Adjudication process on the subject is going on and we expect the order in near future.”

The Guardian is publishing excerpts from the DRI file in the interests of ensuring Naif, as well as the public, have access to as much relevant information as possible in assessing whether Adani or linked companies would be suitable recipients of public money.


In a separate case last year, six Adani subsidiaries were listed among 40 other companies being investigated for allegedly running a similar price-inflation scheme. The companies are accused of inflating the price of coal imports from Indonesia to hide profits in overseas tax havens.

The DRI and the ED did not respond to a request to clarify the status of the investigations.
The alleged money trail

India is electricity-starved. More than 240 million Indians – enough people to form the fifth-largest country on Earth – lack access to regular power.

In the early 1990s, to encourage power companies to build electrical infrastructure, the Indian government eliminated import tariffs on technical equipment such as reactors and transformers. Profit margins on these projects increased overnight.

Adani saw the business opportunity. In 2010, the Maharashtra Eastern Grid Power Transmission Company Limited (MEGPTCL), a wholly owned subsidiary of Adani Enterprises, was granted a license to develop two electricity transmission networks in the north-east of the state.

The company used another Adani subsidiary, PMC Projects, to source the equipment it would need to build the networks. In turn, PMC, subcontracted the work to a company in Dubai.

According to the investigators’ report, bank records suggest that that company, Electrogen Infra FZE (EIF), charged significant – and to Indian authorities, suspicious – markups on the equipment it sold to PMC.

In one of the 57 invoices cited in the report, EIF is alleged to have ordered equipment from Hyundai Heavy Industries in South Korea. Bank records allegedly show the company paid Hyundai about US$65m.

According to the DRI, it sold the same equipment to PMC for about US$260m – a mark-up of nearly 400%.

Extract from page 14-15 of the Directorate of Revenue Intelligence file on Adani Group. Photograph: The Guardian

“[This] appears to be an abnormal and gross inflation, contrary to ordinary economic logic and prudence,” investigators concluded.

In total, the report alleges EIF made about 26 orders from Hyundai Heavy Industries and sold them onto PMC for an average mark-up of more than 400%, making a profit margin of US$189m.


There is no suggestion Hyundai Heavy Industries or any other supplier was aware of or involved in any illegality.

Extract page 19-20 of the DRI file, section 4.1.16. Photograph: The Guardian

EIF allegedly purchased another 25 shipments of equipment from three companies in China. According to the report, these were sold to the Adani Group for an average markup of about 860%.

Investigators calculated the total assessable value of the allegedly marked-up invoices to be nearly 15bn rupees.

  Extract from page 78-79 of the DRI file, section 15.4. Photograph: The Guardian

“Given the scale and extent of invoice inflation, it is apparent that it [was done] with fraudulent intent of siphoning money from India,” the DRI said.
Who controls the companies?

Key to the alleged fraud, according to investigators, is that EIF, the company subcontracted to purchase the equipment from manufacturers in South Korea and China, was directly controlled by the Adani Group and its associates.

Investigators claim EIF was partly staffed by ex-Adani Group employees who had recently left the company.

According to a letter from the company to an Indian bank that is cited in the notice, EIF was owned by another company called Electrogen Infra Holding Pvt Ltd (EIH). The trail of ownership eventually leads to a trust based in Mauritius – headed by Vinod Adani.

  Extract from page 21-22 of the DRI file, section 4.2.3. Photograph: The Guardian

Investigators concluded: “From the above information given to the bank by EIF, it appears that Vinod Adani had a direct control over the activities of EIF through the Asankhya Resources Family Trust.”

Vinod Adani is also listed as having been the director of EIH between January 2010 and May 2011, though the notice states he told investigators he had no involvement in the day-to-day running of the company.

Investigators also claim to have discovered that an employee of the Adani Group subsidiary PMC had been granted permission by EIF staff to sign multimillion-dollar supply contracts on its behalf.

“All these go to show that there is no distinction between PMC and EIF, they are only working for common interest as part of a large modus-operandi for siphoning off money from India by invoice inflation,” investigators concluded.
The DRI and the ED were both contacted for comment. Attempts were made to contact EIF but the company could not be reached on its listed email or phone number.

Hyundai Heavy Industries did not respond to a request for comment.

It is unclear when the allegations of invoice inflation will be resolved in Delhi other than the Adani spokesman saying that they expected an order “in near future.” In Queensland, Naif’s decision on whether to grant Adani the nearly A$1bn loan is expected by the end of this year.

It's time for a global companies to pay a Global Profit Tax

Ben Chu

The cascade of revelations in recent months showing multinational companies doing a huge amount of business here and yet paying virtually no corporation tax has provoked widespread public demands for something to be done. But people tend to be rather hazier on what that "something" should be.

To define a solution we first need to grasp the nature of the problem: a global tax loophole. In our age of liberalised cross-border trade and free capital flows, multinational companies find themselves with a considerable level of freedom to choose where they pay tax on profits.

With some sophisticated planning from their accountants, many of these corporations (especially those whose commercial value is derived from a piece of intangible intellectual property such as a search engine algorithm or a drug patent) are able to register their profits in tax havens.

Here's how it works. A multinational typically registers its intellectual property in a subsidiary company based somewhere like Bermuda or the Cayman Islands. This subsidiary then charges another subsidiary operating in a big customer market, such as Britain, a massive fee for the right to use that intellectual property. So any trading surplus resulting from activities in the large market is offset by the cost of the fee. And then the profits accumulate in the tax haven.

National governments could and should try to put a stop to this egregious "profit shifting" on their own. But a unilateral approach is plainly second best.

The natural solution is to secure an agreement by all the world's governments to tax the profits of multinational firms collectively and to divide up the revenues fairly between them. This division could be based on the amount of business done by the multinational in their various territories as revealed by their turnover and number of employees.

It sounds complicated, but American states have long operated a system designed along these lines known as "apportionment". Another name used is "unitary taxation". Those names are a bit of a turn-off to the layperson. What's required is a reform banner that the general public can easily understand. I suggest: "Global Profit Tax". After all, doesn't it make sense that global companies should be compelled to pay global taxes?

With this tax dodger list the Revenue shames only itself

By singling out barbers and pipe fitters, HMRC shows it takes care of the little people, while Amazon looks after itself

• 
• • Marina Hyde
  • The Guardian, Friday 22 February 2013 19.30 GMT

'Public enemy No 1 is a Liverpool hairdresser… Or rather, in the interests of accuracy, he is only one master criminal on a list of nine coveted scalps.' Illustration by Matthew Richardson

Pondering one of the more delicious ironies of 20th century American justice, people always say wryly that they could only pin tax evasion on Al Capone. Pondering HM Revenue and Custom's 21st century name-and-shame list, they will say that they could only pin tax evasion on hairdressers.

If you have spent the past few months – or indeed decades – frothing with righteous indignation at the refusal of various major corporations profiting in the UK to pay so much as 37p in tax, let alone their fair share, you will be encouraged to learn that public enemy No 1 is a Liverpool hairdresser whom the Revenue eventually fined 17 grand for deliberate default. Or rather, in the interests of accuracy, he is only one master criminal on a list of nine coveted scalps. Others include a pipe fitter who settled with them for £10,986 and a Nottinghamshire knitwear firm that was eventually fined £86,765.54. The big kahuna is a wine firm from Mobberley in Cheshire. I'd quite like to see their thrilling stories told in a modern  version of The Untouchables. As the Eliot Ness of the piece, the taxman ought to be played by a clean-cut do-gooder – Ryan Gosling perhaps – with Robert De Niro returning to take the role of the Fife grocer.

As so often in this septic isle, it's the pettiness of it all that's the tragedy. If these are the names, then the shame must be the Revenue's. Yet they seem to have trumpeted this exciting new direction in their tax-hunting activities with similar fanfare to that which must have attended the nailing of Capone. Ladies and gentleman … We got him.

Needless to say, this isn't a defence of the named and shamed, who are no doubt dreadful little chisellers. I'm afraid I'm one of those ineffably dreary sorts who doesn't pay cash in hand, gladly operates as well as submits to PAYE, and really can't be doing with tax avoiders at all. Blah, blah, blah. But for all my easy-won goody goody-ness, I pretty much need to know that every last megacorp doing business in our land has paid every last penny they owe before we start boasting about having nailed Cool Cutz, or Headmasterz, or whatever hair-based pun adorns this chap's salon lintel.

Predictably, this isn't the line HMRC's Treasury overlords have gone with, as Treasury minister David Gauke once again suggested that tax avoiders have nowhere to hide. (Except in plain sight, as some of Britain's most successful companies.)

Are you convinced by Mr Gauke? I can't help feeling that as a former corporate tax lawyer, married to a corporate tax lawyer, and a chap who used taxpayers' money for stamp duty on his second home move, he is somewhat miscast as the Simon Wiesenthal of hunting down tax avoiders.

I suppose he thinks getting on the airwaves to big up the HMRC list counts as Being Seen To Be Doing Something, as do his underlings in the Revenue themselves. Yet, as a piece of political theatre, this outing feels marginally less successful than Sooty and Sweep's production of One for the Road. There has been a huge and exhilarating outpouring of anger over tax avoidance over the past year, as the issue has moved closer to the centre of the stage than it has been in decades. To say that HMRC publishing a list of nine small businesses squanders that goodwill feels something of an understatement.

What is the intended message, if we may flatter the stunt in that way? That if HMRC look after the little people then the big people will look after themselves? You can't deny it's working. The big people seem to be looking after themselves very well indeed, and though this stunningly misdirected exercise stops just shy of congratulating the major multinationals who avoid tax, the indication of where the Revenue's focus lies effectively does just that.

If I were a mischievous billionaire I would stage a piece of political theatre myself. I would find out whichever hotshot tax lawyers act for Starbucks or Google, and hire them at vast expense to defend the likes of the pipe-fitter and the grocer. They'd end up getting a £300,000 rebate, which would make the point about the real problem more eloquently than Gauke and his cabinet seniors ever could. Certainly more than they'd ever care to, on this evidence.

As for the Revenue, it takes a special sort of flat-footedness to snatch defeat from the jaws of moral victory – but ultimately we must remember the calibre of the organisation with which we are dealing here. I merely pass on to you the tale of one self-employed friend, who was relentlessly pursued over a mystery cheque of around £2,750 that she had written and could not – a long time after the event – explain. She couldn't find the stub, the bank had somehow lost the details, and the investigating Revenue official was under the impression that she had written it as some kind of tax dodge. What kind was unclear, but he wanted to know what she was hiding. After two or three years of this, he brought his investigation to a graceless close. It had emerged that the cheque in question had in fact been paid to one HMRC, in settlement of income tax. Which should give the likes of Amazon a flavour of the worthiness of their foe.

Forget Starbucks – what UK companies are doing to avoid tax is far worse

ActionAid investigation looks into financial arrangements of British multinationals

• Richard Brooks
• The Observer, Sunday 10 February 2013

The Victoria Falls in Zambia, one of the world's poorest countries. Photograph: Nicole Cambre/Rex Features

 

That the world's biggest companies avoid tax on a grand scale is no longer much of a revelation. We know only too well how Starbucks' Dutch royalties, Amazon's Luxembourg hub and Google's Irish operations diminish their tax bill.

But today's investigation by ActionAid into the financing arrangements of an African subsidiary of Associated British Foods plc, the FTSE 100 company behind brands ranging from Ovaltine to Primark, shows how similar practices are hitting some of the world's poorest countries.

Africa's largest sugar producer, Zambia Sugar plc, deploys the familiar techniques of making tax-deductible payments to related companies in distant locations.

Such amounts represent relatively small savings for a conglomerate like Associated British Foods, with annual global pre-tax profits of £750m, but they are a devastating loss for countries like Zambia. Corporate taxes account for more than 20% of total tax revenues of $4bn in a country where 8 million people live in absolute poverty.

And if, as parliament's public accounts committee has discovered, countries like Britain are struggling to counter such "transfer pricing" arrangements, those with even scarcer resources and less expertise have no chance. Or, as one of the Zambian tax authority's advisers put it: "On transfer pricing we are, pardon my language, getting fucked."

ActionAid rightly holds companies responsible for this, but it also points out how they are exploiting international tax law – written by richer northern nations under the auspices of the Organisation for Economic Cooperation and Development – that is biased against poorer countries.

Enforced through bilateral taxation treaties between countries, the rules of the game compel tax authorities to respect transactions such as the payment of interest, royalties and fees between companies within the same multinational group, even when the recipients are based in tax havens and the arrangements have little purpose beyond tax reduction.

Reform to this system is evidently long overdue but, with hundreds of countries signed up to it, progress is glacial. In the meantime political rhetoric such as David Cameron's Davos call for companies to "wake up and smell the coffee" stands as no more than a futile plea to the world's multinationals' better natures.

What will have an impact are George Osborne's relaxations of the UK's "controlled foreign companies" laws governing the diversion of corporate profits into tax havens. The changes are designed, a Treasury memo revealed, "so that [the laws] have a better fit with the way in which [multinational companies] structure their commercial operations…" That is, to facilitate "tax efficient supply chain management".

There is a smell coming from the Government's response to corporate tax dodging at the expense of the world's poor, but it's not coffee.

Richard Brooks is the author of The Great Tax Robbery, to be published by Oneworld Publications next month.

• This article was amended on 10 February 2013. Associated British Foods has said in response to this piece that they do real business in Mauritius and other locations distant from Zambia. They also say that capital tax allowances available in Zambia at the time of the company's investment are the reason for the low Zambian corporate tax revenues.

Is this the start of a new coalition against the corporate scorpions?

A broader view of what is wrong with business in this country is emerging – triggered by business itself

• 
• • Will Hutton
  • The Observer, Saturday 17 November 2012 21.04 GMT

Mothercare chairman Alan Parker has added his voice to those businesses speaking out against those who avoid paying tax in the UK. Photograph: Graham Turner for the Guardian

It's a well-known fable. The scorpion wants to cross a river and pleads with the reluctant frog to carry him on his back; it would be pointless to sting the frog because that way both would drown. Halfway across the river the scorpion stings, dooming both. Why? asks the dying frog. Because it is in my nature, replies the scorpion.

Too many owners and managers of British companies, along with the Big Four accountancy firms that provide them advice on how to structure their affairs to evade and avoid taxation, are like the scorpion. They just can't help themselves from behaving badly, even if it brings everyone down. It is in their nature.

As it becomes clear that we are living through the most protracted period of economic depression for more than 100 years, the result of not just policy mistakes but the way Britain has done capitalism, business itself is beginning to ask the first tough questions about what is wrong. There always was a distinction between good and bad capitalism, but so far the critics of bad capitalism have not strayed far beyond the leader of the Labourparty, some trade unionists, business secretary Vince Cable, the odd business maverick and one or two liberal commentators. But last week some serious companies weighed in, plainly worried about the corporate scorpions riding on their backs.

Andy Street, managing director of John Lewis, broke cover to say that multinational companies trading in the UK but deploying overseas tax havens necessarily must "out-invest and ultimately out-trade" businesses paying full taxes in the UK, who now risk being driven out of business. "Ultimately there will not be a tax base in the UK."

Mothercare chairman Alan Parker joined in. "Unfair pricing from international UK tax dodgers puts our long-term ability to survive and grow under threat," he said. Sebastian James, chief executive of Dixons, tweeted that he agreed with Andy Street: "Retailers making profits in the UK should pay tax in the UK."

Unlike in manufacturing, retailing still has a critical mass of British-owned and British-based companies that have collective heft. With Comet recently joining a lengthening list of retailers going into receivership, Street, Parker and James are breaking ranks from the default position of British business that whatever leaves the mouth of a Tory politician must be good and the words of a Labour politician must be bad.

The ritual ideological incantations of, say, the Free Enterprise Group in the Conservative party – that all British business needs is yet more labour market deregulation, further dismantling of welfarism and striking a detached bargain with the EU – have hitherto gone unchallenged by business. Now a broader view of what is wrong is emerging, triggered by business itself.

What prompted Street's intervention was the disastrous performance by Amazon's public policy director, Andrew Cecil, before the House of Commons public accounts committee, aided and abetted by two flanking cameos from Starbucks and Google. The three scorpions were being quizzed about their tax dodging, but the comptroller of the National Audit Office, Amyas Morse, felt that the lack of evidence brought to the committee by Amazon was " insulting". Meanwhile, Starbucks' claim that it made no money in the UK was palpably disingenuous and persuaded none of the MPs. And Google admitted in effect that it does what it does because it can. It is just in a scorpion's nature.

Senior Treasury officials have worried for many years about the precariousness of the UK's corporate tax base and the ease with which companies could use a combination of transfer pricing and offshore tax havens to avoid UK tax. Mortal threats come from the rise of private equity – for example, private equity-owned Boots is now domiciled in Zug in Switzerland – and the emerging dominance of foreign multinationals in the UK because of our careless indifference both to who owns our companies and how they organise their operations. They need addressing.

For a long time, the arguments about the British economy have been defined by exchanges between opposing poles of the Free Enterprise Group and advocates of a bastard Keynesianism. Director generals of the CBI may have privately conceded that the argument needs to be broader and more sophisticated; that an overvalued exchange rate, the shortcomings of the financial system, the bias against innovation or the abuse of tax havens were all chronic problems. But persuading the powerful CEOs within the CBI to back them has been impossible.

Importers want a high pound. Banks allowed no criticism. Nobody wants to be on the side of high taxation by inveighing against tax havens or to give Labour any succour if it can be helped. A candidate for CBI director general who withdrew from the final shortlist to succeed the outgoing Richard Lambert in late 2010 told me that the job allowed little scope beyond urging more and better training, on which everybody could agree. On many big issues, the CBI was mute or followed the Tory line. Indeed, Lambert, ready to attack wildly overpaid CEOs as risking being aliens in their own country, was felt to have overstepped the line.

At last there is a breaking of ranks. Desperate economic circumstances and a chancellor more anxious to score political points than develop an imaginative economic policy are forcing a transformation in established positions. John Cridland, the current director general, has used the space to develop a more sophisticated policy agenda than his predecessors were allowed. And now British-based retailers are speaking out.

But any effective move against the scorpions requires the state to act and the more it can act with others the more effective it will be. Tax havens were a barely mentioned part of Britain's most effective postwar industrial policy: the swath of concessions used to support the growth of the City. We sponsor more of them than any other advanced country. That has to be reversed. There are many possibilities, ranging from taxing companies on their turnover in the UK to outlawing the use of tax havens, action that is best delivered if the EU can move together, but this is always opposed by the British.

Our fifth-columnist Eurosceptics, allies of the scorpions, are happier that the UK corporate tax base is destroyed and the British economy is owned by foreigners indifferent to their public obligations than to act together with Europeans to further joint British and European interests. Mr Miliband and the Labour party say they are for a better capitalism, against tax havens and are pro-Europeans. Now there is an opportunity to say it and to build a new coalition. Let's hear them.

A roll call of corporate rogues who are milking the country

The scale of unpaid tax now outstrips the entire deficit. Forcing the elite to pay up is a matter of both justice and necessity

• 
• • Seumas Milne
  • The Guardian, Tuesday 30 October 2012 22.20 GMT

Police officers protect a Starbucks outlet in Oxford Street during the TUC anti-austerity protest in London on 20 October 2012. Photograph: Suzanne Plunkett/Reuters

 

'Only the little people pay taxes," the late American corporate tax evader Leona Helmsley famously declared. That's certainly the spirit of David Cameron and George Osborne's Britain. Five years into the crisis, the British economy has just edged out of its third downturn, but construction is still reeling from government cuts and most people's living standards are falling.

Those at the sharp end are being hit hardest: from cuts to disability and housing benefits, tax credits and the educational maintenance allowance and now increases in council tax while NHS waiting lists are lengthening, food banks are mushrooming across the country and charities report sharp increases in the number of children going hungry. All this to pay for the collapse in corporate investment and tax revenues triggered by the greatest crash since the 30s.

At the other end of the spectrum though, things are going swimmingly. The richest 1,000 people in Britain have seen their wealth increase by £155bn since the crisis began – more than enough to pay off the whole government deficit of £119bn at a stroke. Anyone earning over £1m a year can look forward to a £42,000 tax cut in the spring, while firms have been rewarded with a 2% cut in corporation tax to 24%.

Not that many of them pay anything like that, even now. The scale of tax avoidance by high-street brand multinationals has now become clear, in no small part thanks to campaigning groups such as UK Uncut. Asda, Google, Apple, eBay, Ikea, Starbucks, Vodafone: all pay minimal tax on massive UK revenues, mostly by diverting profits earned in Britain to their parent companies, or lower tax jurisdictions via royalty and service payments or transfer pricing.

Four US companies – Amazon, Facebook, Google and Starbucks – have paid just £30m tax on sales of £3.1bn over the last four years, according to a Guardian analysis. Apple is estimated to have avoided over £550m in tax on more than £2bn worth of sales in Britain by channelling business through Ireland, while Starbucks has paid no corporation tax in Britain for the last three years.

The Tory MP and tax lawyer Charlie Elphicke estimates 19 US-owned multinationals are paying an effective tax rate of 3% on British profits, instead of the standard rate of 26%. It's all entirely legal, of course. But taken together with the multiple individual tax scams of the elite, this roll call of corporate infamy has become an intolerable scandal, when taxes are rising and jobs, benefits and pay being cut for the majority.

Not only that, but collecting the taxes that these companies have wriggled out of would go a long way to shrinking the deficit for which working- and middle-class Britain's living standards are being sacrificed. The total tax gap between what's owed and collected has been estimated by Richard Murphy of Tax Research UK at £120bn a year: £25bn in legal tax avoidance, £70bn in fraudulent tax evasion and £25bn in late payments.

Revenue and Customs' own last guess of £35bn has been widely recognised as a serious underestimate. But even allowing for the fact that it would never be possible to close the entire gap, those figures give a sense of what resources could be mobilised with a determined crackdown. Set them, for instance, against the £83bn in cuts planned for this parliament (including £18bn in welfare) – or the £1.2bn estimated annual benefit fraud bill – and you get a sense of what's at stake.
Cameron and Osborne wring their hands at the "moral repugnance" of "aggressive avoidance", but are doing nothing serious about it whatever. They've been toying with a general "anti-abuse" principle. But it would only catch a handful of the kind of personal dodges the comedian Jimmy Carr signed up to, not the massive profit-shuffling corporate giants have been dining off.

Meanwhile, ministers are absurdly slashing the tax inspection workforce, and even introducing a new incentive for British multinationals to move their operations inbusiness to overseas tax havens. The scheme would, accountants KPMG have been advising clients, offer an "effective UK tax rate of 5.5%" from 2014 (and cut British tax revenues into the bargain).

It's not as if there aren't any number of measures that would plug the loopholes and slash tax avoidance and evasion. They include a general anti-avoidance principle (of the kind the Labour MP Michael Meacher has been pushing in a private member's bill) that would outlaw any transaction whose primary purpose was avoidance rather than economic; minimum tax (backed even by the Conservative Elphicke); and country-by-country financial reporting, and unitary taxation, to expose transfer pricing and limit profit-siphoning.

The latter would work better with international agreement. But there is already majority support in the European Union, and it is governments in countries such as Britain – where the City is itself a tax haven – that are resisting reform. When you realise how closely the tax avoidance industry is tied up with government and drawing up tax law, that's perhaps not so surprising.

But when austerity and cuts are sucking demand out of the economy, fuelling poverty and joblessness and actually widening the deficit, the need to step up the pressure for corporations and the wealthy to pay their share as part of a wider recovery strategy couldn't be more obvious.

The target has to shift from "welfare scroungers" to tax dodgers, and the campaign go national. Companies that are milking the country at the expense of the majority are especially vulnerable to brand damage. Forcing them to pay up is a matter of both social justice and economic necessity.