The furore surrounding the latest revelations about industrial-scale tax avoidance in the Paradise Papers seems, tragically, to have subsided but momentum must not be lost in the fight against injustice. Government must act swiftly and decisively to close the loopholes that allow the richest to opt-out of the system and ensure everyone pays their fair share. We must keep reminding them – and each other – what is at stake.
According to authoritative estimates, wealth concealment (by “ultra-high-net-worth individuals”) deprives governments of about €155bn a year in revenue. In Britain alone, annual revenue losses are €6bn. Those not earning mind-boggling sums of money but instead scraping by on £20-40K per year cannot avoid paying taxes as these schemes are only affordable for the wealthy. How is anyone on a median wage expected to enjoy a reasonable standard of living? Whilst, we are constantly counting every penny and struggling to make ends meet, they are acquiring luxury items with even paying any VAT. This inequality is appallingly unfair.
Meanwhile, almost €12.7bn in UK taxes is dodged by multinationals and, across the world (facilitated by Britain’s “offshore” empire) data suggests more than €600bn is artificially shifted by multinationals to the world’s tax havens each year. One example is Glentorran President, David Chick, who used artificial loan structure to hide the sources of money for various projects in Northern Ireland, one of which evaded a 45% income tax bill on a £600K development. He also claimed to have “influence at the highest political level”.
Such cosy connections were also evident in 2013 when a new UK tax break, set at a mere 5%, was introduced on diverted profits (those held offshore in “controlled foreign companies”) to make Britain “more competitive” and attract business. Analysis of this change has demonstrated that it only succeeded in bringing back “brass plates”, a top holding company, employing a few accounts and lawyers, to exploit the loophole but bring virtually no benefits to our country.
In fact, this tax break, which under close investigation by the EU, was designed by series of working groups packed with big companies, such as Vodafone. Big accountancy firms apparently seconded staff into the Treasury to help write rules and then, subsequently, made money on advising clients how to exploit the new dodge. The initial estimated cost to the Exchequer of this scheme was £900 million by 2018 but behavioural changes have significantly increased this total. According to HMRC, multinationals avoided paying £5.8bn in taxes in 2016, some 50% more than government forecasts. That figure, which was reported by the Financial Times, does not even include losses from changes to the aforementioned CFC rules.
Most egregiously amongst the corporate tax dodgers, Apple paid just £12 million on a £1.9 billion UK profit, meaning they dodged about £400 million in corporation tax, according to accounts filed in September 2014. Now we know they are using Jersey after their previous tax haven (Ireland) was shut down. Surely, you can see how this corrosive to democracy? Obviously, this money could make a huge difference to millions in the UK, balancing the books without further painful cuts to benefits for the poorest and vital public services.
Companies spend vast sums on image-burnishing, public relation projects, whether planting some trees in Honduras or dance projects in Burkina Faso. However, all I want from them is to pay a fair amount of tax in the countries where they earn their sky-high projects. Is that too much to ask?
Even the Organisation for Economic Co-operation and Development is now warning of the damage to the developing world caused by all this profit shifting.
Back in the UK, according to Deutsche Bank, London itself receives about £1bn a month in what it calls “hidden capital flows”, much of it Russian. However, if ordinary people want to purchase a property they have to go through multiple checks to make sure the money is not laundered. Why is this tolerated by our political representatives?
As several commentators have noted, those who gratuitously avoid tax, such as Lewis Hamilton (private jet VAT refund) or the stars of Mrs Brown’s Boys (millions sheltered in Mauritius and “loaned” back to circumvent income tax) rob the country that has provided the education, health care and infrastructure, which has supported their ability to make their jaw-dropping fortunes.
The sums involved are mind-boggling and if you are struggling to fathom the numbers, then link them to their consequences… “The money we lose because people like Lewis Hamilton don’t pay some VAT on their private jet means thousands more visits to food banks. The budget cuts leading to rising homelessness might not have been necessary if Apple had paid more tax. Fewer people might have killed themselves after a work-capability assessment if companies like Alphabet (Google) had not registered their offices in Bermuda, and the downward pressure on benefits payments was not so intense.”
So how can this mess be cleaned-up? I think the key to sorting out this mess and restoring faith in the system is to insist on transparency: how can we catch the crooks if they are allowed to keep their finances top secret? Britain’s PAYE is virtually impossible to fiddle but these other systems are just too prone to abuse. HMRC is over-stretched and opening-up the data would allow many more people to scrutinise the dodgy deals. We need a UK-wide land register, so we know exactly who owns what, especially as our island becomes increasingly crowded and pressure grows to build new homes. Government must re-write the tax evasion vs avoidance distinction to declare illegal any artificial construct that serves no purpose other than to avoid tax. Those responsible must be punished accordingly.
After the Panama Papers, not much seems to have changed. Gordon Brown is leading a petition to shut down tax havens, which is exactly what needs to happen now and a campaign I hope you will support. We all, but most particularly those privileged to sit in Parliament, must act now and not ignore this fundamental injustice.