As the Guardian and other papers have reported, the CBI has:
for the first time admitted that "black box" tax schemes devised with the sole aim of avoiding tax are unjustifiable even if they are legal.
In a document called Tax and British Business — Making the Case, the CBI attempts to explain how businesses legitimately limit the amount of tax they pay without resorting to complex tax avoidance schemes. It uses international comparisons to argue that UK firms pay more than their counterparts in Germany, France and the US after tax breaks and reliefs are considered.
It uses international comparisons to argue that UK firms pay more than their counterparts in Germany, France and the US after tax breaks and reliefs are considered.
Lamely, John Cridland of the CBI apparently said:
Cridland said most businesses enjoyed tax reliefs on research and development and capital purchases, which were encouraged by the government.
"Business should not engage in abusive tax arrangements. However, in running their normal day-to-day activities, as well as in commercial transactions large and small, businesses need to manage their tax affairs as a key part in operating their businesses," he said.
The TUC's Tax Gap report, by Richard Murphy, argued that businesses avoided at least £12bn tax a year through sophisticated tax planning and offshoring of profits. Murphy said in the 2008 report that his calculations showed firms had an effective tax rate of 22.5%.
The Treasury web site acknowledges this began the whole debate on this issue of the tax gap. It's taken four years for that debate to reach the point where the CBI now admits that the mantra "it's legal so it's acceptable" cannot be true. That's quicker than glacial progress, but not much. However, having made this breakthrough we're now in a different place: once this point has been conceded, and that is clearly the case, the game changes. Now we're into the arena in which I said this argument was always located - which is that of ethical judgement.
No one, of course, denies that business should not claim allowances and reliefs clearly intended for their use. To claim capital allowances and R & D relief is tax compliant in most cases (there can be doubts when leasing is involved in some cases). Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. So let's leave that issue aside: we can argue whether there should be capital allowances but if there are no one is saying business should not claim them.
Cridland, the CBI and its tax committee all know that is not the issue. The issues are:
- the use of tax havens;
- the hiding of intra-group transactions;
- the ability this gives to hide transfer mispricing;
- the movement of assets - whether intangible or cash - off shore to abuse the tax systems of country like the UK;
- the use of special purpose vehicles to hide assets, including for tax;
- the sale of offshore services that are intended to undermine the tax systems of democratic states by multinational corporations;
and much more.
So my suggestion to the CBI is that they stop ducking the issue. As I said in the Independent today:
The GAAR will only tackle the very periphery of abuse. It will leave the vast majority of tax avoidance by multinationals completely untouched.
I think it's time we took on the core of the problem, not the periphery. So do the people of the UK. It's time the CBI realised that and demanded real change from its members.
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didnt you do an analysis of the Guardians effective tax rate a while ago………….and found it to be low compared to the mainstream tax rate…………………..because of validly claimed tax deductions………….
Yes
Which is why I said they were tax compliant none the less
The income they got was tax free by statute – hard to pay tax when no one demands it
I’m saying the same here
But am also saying companies hide behind this cover – as they do
Like Barclays hiding behind 50% of their 2008 “pretax income” being tax free under SSE? (Which is what led to the 1% tax rate headline) Does that, or does that not, make Barclays 50% compliant?
I’m not saying they shouldn’t be pushed, and hard, on their other activities, but by standing by the flawed methodology underlying that 1% number, while endorsing the Guardian’s reliance on the same provisions, you’re unnecessarily leaving yourself wide open to attack, aren’t you?
I never stood by the 1% number
The press created that – and did not endorse it either
I can’t remember the exact sequence of events but I am sure you were more than happy for the misnformation to float about. You certainly didn’t come jumping to Barclay’s defence.
And your initial report The Tax Gap contained no reference to all these statutorily available reliefs,allowances and exemptions that explain why a company headline and actual tax rates might differ. Which is why that report is, and remains, complete rubbish.
I’m not sure it’s my job to defend Barclays
As for the report – I am sorry – it’s you who has misread it
So as ever I utterly reject your claim
Not that I really need to do so: wise people now accept its argument
Any thoughts about this? http://www.channelonline.tv/channelonline/DisplayArticle.asp?ID=498382
If the decision is reversed the EU will reverse the decision to reverse the decision!
You cannot win this
[…] this also shatters the CBI’s claim that only the most egregious tax abuse schemes need be covered by a general anti-avoidance […]
“As for the report — I am sorry — it’s you who has misread it
So as ever I utterly reject your claim
Not that I really need to do so: wise people now accept its argument”
You have never to my knowledge explained why you omitted to consider the effects of the various statutory reliefs, allowances and exemptions available to companies. All you did was multiplied the headline rate by accouting profits, compared it to tax paid and said “look at this tax gap”.
It’s a nonsense. By failing to answer these criticisms and correct your report you deliberately spread misinformation. And you know it. And who are these “wise people”.
The report was completely explicit about what it did – and why. There was not and never has been anything misleading about it. The only risk was – as I have explained many times – that it may well have understated the case (as I intended) by missing about the impact of abuse like that of Google et al by underestimating the scale of activity artificially relocated out of the UK.
In that case I maintain – as ever, and I think wholly correctly, the estimate was not just fair, it was cautious and that the reality is that those who oppose it do, like Deloitte and Bob Diamond simply think there is no such thing as tax avoidance.
And candidly, you’ve lost that argument. So shall we move on?