Cash-hungry countries have encouraged the rise of tax havens

HAMISH MCRAE in The Independent

Tuesday 30 April 2013

 

A desire to protect the oppressed, and generate revenue, has got us to here

So why don’t the major countries do something about tax havens? Is it that they can’t, or might it just be that permitting tax havens to exist rather suits them?

The mood against tax havens is running hot and strong, fuelled by extreme examples of tax avoidance by multinationals and rich individuals, and the main governments, including our own, are pledged to do something about it. But, for most of us, the puzzle is that the whole system was allowed to grow up in the first place. We can just about understand why our racing drivers choose to live in Monaco but when multinationals flip their earnings through several different jurisdictions, with affiliates busy lending to each other, and end up paying hardly any tax – well, it does all seem a bit rum.

The easiest way to get one’s mind round this extraordinarily complex world is to divide it into two categories: tax havens for individuals; and tax havens for companies. Though the two blend into each other. Take individuals first.

There are really two forces that have pushed countries to create tax havens for people. One has been the desire to protect people fleeing from oppression. Thus the British “non-dom” status goes back to the Napoleonic Wars, when people were fleeing from the Continent. The Swiss banking secrecy was formalised in 1934 after the Nazis came to power, largely to enable Jewish people to get their money out and not be traced by the authorities in Germany. Both systems have been abused and belatedly are now being reformed, but the origins were honourable.

The other has been a simple quest for revenue. The Channel Islands, Andorra, Monaco and the like are all short of natural resources. Having a tax regime that is attractive to rich individuals is a way of exploiting one competitive advantage: the freedom to set tax rates. Again, there have been abuses, and there are downsides such as the impact on property prices (Monaco is prime London, doubled). But if people live in a place, they pay the local taxes. If they need to keep a log of their movements to prove they really live there, so be it.

For companies, it is more complicated. Governments around the world seek to attract investment. So they build foreign firms’ factories, give grants for training, pay for improved infrastructure and so on. For manufacturing, it was all fairly clear, though there have been abuses, where companies take the money, build their washing machines or whatever for a few years, then declare the business unprofitable and bunk out. While many of these incentives made little sense, the photo opportunity for a politician to open a factory in a marginal constituency proved a powerful driver.

But now much international investment is not in physical capital – a factory – but rather in financial and intellectual capital. So countries have developed elaborate schemes to attract these forms of capital, too. The Netherlands has focused on intellectual capital, which is why pop groups locate there. (Yes, pop music is intellectual capital.) Luxembourg has majored on financial capital, attracting fund managers – as indeed has Ireland. Cyprus had a huge offshore banking business, and the money there is now being eagerly courted by other eurozone centres.

If a government in an established democracy creates an incentive, it will attract business. The great advantage of luring financial and intellectual capital is that it is cheap to do so. Politicians may not get the kudos from opening the factory but they don’t have to stump up the funds to build it. Yet the host still gets tax revenue from the deal. The Netherlands, Luxembourg and Ireland are decent, established democracies. The problem is that the effect of these incentives is to deny revenue to other decent democracies.

The solution? There will, of course, have to be better coordination on this to check the most egregious examples of such manipulation – and there will be. But do not expect a revolution. Why else would both the present British Government and its predecessor boast about bringing down UK corporation tax rates to attract investment from other, more onerous jurisdictions? One country’s incentive is another country’s loophole.

Big UK tax avoiders will easily get round new government policy

These new proposals to beat tax avoidance won't work, as they expect opaque corporations to come clean

• 
• • Prem Sikka
  • guardian.co.uk, Friday 15 February 2013 12.48 GMT

'Starbucks, Google, Amazon, Microsoft and others can continue to route transactions through offshore subsidiaries and suck out profits through loans, royalties and management fee programmes and thus reduce their taxable profits in the UK.' Photograph: Kerim Okten/EPA

The UK government has finally responded to public anger about organised tax avoidance. The key policy is that from April 2013, potential suppliers to central government for contracts of £2m or more will have to declare whether they indulged in tax avoidance. Those with a history of indulgence in aggressive tax avoidance schemes during the previous 10 years, as evidenced by negative tax tribunal decisions and court cases, could be barred from contracts. Their existing contracts could also be terminated. The policy is high on gimmicks and empty gestures, and short on substance.

The proposed policy only applies to bidders for central government contracts. Thus tax avoiders can continue to make profits from local government, government agencies and other government-funded organisations – including universities, hospitals, schools and public bodies. Banks, railway companies, gas, electricity, water, steel, biotechnology, motor vehicle and arms companies receive taxpayer-funded loans, guarantees and subsidies, but their addiction to tax avoidance will not be touched by the proposed policy.

The policy will apply to one bidder, or a company, at a time and not to all members of a group of companies even though they will share the profits. Thus, one subsidiary in a group can secure a government contract by claiming to be clean, while other affiliates and subsidiaries can continue to rob the public purse through tax avoidance. There is nothing to prevent a company from forming another subsidiary for the sole purpose of bidding for a contract while continuing with nefarious practices elsewhere.

Starbucks, Google, Amazon, Microsoft and others can continue to route transactions through offshore subsidiaries and suck out profits through loans, royalties and management fee programmes and thus reduce their taxable profits in the UK. Such strategies are not covered by the government policy and these companies can continue to receive taxpayer-funded contracts.

The policy will not apply to the tax avoidance industry, consisting of accountants, lawyers and finance experts devising new dodges. Earlier this week, a US court declared that an avoidance scheme jointly developed and marketed by UK-based Barclays Bank and accountancy firm KPMG was unlawful. The scheme, codenamed Stars – or Structured Trust Advantaged Repackaged Securities – enabled its participants to manufacture artificial tax credits on loans. This scheme was sold to the US-based Bank of New York Mellon (BNYM). The US tax authorities launched a test case and a court rejected BNYM's claim for tax credits of $900m. The presiding judge said that that avoidance scheme "was an elaborate series of pre-arranged steps designed as a subterfuge for generating, monetising and transferring the value of foreign tax credits among the Stars participants" (page 25). It "lacked economic substance" (page 53) and was a "sham" transaction (page 54). Whether equivalent schemes have been used by UK corporations is not yet known.

The above case highlights a number of issues. The UK-based organisations causing havoc in the US, Africa, Asia and elsewhere will not be restrained. They can still secure taxpayer-funded contracts in the UK. Now suppose that the Bank of New York Mellon scheme was applied by Barclays Bank to its own affairs and declared to be unlawful by a UK court. If so, possibly Barclays may be deterred from bidding for a central government contract, but there will be no penalties for KPMG as accountancy firms are not covered by the proposed rules.

The recent inquiry by the public accounts committee into the operations of PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young noted that the firms are the centre of a global tax avoidance industry. Even though a US court has declared one of these schemes to be unlawful, the UK government does not investigate them, close them, or recover legal costs of fighting the schemes devised by them. No accountancy firm has ever been disciplined by any professional accountancy body for peddling avoidance schemes, even when they have been shown to be unlawful. The firms continue to act as advisers to government departments, make profits from taxpayers through private finance initiative, information technology and consultancy contracts. There is clearly no business like accountancy business.

The proposed government policy will not work. It expects corporations who can construct opaque corporate structures and sham transactions to come clean. That will not happen. In addition, a government loth to invest in public regulation will not have the sufficient manpower to police any self-certifications by big business.

An effective policy should prevent tax avoiders and their advisers from making any profit from taxpayers. It should apply to all the players in the tax avoidance industry, regardless of whether their schemes are peddled at home or abroad.

Now water companies are caught avoiding tax

James Moore in The Independent

British water companies are avoiding millions of pounds in tax by loading themselves up with debt listed on an offshore stock exchange, an investigation has revealed.

The disclosure is likely to reignite the public outcry about legal tax avoidance by big firms at a time when Britain is drowning in debt and suffering painful public spending cuts. It comes only a week after industry regulator Ofwat announced that water bills would rise by an average of 3.5 per cent to £388 a year. Corporate Watch found six UK water companies took high-interest loans from their owners through the Channel Islands stock exchange. Interest payments on the loans reduce taxable profits in the UK and, thanks to a regulatory loophole, go to the owners tax free.

According to the report, Northumbrian, Yorkshire, Anglian, Thames, South Staffs and Sutton and East Surrey water companies all borrowed from subsidiaries of their owners based overseas. Those owners can receive the interest payments tax free by issuing the loans through the Channel Islands stock exchange as "quoted Eurobonds".

When a UK company pays interest to a non-UK company, it usually has to withhold 20 per cent of the payments and give it to the UK tax authorities. But if the loans are issued as quoted Eurobonds on a "recognised" stock exchange – such as those on the Channel Islands or Cayman Islands –they benefit from an exemption, so no tax is taken off.

Corporate Watch found that some £3.4bn had been borrowed by the six companies using this method. It highlights Northumbrian Water as "the most brazen case", as it paid 11 per cent interest on just over £1bn of loans it has taken from its owner, the Cheung Kong group, a Hong Kong-based conglomerate run by Li Ka-shing, the world's ninth-richest person.

The Treasury considered closing the loophole last year, questioning the way companies were using it, but decided against it. The report also found that Britain's 19 water company bosses were paid almost £10m in combined salaries and other bonuses in 2012.

The huge levels of debt used by the industry overall to finance its operations are also costing UK consumers £2bn a year more than if it was publicly financed – equating to nearly £80 per household.

The figure comes from the difference the Government pays to borrow money and the rates that the water companies secure on the international money markets. In total, the report found, the companies have amassed debt of £49bn and paid more than £3bn in interest payments on it in 2012, as well as £884m in dividends. Total revenue in 2012 came in at £10bn.

This suggests that almost a third of the money spent by people on water bills in England and Wales went to paying either interest charges on water company debt or dividends to their owners, most of which are now based overseas. The water industry defended its financing and insisted consumers receive a "good deal".

Paul McMahon, director of economic regulation for trade body Water UK said: "The tax framework has been put in place by the Government and companies work within that regime. Clearly government debt is cheaper than private debt. But it's not free and the public sector is inheriting the risk that comes with that."

Anglian Water did not dispute the report's figures but said it contributed "£150m in other taxes" to the UK economy in the past year.

A Southern Water spokesman said it was "undertaking a major capital improvement programme from 2010 to 2015. A spokesman added: "At £1.8bn, it is the equivalent of spending nearly £1,000 for every property in the Southern Water region over the five-year period."

Northumbrian Water said it could not comment on the report until it had spoken to its shareholders. But it argued that the figure for its tax payment was "unrepresentative" and that Northumbrian Water Ltd, one of the group's operating subsidiaries, paid £30m in tax in the 12 months to 31 March 2012.

Thames Water accepted that interest rates had effectively wiped out operating profits, but said a tax credit received for 2012 came from "previous years" and that investment was at its "highest-ever" level.

Sutton and East Surrey Water told Corporate Watch it could not comment because it was "up for sale".

South Staffordshire Water confirmed it had Eurobonds in emails sent to Corporate Watch and also said it was investing heavily.

Ofwat did not respond to a request for comment.

The lowdown: Water suppliers

Northumbrian

Owner Cheung Kong Infrastructure Holdings (Hong Kong)

Operating Profit £154m

Tax Paid £0

Debt £4bn

Chief exec Heidi Mottram – salary, bonus and benefits: £595,000

Yorkshire

Owners Citi (US); GIC (Singapore) Infracapital Partners and HSBC (UK)

Operating Profit £335m

Tax Paid £0.1m

Debt £4.7bn

Chief exec Richard Flint – salary, bonus and benefits: £800,000

Anglian Water

Owners Canadian Pension Plan; Colonial First State Global Asset Management and Industry Funds Managment (Australia); 3i (UK)

Operating Profit £363m

Tax Paid £1m

Debt £6.9bn

Chief exec Peter Simpson – salary, bonus and benefits: £1,024,000

Thames

Owners Macquaire Group (Australia), China Investment Corporation, Abu Dhabi Investment Authority

Operating Profit £577m

Tax Paid -£70m (tax credit)

Debt £9bn

Chief exec Martin Baggs – salary, bonus and benefits: £845,000

South Staffs Water

Owners Alinda Capital Partners (US)

Operating Profit £16m

Tax Paid £0.2m

Debt £488m

Chief exec Elizabeth Swarbrick – salary, bonus and benefits: £202,000

Sutton and East Surrey Water

Owners Sumitomo Corporation (Japan)

Operating Profit £17m

Tax Paid £1m

Debt £219m

Chief exec Anthony Ferrar – salary, bonus and benefits: £290,000

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.

Welfare fraud is a drop in the ocean compared to tax avoidance

As Joanne Gibbons' case shows, benefit underpayments save us more than 'cheats' cost us. We need to target the real villains

• 
• • James Ball
  • guardian.co.uk, Sunday 3 February 2013 12.06 GMT

Had Gibbons claimed the benefits to which she was entitled she could have collected double her 'fraudulent' claims. Photograph: Peter Macdiarmid/Getty Images

 

Joanne Gibbons was sentenced to community service for claiming income support while holding down two paid jobs. Through accumulated payments of £66-a-week, the court heard, she collected £3,140 to which she wasn't entitled.

Predictably, the Daily Mail is outraged. But here's the strange twist: had Gibbons claimed the benefits to which she was actually entitled, she could have collected £130 a week through family tax credits and child benefit. In total, Gibbons' fraudulent claims cost the taxpayer around £3,100 less than claiming what she was actually entitled to.

It's the reaction to Gibbons' claims which are particularly noteworthy. Matthew Sinclair, chief executive of the Taxpayers' Alliance – an organisation rarely troubled by wealthy people's tax avoidance – tells the Mail:

"It beggars belief that somebody going to the lengths of making fraudulent claims would have actually received more in benefits had they been honest.

"It just goes to show that the current system is broken and doesn't provide the right incentives for claimants to go back to work."

This quote suggests Sinclair is perhaps even less numerate than the "benefits cheat" he's deriding. Gibbons was entitled to £130 a week in legitimate benefits, while working on two low-income jobs. This total was higher than the £66 a week out-of-work benefit she was improperly claiming (though some of the £130 a week could be claimed in or out of work).

In what sense is a system which tops up low wages a disincentive to work? Sinclair appears lost in lazy rhetoric – an all-too-common failing when it comes to chastising the millions of families, most of whom with at least one adult in work, who rely on the benefit system.

The British public believe benefit fraud is a big problem. A recent poll by the TUC showed people believe 27% of the welfare budget is fraudulently claimed.

The reality is very different. Last year, 0.7% of total benefit expenditure was overpaid due to fraud, according to the DWP's official estimates. This totalled £1.2bn over the year. Nor is fraud getting worse – even against a background of benefit cuts and long-term unemployment fraud made up a smaller share of the welfare bill last year than it did in 2010/11 or 2009/10.

Indeed, welfare fraud is smaller than accidental overpayments due to error, which totalled £2.2bn (£1.4bn of which due to official error). It's also smaller than the amount of money underpaid to those entitled to it: £1.3bn.

In other words, if we wiped out benefit fraud tomorrow – but also eliminated the errors that deprive people of money to which they are entitled – the welfare bill would grow, not shrink.

In the context of the UK's £700bn public spending, and £150bn+ welfare bill (of which pensions and in-work benefits make up the substantial majority), benefit fraud is a relatively small revenue loss. But how does it compare to another textbook villain: tax avoidance?

Put simply, it is comparatively tiny. HMRC consistently estimates the UK's tax gap – the gap between what HMRC thinks it should receive versus what it actually gets – at more than £30bn per year. Others estimate this is far, far higher.

Of this, even conservative estimates suggest around a sixth – £5bn a year – is lost through tax avoidance, tricks to reduce tax bills which fall within the letter (if not spirit) of the law, but often fall outside what's regarded as acceptable by the public. A further sixth, at least, is estimated to be due to wholesale tax evasion: simply illegally not paying the tax that's owed.

These conservative estimates alone outweigh benefit fraud by a factor of eight, but this time not done in tens (or at most hundreds) of pounds per week by people struggling to get by; but rather by people who could afford to pay more, but prefer not to.

Benefit underpayments save us more money than benefit fraud costs us. By the most conservative estimates, tax avoidance and tax evasion outweighs benefit fraud eightfold. But the constant target of argument – "scroungers", "benefit cheats", and more, isn't the well-heeled middle classes who knock a little off their tax return, or the high-rollers with elaborate offshore schemes.

Instead, it's those at the bottom of society – for the government, perhaps, it makes it easier to sell the public swingeing cuts to the safety net that millions of families, both in and out of work, rely on to get by. For the Mail, it's easier to sell papers by buying into the easy preconceptions of their readers than bothering to challenge them.

Unfortunately, all too often, that's a view the Labour party – and others on the left – seem all too happy to go along with. If we must have national villains, surely we can do better than these?

Martin Sorrell's peculiar vision of corporate social responsibility

Ben Chu

Wednesday, 2 January 2013

Outlook Sir Martin Sorrell has expressed himself on the great corporation tax debate. What firms need to understand, the advertising magnate said today, is the imperative of corporate social responsibility.

"Doing good is good business," he told the likes of corporate black sheep such as Starbucks and Amazon, which have faced obloquy in recent months for paying less than their fair share of profit taxes in the UK. I'm afraid this is richer than the Christmas pudding that your grandmother oversoaked in alcohol. For Sir Martin's record on tax hardly resembles a model of virtuous corporate citizenship.

For several decades the British state has had a system whereby a UK-based multinational is required to pay corporation tax on its worldwide profits. In 2007 the Labour government proposed to move to a system where firms would only pay tax on their UK profits, a so-called territorial regime. This was good news for the multinationals, implying a smaller tax bill. But they didn't trust Labour to deliver.

So they upped sticks in a kind of pre-emptive protest. Pharmaceutical giant Shire shifted its headquarters to the Irish Republic. So did United Business Media. The exhibitions and magazines group Informa scurried off to Switzerland. The office accommodation provider Regus went to Luxembourg. And, making the biggest song and dance of all was Sir Martin, who shuffled his WPP advertising empire to the Emerald Isle.

Faced with this exodus the Labour Chancellor, Alistair Darling, redoubled his efforts to establish a territorial tax regime. And Sir Martin made it his business to seal the deal. He extracted a guarantee from Mr Darling's successor, George Osborne, that the new territorial regime would definitely come into force. And, in return, Sir Martin announced last year that WPP would be returning its HQ to London. The territorial corporation tax regime came into full force this week. And WPP is, as Sir Martin promised, on its way back.

The trouble is the new territorial tax regime looks even more open to corporate tax avoidance. Under the old system HMRC could, in theory, go after tax on profits anywhere in the world. It seldom did this effectively. But now, with its territorial remit in place, it is even less likely to do so. And there is still more room for clever accountants to register profits overseas by registering intellectual property rights in tax havens.

This compounds the advantage of multinationals in relation to smaller, domestic firms. We have long known that income tax tends to be for the little people. It increasingly looks like corporation tax is only for the little companies.

The only solution is harmonised international governmental agreement to prevent multinationals playing off national governments against each other on profit tax rates.

As for Sir Martin, he might like to consider whether quitting the country and promising to return only when a law you dislike is changed can be considered "doing good".

Google's tax avoidance is called 'Capitalism'

 Google chairman Eric Schmidt has insisted that he is "very proud" of the company's tax structure, and said that measures to lower its payments were just "capitalism". 

 

Also read Britain could end these tax scams by hitting the big four accountancy firms

 

Mr Schmidt's comments risk inflaming the row over the amount of tax multinationals pay, after it emerged that Google funnelled $9.8bn of revenues from international subsidiaries into Bermuda last year in order to halve its tax bill. Photo: Bloomberg News

 

By Telegraph Staff

6:50PM GMT 12 Dec 2012

 

Mr Schmidt's comments risk inflaming the row over the amount of tax multinationals pay, after it emerged that Google funnelled $9.8bn (£6.07bn) of revenues from international subsidiaries into Bermuda last year in order to halve its tax bill.

However, Mr Schmidt defended the company's legitimate tax arrangements. “We pay lots of taxes; we pay them in the legally prescribed ways,” he told Bloomberg. “I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.”

“It’s called capitalism,” he said. “We are proudly capitalistic. I’m not confused about this.”

In Britain Vince Cable was unimpressed by Mr Schmidt’s views. The Business Secretary told The Daily Telegraph: “It may well be [capitalism] but it’s certainly not the job of governments to accommodate it.”

A Californian pressure group called Consumer Watchdog wrote to the Senate’s Finance Committee demanding a hearing on Google’s “global tax avoidance strategies”.

Consumer Watchdog’s director John Simpson called for the Committee to schedule a time for Mr Schmidt and Google’s chief executive could “testify under oath and explain their company’s apparent abuse of the tax code to the detriment of all who play fairly.”

Mr Simpson urged the Senate to work with “other countries’ tax authorities” to “put an end to egregious loopholes that allow cynical exploitation by this generation’s Robber Barons.”

“Governments in Europe, many of which have been targets of Google’s morally bankrupt tax policies, are actively seeking redress,” he wrote. “But this is not a problem that only impacts other countries’ revenues. Google’s tactics strike at the US Treasury as well, forcing the rest of us to make up for the Internet giant’s unwillingness to pay its fair share.”

He added: “What makes Google’s activities so reprehensible is its hypocritical assertion of its corporate motto, 'Don’t Be Evil'.”

Documents filed last month in the Netherlands show that Britain is Google’s second biggest market generating 11pc of its sales, or $4.1bn last year.

But the company paid just £6m in corporation tax. Overall, Google paid a rate of 3.2pc on its overseas earnings, despite generating most of its revenues in high-tax jurdisdictions in Europe.
The company reportedly uses complex tax schemes called the Double Irish and Dutch Sandwich, which take large royalty payments from international subsidiaries and pay tax in low rate regimes.
By channelling its revenues through Bermuda, Google avoided $2bn of global income levies last year.

The tax arrangements add fuel to accusations made by British MPs that Google and other firms including Starbucks and Amazon, have been “immorally” minimising its tax bills.
 
Matt Brittin, Google’s UK boss, said MPs were blaming companies for a system that they had designed. “Google plays by the rules set by politicians,” he said. “The only people who really have choices are politicians who set the tax rates.”

Last week, Starbucks caved into public pressure and promised to pay £20m to the Treasury over the next two years. However the trigger more criticism of “optional” tax payments.

Britain could end these tax scams by hitting the big four accountancy firms

The spiders spinning the web of avoidance are the major accountancy firms who make billions from the public purse

• 
• • Polly Toynbee
  • The Guardian, Monday 10 December 2012 21.00 GMT

A Starbucks protest on 8 December. ‘A clever protest on the right issue can catch public imagination and media attention.' Photo: Antonio Olmos for the Observer

Sometimes it only takes a spark. Never imagine nothing can be done: UK Uncut packs a punch far above its weight, as did the suffragettes, slave trade abolitionists and most causes great and small. A clever protest deftly done on the right issue can catch the public imagination and the media's attention: now the public accounts committee investigates and the government is obliged to pledge action.

At Saturday's Starbucks occupation of 40 coffee shops, the point was easy to explain to passers-by: companies massively avoiding tax help to cause the cuts that shut libraries, Sure Starts and women's refuges. This short occupation with an orderly exit and loud chants causes Starbucks deep reputational damage. Costa, nearby, does pay its taxes, while Starbucks avoids its duty to the civilised society it depends on.

Take note, all other corporate avoiders: Manchester Business School estimates that Starbucks will see a 24% drop in sales over the next year, from the experience of reputational crises in 50 other companies. The eye-popping stupidity of choosing this same week to cut its staff's paid lunch breaks and sickness and maternity pay suggests a company whose only efficiency is in tax-avoiding. The £20m it offers as a "donation" to HMRC may even be tax deductible: it can offset this "overpayment" against future tax, once public attention has drifted elsewhere, adding to the phenomenal recent drop in corporation tax receipts, as companies copy one another's avoidance schemes.

In 2009 the Guardian's tax gap series kicked off this debate, exposing devious but legal devices such the "double Luxembourg", the "Dutch sandwich" and Roger the Dodger of Barclays. This is the most dangerous kind of investigation, where any mis-step risks lethal lawsuits from those with deep enough pockets to kill: it cost us £100,000 in lawyers' fees alone, plus months of journalists' time digging into opaque company accounts. We told how Boots, bought by private equity firm KKR, abandoned its Nottingham home to put its HQ in Zug, the Swiss tax haven. By loading the company with debt, its tax bill dropped from £606m to £74m – and Barclays lent them billions to do it. GlaxoSmithKline and Astra Zeneca moved to Puerto Rico and Shell took its trademark to Switzerland. Diageo transferred brand names to a Dutch subsidiary, so Johnnie Walker whisky paid just 2% tax.

How did they put the profits from a whisky blended in Kilmarnock into low-tax Amsterdam? Deloitte did it, reportedly so proud they broke open champagne when it went through. And that is the crux of the matter. At the heart of almost every tax-avoiding scheme is one of the big four accountancy firms – Deloitte, PricewaterhouseCoopers (PwC), KPMG and Ernst & Young.

Tax campaigner Richard Murphy, whose razor-sharp work with the Tax Justice Network fuels so much of this campaign, says these four are at the heart of the worldwide web of avoidance, with offices in all the main tax havens. PwC explained on the radio last week that the reason it had large offices in Bermuda was to audit the local hospital. Few clients could use these havens without one of the big four as auditor: virtually no business happens in havens, but bankers, lawyers and accountants need to be located there.

The four have a grip on the auditing of many major firms. The dogged work of accountancy professor Prem Sikka shows how they work, cold-calling to offer elaborate tax schemes. They hardly ever give bad audits to companies hiring them, and despite grave failures in auditing banks, they are not disciplined by professional accountancy bodies. Nor does the Treasury recover costs, even when successfully challenging their elaborate scams.

The public accounts committee last week gave a satisfying roasting to three boutique tax-avoidance firms. Margaret Hodge tore a strip off them, as one admitted that all his schemes had been declared illegal and shut down. But now the committee needs to go after the big four: none of this could happen without them. In his autumn statement George Osborne declared – as chancellors always do – that he would pursue avoiders. But he replaced only a fraction of the Revenue's cuts, with another 10,000 staff still to be lost.

If Osborne were serious, stern regulation could stop all this. As it is, companies that pay their auditors £700 an hour will sometimes undeservedly get a clean bill of health, as did Northern Rock, HBOS, Bear Stearns and the rest. One radical suggestion is that the National Audit Office should take charge of all big company auditing itself, paid by a levy according to company size: it would protect shareholders from inadequate audit and taxpayers from avoidance. Banks are still receiving clean audits, despite the governor of the Bank of England declaring them to be zombies paralysed by undeclared bad debt.

So far attacks on tax avoidance focus on the web, but now it's time to go for the spiders that spin it. The same firms that conspire to deprive the state of revenues are paid large sums as consultants by the very government they weaken. KPMG, along with McKinsey, is conducting much of the sale of the NHS to private contractors. If you want to see this curious contradiction, look no further than PwC's website, which blends its contrary functions in one sentence: "Our Government and Public Sector practice comprises over 1,300 people, more than half of whom work in our consulting business, with the remainder in assurance and tax."

Osborne has announced a consultation on making honest tax payment a condition of winning government contracts. But these companies are woven into every aspect of government and business. The chair of the NAO, Sir Andrew Likierman, is a director of Barclays and past president of the Chartered Institute of Management Consultants. The NAO auditor general, Amyas Morse, was previously global managing partner at PwC. Meanwhile, accountancy firms are major donors to the Conservative party.

With political will, all this can be cleaned up. However remiss in office, Labour should seize the initiative. The OECD is urging the G20 to agree on a fair system for taxing companies according to where profits arise – though countries are locked in cut-throat corporation tax competition. However, the UK controls most tax havens and could shut them down overnight if it copied Charles de Gaulle: angered by tax scamming, he once surrounded Monaco and cut off its water supply until it relented.

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.

It's David Cameron that's anti-business

Campaigners against business abuse believe in wealth creation, not corporate abuse of so-called free markets

• 
• • Richard Murphy for Tax Research UK, part of the Guardian Comment Network
  • guardian.co.uk, Thursday 23 February 2012 13.06 GMT

David Cameron has condemned 'anti-business snobbery'. Photograph: Pool/Reuters

David Cameron will use today's speech to the Business in the Community charity to warn that "we've heard some dangerous rhetoric creep into our national debate that wealth creation is somehow antisocial, that people in business are out for themselves".

Cameron's on dodgy ground here. First, he's flip-flopping, which is amusing to see when Labour has opened a clear lead on this issue. But more important, he's completely missing the point.
The problems that those of us who campaign against business abuse have are that there aren't free markets, and as such wealth creation is not taking place but has been replaced by corporate abuse and that is not socially progressive and has instead proved to be massively socially destructive.

Let me explain. When Cameron refers to business leaders he's invariably talking about the leaders of big business. All, just about without exception, are monopolists or oligopolists. They exploit markets to make excessive profits at cost to consumers. They use those excessive profits to pay themselves vastly inflated sums. That's not wealth creation – that's rent-seeking behaviour that is straightforwardly abusive.

In fact, it's just an act of redistribution, but from the 99% to the 1%. We object to that. We demand information so we can appraise what's going on so it can be stopped. That's one of the reasons for demanding country-by-country reporting – which Cameron and the Tories have been cool about. Cameron has shown himself to be on the side of abuse as a result.

And those big business leaders exploit their position to avoid tax using tax havens. Cameron and the Tories are encouraging that. First they're doing it by passing new legislation that is going to positively encourage large companies (and only large companies, mind: smaller ones are excluded) to set up their treasury functions outside the UK in future and pay just 5.75% tax on them as a result.

Second, while Labour strongly supported country-by-country reporting that would require companies to disclose just what profits they made in tax havens and other countries, and where they do or don't pay their tax, the Tories have gone out of their way to support proposals from big accountants like PWC that do just the opposite because their proposals would ignore all places where no tax was paid – like tax havens. To break monopoly power and rent-seeking behaviour that exploits tax loopholes by exposing it would support wealth creation rather than wealth abuse, but Cameron isn't taking the steps to support that wealth creation. He seems to prefer the continuing secrecy that has supported the abuse.

And there are also aren't free markets because government won't provide the regulation to make sure all businesses comply with regulation or pay their taxes, as I've shown. So there's an unlevel playing field. That's a profoundly anti-business policy on the part of the Tories.

The result is that Cameron's policies encourage shifting of profits to the greedy, the monopolist, the abuser of the consumer, those who ignore regulation and those who are fraudulent. That's not socially progressive. That's socially harmful.

That's why we object to his policies. And whatever the story, while he does not walk the walk, those campaigners like the Tax Justice Network – who believe that being pro-business means being pro-transparency and accountability, being pro-everyone paying their tax and being anti-market abuse measures like tax havens and opacity – will continue to pursue their arguments. Because they're the real pro-wealth creators and real pro-free marketeers, when free means people have the information they need to make proper decisions freely available to them – which is the pre-condition of free markets as anyone who has done some training in economics knows.

My Weltanschhaung - 17/02/2012

I am glad to read that the Vatican has at last been forced to cough up some taxes from the income it generates. Though I was shocked that they were exempt from taxes this far.

I am surprised that David Cameron will offer Scots more devolved power if they vote No in the forthcoming referendum. I thought why not devolve more powers before the referendum and therefore give yourself a better chance to win the referendum?

It has taken the energy watchdog so long to realise that energy companies are profiteering. But what have they done - issued a warning, 'Cut prices or else...'.

It now appears that tax avoiding pay deals maybe rife in Whitehall. It appears that 4000 bureaucrats' pay deals will be reviewed.