Monday, May 13, 2013

Britain's non-existent crackdown on multinational tax abuse

Copied from the Treasure Islands blog:

Britain's governing coalition has made great song and dance about how it plans a crackdown on abusive tax avoidance by large multinational corporations. I gave a talk at the festival in the southern English town of Brighton yesterday, where I examined these claims and described them as "a disaster" and "a con."

I am not alone. The latest article by Bloomberg's Jesse Drucker is, as usual, excellent, and it makes a similar point. As he says:
"As politicians in Europe and the U.S. talk tough on corporate tax dodging, several of their governments are helping multinationals lower tax bills. They have been cutting corporate rates, introducing laws that encourage tax avoidance, and rejecting proposals to close loopholes. Even amid growing public outrage in Europe against austerity policies, the gulf between rhetoric and reality on taxation means individuals rather than businesses are often bearing the brunt of higher taxes."
I will return to Drucker's article, but first some quotes from others who have examined what's going on in detail. First, Richard Brooks, a former UK corporate tax inspector and author, writing in The Guardian:
"You think the government is fighting tax avoidance? Think again
. . .
[UK Chancellor George] Osborne has taken the deception to a new level. . .
George Osborne has pulled off a stunning confidence trick: he has bamboozled people into thinking he is fighting tax dodgers. Osborne's bamboozled audience will never notice the abject surrender to tax havens."
Or you might try Ben Chu in The Independent, a little earlier, in an article entitled The Chancellor's corporation tax con:
"These are all moves which, in effect, turn the uk into a giant tax haven"
As I explained in Brighton yesterday, this is the outcome of politicians responding to two opposing forces:
a) Offshore Leaks, austerity and government scrambles for revenue, anxiety about inequality leading to a search for more of a contribution from the wealthiest in society; a rapid growth in knowledge about tax havens: notably that they are bigger and more important and more dangerous than anyone had hitherto imagined. This has led, in the UK as in several other countries, to serious pressure from the street, with protests and pub conversations and widespread discussion in the media.
b) the forces of conservatism and resistance: the City of London and its many supporters who make a living out of tax havens and facilitating abusive tax arrangements, alongside "competition" between financial centres to attract the hot money by offering the next best tax loophole, in a generalised race to the bottom.
When politicians are faced with two opposing forces like this, they have a choice:
a) do the right thing
b) do the wrong thing, but be seen to do the right thing.
And in this case, the UK government has firmly opted for b). We know this from the examples that Chu, Brooks and Drucker give. But we also know it from a statement from Osborne on May 11th at the meeting of G7 Finance Ministers and Central Bank Governors:
"For Britain, I am committed to a competitive tax system that promotes growth, but I’m also determined that tax that is owed must be paid."
That is an especially devious statement. First, we know that the word 'competitive' is the world's worst weasel word when used in this context. (See why here.) Second, here is what Osborne is saying - and doing: 'We don't want multinationals to break the law. So we will eviscerate the laws - and then they won't have to break them!' (This is one of the messages that emerges loud and clear from Brooks' new book, The Great Tax Robbery.)
Back to Drucker's article, with more specifics, in the context of promises to crack down:
"Less than a month later, Chancellor of the Exchequer George Osborne said he would lower the U.K.’s corporate tax rate to 21 percent, below Germany and France, from 28 percent in 2010. A month after that, the U.K. cut the rate further, to less than 6 percent, on profit attributed to offshore arms that make loans to other units. These subsidiaries can help U.K.-based multinationals shift income to mailboxes in tax havens.
“Here is a blatant incentive inside the U.K. tax system to move profits previously in London into a tax haven,” said Richard Murphy, director of Tax Research LLP in Norfolk, England. “It is just absurd. At the same time, we have people like Osborne saying ’I’m going to crack down on tax avoidance."
And Drucker quotes David Rosenbloom, a top U.S. tax experts whom I interviewed for Treasure Islands:
The Europeans say one thing and do another. . . The EU can’t do anything as long as it’s got Luxembourg and the Netherlands and Ireland” within the union.
And Britain, we should add. And it's time the BBC and other mainstream media in these places started to notice properly, and give these politicians' comments the scrutiny they deserve.

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