Public faith in tax system has been seriously dented by the actions of a few top companies – which say they are just following the rules politicians make. So it's now up to politicians at the G8 summit to remake those rules
Leaders from the world's richest countries will gather in Northern Ireland on 17-18 Junewith a chance to make a real impact. At a time when austerity is biting, especially in Europe, tax avoidance by some of the world's wealthiest companies has put the public's faith in the fairness of the tax system to the test. As chair of the G8, Britain has an opportunity to show real leadership on the issue and reform a dysfunctional international tax system.
Five years ago, debates on tax avoidance centred on onshore tax havens for "non-doms" who lived in the UK but paid minimal tax. Now public concern has spread beyond a few super-rich tax refugees to top companies with networks of operations apparently designed to maximise UK tax-avoidance. Serious damage has been done to their reputations. Is that fair? And, if it is, what should be done?
I get two opposite reactions from business. Some are outraged. They operate in the UK, make money in difficult conditions, pay tax on their profits, and know that if they don't the taxman will knock. But they see some big companies, often their competitors, getting away with ridiculously low levels of tax on what appear to be healthy profits.
But there is a counter argument: that these accusations are unfair and, even, "anti-business". Google, for example, says: we just follow the rules the politicians create – blame them. Moreover, governments try to tempt investors with lower tax rates and complex tax breaks, so why criticise companies that use them? A manager who aimed to be tax-inefficient would be considered negligent by the shareholders.
Inconveniently, both sides have a case. In truth, taxing company profits is not ideal. All taxes are ultimately paid by people. We should tax people when they receive the benefits of profitable companies. But taxes on income and goods can also be avoided. The only really unavoidable taxes are on property and land. But, much as I believe in taxing mansions and land banks, I do not imagine that they could replace the 5% of government revenue that comes from taxing profits. And 90% of corporation tax receipts come from the top 1% of companies.
There is more common ground on the grey area between criminal tax evasion and legitimate tax planning. That grey area is populated by some of our cleverest and best-paid accountants and lawyers. Until the government demanded that it stop, banks paid small fortunes to their specialists in tax dodging.
The scope for aggressive tax planning has grown with cross-border transactions within groups, many relating to royalties and payments for intangibles. Big companies paid £5bn less corporation tax last year than in 2001-02, though profitability grew 65%. While much of this is explained by a lower headline rate and the huge recent hit to bank profits, it shows the problem is not solved.
What, then, can be done? My colleague Danny Alexander's drive to close tax loopholes has netted around £15bn a year in revenue. A key step is the General Anti Avoidance Rule, an important new tool for HMRC. At the budget, Danny also announced a clampdown on offshore intermediaries, used by some to avoid employment taxes for UK staff.
There are serious limits to national action, however. The underlying problem is a messy patchwork of international tax rules, some almost a century old. The summit is an opportunity to give strong support to addressing weaknesses in those rules.
The prime minister has put this issue on the agenda for our G8 presidency. We aim to build on the UK's success in becoming the first country to sign an automatic exchange of information agreement with the US and our efforts in securing agreement to pilot a multilateral automatic exchange between the G5. The government is also showing leadership on improving transparency over who owns and controls companies. We are looking at options including a central register.
In the meantime the business world has a responsibility. The law and ethics of tax avoidance are ambiguous. But standards of good practice and corporate citizenship are emerging, which decent, far-sighted companies can reasonably be expected to observe Reported by guardian.co.uk 5 hours ago.
Leaders from the world's richest countries will gather in Northern Ireland on 17-18 Junewith a chance to make a real impact. At a time when austerity is biting, especially in Europe, tax avoidance by some of the world's wealthiest companies has put the public's faith in the fairness of the tax system to the test. As chair of the G8, Britain has an opportunity to show real leadership on the issue and reform a dysfunctional international tax system.
Five years ago, debates on tax avoidance centred on onshore tax havens for "non-doms" who lived in the UK but paid minimal tax. Now public concern has spread beyond a few super-rich tax refugees to top companies with networks of operations apparently designed to maximise UK tax-avoidance. Serious damage has been done to their reputations. Is that fair? And, if it is, what should be done?
I get two opposite reactions from business. Some are outraged. They operate in the UK, make money in difficult conditions, pay tax on their profits, and know that if they don't the taxman will knock. But they see some big companies, often their competitors, getting away with ridiculously low levels of tax on what appear to be healthy profits.
But there is a counter argument: that these accusations are unfair and, even, "anti-business". Google, for example, says: we just follow the rules the politicians create – blame them. Moreover, governments try to tempt investors with lower tax rates and complex tax breaks, so why criticise companies that use them? A manager who aimed to be tax-inefficient would be considered negligent by the shareholders.
Inconveniently, both sides have a case. In truth, taxing company profits is not ideal. All taxes are ultimately paid by people. We should tax people when they receive the benefits of profitable companies. But taxes on income and goods can also be avoided. The only really unavoidable taxes are on property and land. But, much as I believe in taxing mansions and land banks, I do not imagine that they could replace the 5% of government revenue that comes from taxing profits. And 90% of corporation tax receipts come from the top 1% of companies.
There is more common ground on the grey area between criminal tax evasion and legitimate tax planning. That grey area is populated by some of our cleverest and best-paid accountants and lawyers. Until the government demanded that it stop, banks paid small fortunes to their specialists in tax dodging.
The scope for aggressive tax planning has grown with cross-border transactions within groups, many relating to royalties and payments for intangibles. Big companies paid £5bn less corporation tax last year than in 2001-02, though profitability grew 65%. While much of this is explained by a lower headline rate and the huge recent hit to bank profits, it shows the problem is not solved.
What, then, can be done? My colleague Danny Alexander's drive to close tax loopholes has netted around £15bn a year in revenue. A key step is the General Anti Avoidance Rule, an important new tool for HMRC. At the budget, Danny also announced a clampdown on offshore intermediaries, used by some to avoid employment taxes for UK staff.
There are serious limits to national action, however. The underlying problem is a messy patchwork of international tax rules, some almost a century old. The summit is an opportunity to give strong support to addressing weaknesses in those rules.
The prime minister has put this issue on the agenda for our G8 presidency. We aim to build on the UK's success in becoming the first country to sign an automatic exchange of information agreement with the US and our efforts in securing agreement to pilot a multilateral automatic exchange between the G5. The government is also showing leadership on improving transparency over who owns and controls companies. We are looking at options including a central register.
In the meantime the business world has a responsibility. The law and ethics of tax avoidance are ambiguous. But standards of good practice and corporate citizenship are emerging, which decent, far-sighted companies can reasonably be expected to observe Reported by guardian.co.uk 5 hours ago.