Tax avoidance is back in the news this week after senior executives from Amazon, Google and Starbucks were hauled before the public accounts committee and given a firm rebuke by its Labour chair, Margaret Hodge.
Ms Hodge – and the nation – found it hard to believe that Starbucks, which has posted sales of £3bn in the UK since 1999 yet paid only £8.5m in corporation tax, is a loss-making company.
Google, meanwhile, freely admitted that it channels non-US sales through Ireland, which has a corporation tax rate half that of the UK, in order to avoid paying tax here. As a result, £2.5bn of UK sales in 2011 resulted in just £3.4m in tax reaching Treasury coffers.
Amazon UK, it turns out, isn’t really in the UK at all. You buy your goods on a UK website, pay in UK pounds, they’re shipped from a UK distribution centre employing UK staff, yet the tax paid on the profits goes to Luxembourg. In Luxembourg Amazon pays less than 12 per cent tax on profits, less than half the UK’s corporation tax rate.
These companies are not the only ones guilty of such ‘immoral’ behaviour, as Hodge described it. Back in 2010 it was discovered that GlaxoSmithKline had set up a company in Luxembourg, lent billions of pounds to its UK operation and then paid itself interest back to Luxembourg, avoiding up to £34m in UK corporation tax.
What is most shocking about all of this is that we’re not talking about tax havens on faraway Caribbean islands – Luxembourg and Ireland are members of the European Union, right on our doorstep.
An excellent report by Tax Research UK estimated that approximately €1tn euros are lost in potential tax revenue across the EU each year as a result of tax evasion and avoidance. This equates to more money than all 27 EU member states spend on healthcare and is four times higher than the amount spent on education.
Urgent action is needed by the EU and its member states to close tax loopholes, stamp out tax evasion and create a level playing field in Europe to stop the immoral practices of multinational corporations profiting from UK taxpayers while contributing little back to our economy.
Our representatives in Brussels are not ignorant of these issues. The group of Socialists and Democrats in the European parliament – which commissioned the Tax Research UK report – and the European Commission have called for action, but they are hamstrung by member states happy with the status quo. Any legislation involving tax requires unanimity in the European Council. Member states such as Ireland and Luxembourg benefit from the current arrangements and the likelihood of getting David Cameron’s Tories on board for European action on virtually any issue is doubtful.
Inaction is not an option. This loss of public revenue plays a substantial part in deficit and debt levels of member states, which in turn is negatively affecting investment to create the jobs and growth we so desperately need. Furthermore, a large part of this non-taxed liquidity simply feeds into financial trading activity, fuelling destabilisation of financial markets.
Closing the tax gap could increase public revenue and allow governments to pay down deficits and debt levels while easing the pressure on budgets for vital public services. The Tax Research UK report suggests that, if the tax gap were closed entirely, all accumulated public debt of EU governments could be repaid in the next nine years.
Additional resources could be allocated to public investment geared towards improving Europe’s competitiveness and boosting growth, despite the necessary fiscal consolidation. Channelling €200bn euros per year into public investment spending as called for by S&D MEPs could fund essential infrastructure projects and create millions of jobs.
Action at European level can help to create a level playing field. Transparency in corporate accounting, introducing country-by-country reporting for cross-border companies and strengthening regulation of company registries are all needed. The creation of a Common Consolidated Corporate Tax Base – a single set of rules that companies operating within the EU could use to calculate their taxable profits – would allow companies to file a single consolidated tax return for the whole of their activity in the EU. The taxable profits of the group would be shared out to individual companies through a simple formula so that each member state can then tax the profits at their chosen rate. Companies get a ‘one-stop shop’ system for filing their tax returns, member states retain full sovereign rights to set corporate tax rates and it would stop companies being able to transfer profits to member states with more favourable tax rates.
In short, closing the tax gap would end immoral tax avoidance and illegal tax evasion, relaunch the economy and create jobs. Member states should back immediate European action before billions more are lost.
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Kevin Peel is a councillor on Manchester city council and tweets @kevpeel
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This is a barking mad French type solution – If one country is more efficient at what it does then it needs taking down a peg or two. Don’t worry – we will all be like Greece eventually if we take up these kind of ideas.
I think a more realistic solution as the British neither the French will give up their safety net overseas territory tax havens-
Focus on UK workers
There are 7000 Community Interest Companies (CICs) and 2 million Private Limited Companies (Source: Community Interest Regulators 2012)
If people know that there salaries would not be effected by joining a CIC then the government wouldn’t be missing out on the money which umbrella companies like these guys (http://www.gabem.com)get off our construction, IT, project managers, health policy managers.
The government has to develop policies which are evolved in enough to deal with how capitalism has changed and how people incomes are not nation based but that tax laws allow for the disgraceful tax haven abuse amounting to £20 trillion and growing (Chatham House 2010)
The government should be planning to work with the 2 million odd individual freelancers and workers who send their money to tax havens including British Overseas Territories via these companies.