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Saturday

The Guardian and the Tax Gap

1 Comment January 31, 2009 – 10:38 pm | Share and Save | Permalink |  Print This Post |

The Guardian is launching a series of articles on Monday on the Tax Gap. As Polly Toynbee says in her article in the Guardian today:

On Monday the Guardian reports on its investigation which reveals corporate tax avoidance on a gargantuan scale. Respectable FTSE 100 companies, household brands that are cornerstones of Britishness, have for years deprived British citizens of potentially billions - all done legally by battalions of super-accountants and lawyers.

As company wealth ballooned during the boom, the money going into Treasury coffers should have grown proportionately. But between 2000 and 2007 the proportion of tax paid by top companies fell. Where did it go? The very clever people who devised fiendish debt devices that blew up the banks also applied their brains to byzantine new tax avoidance strategies.

Of course, this builds on two things. The first is the Tesco / Guardian debacle of a year ago. The Guardian got a part of their story wrong and Tesco sued. They also, undeniably, and as I pointed out very strongly on this blog, got the story absolutely right: Tesco were deliberate tax avoiders. Thankfully Private Eye joined the debate and Tesco won a very hollow victory against the Guardian as a consequence.

Second, at the same time as the Guardian were talking about Tesco the TUC published my report ‘The Missing Billions’. It’s that report that let’s Polly say with conviction that the corporate tax rate of FTSE companies has fallen persistently this decade. But what is clear is that the Guardian was bloodied by the Tesco fight, but not bowed:

Delving into the truth of company taxes has taken the Guardian team months of digging, talking to whistle-blowers, and following the knotted strings that lead through a labyrinth of subsidiaries in secretive tax havens.

And as she says:

Public companies are anything but public about tax. Annual accounts are opaque, not obliged to spell out how much tax was paid where, or the tax-advantageous deals between their subsidiaries.

But this we know: a third of FTSE 100 companies paid no tax in 2005-2006, and another third paid a minute proportion of their operating profits. Thanks to avoidance, HMRC says 12 of the UK’s largest firms “extinguished all liabilities in 2005-2006″.

Of course, as the Guardian’s lawyers point out, everything unearthed that looks to the naked eye like a breathtaking affront to ordinary PAYE payers is legal. But that does note mean that there is nothing that can be done about this abuse. All that is required to effect change is imagination and political will. Polly’s prescription is clear:

The EU and the US united could effectively shut down havens and force them to reveal secretive accounts: if they refused to comply, all banking connections could be cut.

There should be a common international tax regime with no loopholes, while still letting each country set its own rates.

Start with transparency: make all companies consolidate their accounts to report which countries their profits arise from, where taxes are paid, and the precise dealings between subsidiaries.

All are of course prescriptions readers of this blog will be familiar with. The accounting reform was originally authored by me.

But she agrees with me: this will require political will. She argues:

[C]ulture change starts with words and outrage, with naming and shaming, withdrawing peerages and knighthoods, refusing honours to any with dubious tax histories. [But i]nstead, governments woo business regardless of tax behaviour. Downing Street is the ever open ear, quaking at company threats to relocate.

And all the while those companies say they are committed to corporate social responsibility. But as Polly says:

The way to prove they are the “good corporate citizen” they claim to be is by paying the modest 28% that is the starting rate for all companies.

Maybe culture change won’t happen until we get out there with saucepans to rattle and bang some shame into those inside corporate headquarters.

Now there’s an idea.

Read the rest of the reports as they roll out over the coming fortnight.

Disclosure: I have advised the Guardian on tax related issues