5 reasons why you can't take this government seriously on tax justice

At the G8, the Prime Minister, David Cameron, sought to make clamping down on tax havens the centrepiece of the summit. As Prem Sikka explains, the post-summit communique was 'high on vague promises, low on delivery'.

But even before the inevitable puncturing of Cameron's hubris, there were several reasons why this government cannot be taken seriously on tax justice* ...

1. Government minister says he wants the UK to be a tax haven

Last year, Cabinet Office minister Francis Maude said it was "a compliment" for the UK to be described as a tax haven, and added: "That is exactly what we are trying to do."

2. George Osborne slashing taxes for big business and the rich

If there's one hallmark of a tax haven, it's low or minimal tax rates. Corporation tax was slashed from 52% in 1979 to 33% by 1997. New Labour cut it further, to 28%, and Osborne has already driven it down to 23% - and aims to get it down to 20% by 2015. This is how he described it at the last Budget:

"A headline rate that is not just lower than our competitors, but dramatically lower.
18% lower than the US.
16% lower than Japan.
12% below France and 8% below Germany.
An advertisement for investment and jobs in Britain." 

Actually, it's an advertisement to for big business to pay less tax - undercutting both other nation's tax rates and shifting the tax burden onto the working poor (as we have previously shown). Of course, cutting the top rate of tax from 50% to 45%, also facilitated avoidance.

3. Many government ministers' wealth is based on tax avoidance and evasion

As Guardian investigations have proven in the case of Cameron's family fortune, and as Channel 4 Dispatches showed in the case of George Osborne, Andrew 'plebgate' Mitchell, and Phillip Hammond.

4. You can't collect taxes without the resources to do it - and this government is cutting resources

HM Revenue & Customs is the body tasked with collecting taxes owed, tackling evasion and clamping down on contrived avoidance schemes. Combined the tax gap (uncollected, evaded and avoided) is estimated at £120 billion ... every year.

Yet the government is slashing the resources available to HMRC - as this PCS infographic shows:

5. Treasury minister in charge of tackling avoidance and evasion is in denial

Treasury minister David Gauke seems to be in a constant state of denial and cover-up

• When MPs investigated and found senior HMRC bosses to close to business, Gauke described the claims as 'absurd'. The same committee also found HMRC was "too poorly resourced" (see above).
• He approved a plan to persecute an HMRC whistleblower who exposed the 'sweetheart deal' with Goldman Sachs
• He claims the UK tax gap is 'only £35 billion' (still substantial) when all serious estimates put it at £120 billion (see Richard Murphy's analysis here)

Of course Gauke did used to work for a legal firm that specialised in tax avoidance.

There's five reasons why this government cannot be taken seriously on tax justice. Please use the comments to add more!!

* For a serious look at tax justice, see the Tax Justice Network

G8 summit: High on vague promises, low on delivery

Prem Sikka

The G8 summit in Lough Erne was preceded by much hype and promises  about action on tax avoidance and corporate secrecy, but it has  delivered little. The leaders' communiqué commits governments to nothing more than vague promises.

The most welcome development is that the ten-point communiqué  endorses automatic exchange of information in matters relating to tax evasion, assuming that something is always classified as “tax evasion”  rather than its greyer cousin “tax avoidance”. Thus if a resident of the UK has stashed cash in a tax haven, then that jurisdiction would be obliged to inform the UK tax authorities.

The Organisation for Economic Co-operation and Development (OECD) has published its proposals,  but the G8 has made no mention of any time scale for implementation. Neither does the communiqué say anything about how this information exchange is to be co-ordinated or enforced.

More importantly, how the UK is going to persuade its secretive Crown Dependencies to sign the exchange? How will places such as the Cayman Islands comply with this protocol when they do not levy income or corporate taxes, and thus do not have the infrastructure for collecting  data about taxes or tax avoidance vehicles?

The promise to reveal beneficial ownership of companies looks  attractive, as anonymous companies facilitate tax avoidance/evasion, money laundering and flight of capital. The communiqué states that this

"could be achieved through central registries of company beneficial ownership and basic information at national or state level. Countries should consider measures to facilitate access to company  beneficial ownership information by financial institutions and other regulated businesses. Some basic company information should be publicly accessible."

A number of things are noticeable. There is no intention to let the public know the details about ownership of companies. There is no mention of any timescale within which any reforms are to be implemented.  Maybe this absence of detail is indicative of oppositions that some  governments are likely to encounter from their local economic elites.

The US has a particular problem in that its own tax havens Delaware, Nevada and New Jersey need to be persuaded to embrace openness, something they have so far resisted. The UK will also have to do much to  get anywhere near the promise. At present foreign companies, including  those registered in secretive tax havens, can be directors of the companies registered in the UK. Shares in UK companies can be held by nominees, who may not be resident in the UK. Yet there is no commitment to introduce any legislation. The  failure of the UK to lead by example may also embolden the UK Crown Dependencies and Overseas Territories to resist some of the changes.

Trusts are a key vehicle for providing secrecy and avoiding taxes. The communiqué advocates more information about them too, but not for the general public. It says that the information about them should be  accessible by law enforcement, tax administrations and other relevant authorities including, as appropriate, financial intelligence units. So the public bears the cost of tax avoidance perpetrated through trusts but will not be permitted to know the beneficiaries. Again, there is no  mention of any time scale. Once again, the UK will have much to do because there is no public record of the number of trusts, or their beneficiaries.

With tax revenues, developing countries can lift their population out of poverty. So it is welcome to note that the communiqué states that “Developing countries should have the information and capacity to collect the taxes owed them … Other countries have a duty to help them”. But, once again, there is no firm commitment to deliver any policy changes in the G8 countries.

With a daily diet of revelations about tax avoidance by giant corporations, such as Google, Microsoft, Apple, Amazon, Starbucks and eBay, there was a feeling that the G8 would start a dialogue about changing the system for taxing corporate profits. The communiqué states that “Countries should change rules that let companies shift their profits across borders to avoid taxes”, but change to what? There is no commitment and no foundations have been laid for taking the matters forwards at the next G20 or the G8 meeting even though alternative models exist.

The kindest thing that one could say about the G8 communiqué is that as a result of public anger, issues such as tax avoidance and corporate secrecy are on the political agenda. However, the summit has not delivered.

Perhaps, the expectations were too high. After all, most G8 leaders are facing declining popularity at home. The UK Prime Minister is facing dissent within the Conservative Party, the policy disagreements with  coalition partners Liberal Democrats are becoming more vocal (e.g. over benefit and tax cuts), and his popularity ratings are down. Similarly,  with intransigence by the Republican Party US President Obama can’t push through his preferred policies through the legislature. So they all  need some trophies to take home, which look and sound good but will not commit them to any firm legislative action.

Another thought is that with no representations from Africa, India, China and Brazil, the G8’s terms for ending tax avoidance or corporate secrecy may not be acceptable to the emerging economic powerhouses. So the action will move to next year’s G20 summit. As always, corporate elites will be operating behind the scenes and colonising the political  agenda. Any progress on eroding secrecy and tax avoidance is going to be slow, and that is a good reason for civil society to continue to campaign for change.

This article first appeared on The Conversation website

Prem Sikka: I want the right to see Bob Diamond's tax return

Anti-capitalist protests are essentially demands for social justice, democracy and greater public accountability of corporations and their rich controllers. The issues are not hard to see. Major corporations dodge taxes through dubious schemes which create nothing of social value, but yield huge profit-related financial rewards for executives. Fearful of upsetting corporations and wealthy elites, successive governments have shifted taxes to less mobile capital, labour, consumption and savings, and attacked pensions, education, healthcare and other hard-won social rights. No policy to restrain executive remuneration has been developed.

So the protests need to be turned into a programme of reforms to enhance the accountability of corporations and their wealthy controllers.

First, the impulse of wealthy elites and large corporations to opt out of the tax-paying obligation needs to be checked by public scrutiny. As part of this, the tax returns of individuals with above-average annual income should be made publicly available. The tax returns of all UK registered corporations, together with details of tax avoidance schemes, should also be public.

Tax is the price that we pay for democracy, social rights and a civilised society. Our contribution towards that should be a matter of public record. The public availability of tax returns would enable citizens to alert, analyse and inform regulators of dubious practices and demand action.

There are already moves towards greater transparency and public accountability in other countries. Every year, around October/November, the Norwegian tax authority publishes the skattelister or "tax list" for almost all citizens. Finland also publishes the taxable income of citizens who earn more than €10,000. Through public disclosures, Norwegians and Finns are able to learn how much tax is paid by everyone from actor/director Liv Ullmann to the CEOs of Nokia.

Armed with the same standard of transparency, UK citizens could also ask searching questions about the taxes paid by MPs, political party funders, hedge-fund and private-equity entrepreneurs, speculators, wheelers and dealers of Private Finance Initiative schemes; banking fat cats, architects of tax-dodging schemes, and opinion formers.

Globalisation, meanwhile, has turned corporations into footloose multinational entities, but their accountability has hardly changed. Company accounts primarily publish one global figure for how much corporation tax a company pays even though it may be trading all over the world. How much corporation tax specifically is paid in the UK is not easy to ascertain.

This should be modernised by what is called country-by-country reporting. Corporations would be required to publish a table showing their sales, profits, costs, employees and tax paid in each geographical jurisdiction of their operations. This would immediately highlight anomalies of companies having a large volume of sales in one country but with revenues and profits booked at another place with relatively few employees.

Consider Google, which uses perfectly legal techniques to channel sales through offshore havens to shave its tax bills. The 2010 accounts for Google Ireland Limited show that an operation with around 1,500 staff generated a turnover of €10.9bn. Either the company has the most productive staff in the world, or there is more to it. The company reported pre-tax profits of only €18.5m and paid €5.6m in corporation tax. A key to reduction of taxable profits is the royalties paid to offshore subsidiaries, which count as deductible expense in one place, but tax-free income elsewhere.

Democracy can also be used to curb fat cat remuneration. Many front-line staff at banks earn under £17,000 a year. Banks pay measly interest on savings and have a history of abuses relating to mis-selling of pensions, endowment mortgages, loans, payment protection insurance and much more. Most of the banking risks, as evidenced by the banking crash, are borne by taxpayers rather than shareholders. So employees, savers, borrowers and shareholders should act as a proxy for taxpayers. If they think that Barclays chief executive Bob Diamond deserves £30m, then that is fine. But I think it would take some persuasion to convince poorly paid employees or victims of mis-selling to sanction mega-bonuses for executives.

With better information about organised tax avoidance, citizens can decide whether to support or boycott corporations. If the tax authorities reach secret agreements with say, Vodafone or Goldman Sachs, then that will be visible, too. And executives wanting mega-bonuses will need to ensure that employees and customers are also rewarded. Democracy and public accountability are the best antidotes for abuses.

Prem Sikka is Professor of Accounting at the University of Essex

This article first appeared in the Independent