According to the FT over the weekend:
Listed companies in developed markets are avoiding at least $82bn of tax a year by using tax havens and other minimisation strategies, according to detailed analysis of more than 1,000 businesses.
The revelation comes as campaigners and investors have increased their focus on the impact of corporate tax avoidance on public finances at a time of widespread austerity.
The methodology was fair:
MSCI estimated the size of the global corporate tax gap by calculating the average annual tax rate paid between 2009 and 2013 by the 1,505 companies in the MSCI World index, which accounts for about 85 per cent of stock market capitalisation in 23 developed countries.
Stripping out lossmaking companies, miners and property groups, MSCI then estimated each of the remaining 1,093 companies' potential tax rate by calculating the weighted average tax rate in the countries where they derive their revenues. The tax gap is the difference between these two figures.
The results were unsurprising in many ways:
More than a third of healthcare and technology companies are among those with large tax gaps, MSCI found, along with a quarter of those in the energy and materials sectors.
At least 40 per cent of MSCI World companies domiciled in Bermuda, Ireland, Belgium, the Netherlands, Switzerland, Canada, Hong Kong and Luxembourg were found to have large tax gaps, along with 27.1 per cent of US companies and 22.5 per cent from the UK. Japan came bottom of the list, with just 7 of its 193 companies in this camp.
As I was noted as saying:
Richard Murphy, a founder of the Tax Justice Network, a campaign group, said MSCI's estimate of the size of the global tax gap was “reasonable”, although it may understatement the true figure, given the tax deferral activities many companies use to lower their bills.
Mr Murphy estimated corporate tax avoidance in the UK alone amounted to £12bn in 2008, although this figure is likely to have fallen since given a cut in the corporation tax rate from 28 per cent to 20 per cent.
The last comment is undoubtedly true: just because of the tax rate it is likely that by now one third of the tax gap will have disappeared since 2008. But the other point is important too: if, as seems likely, MSCI used headline tax figures deferred tax accounting may have hidden at least part of the tax gap that is lost to view as a result of that opaque accounting mechanism that appears to be primarily designed to spread misinformation on this issue. The estimate will be at the low end as a result, in my opinion.
But it's useful, nonetheless.
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Scary stuff. Thanks for the blog. Last year the Strathclyde Uni Fraser of Allander Institute calculated that because of the extent of foreign ownership across the oil and gas industry then some 80% of all post tax profits were remitted overseas which then – pre the oil price crash – amounted to around £18bn.
To my way of thinking that’s £18bn generated here that will be invested, spent or otherwise used elsewhere.
I found this very interesting but quite depressing but it also got me thinking as to what the situation is in other important sectors of the UK economy such as the utilities (electricity, water etc) and of course automotive manufacturing.
Would you have any ideas about this or could you point me in the right direction as to where I might find that sort of information?
Regards
Dick
Sorry – not sure where that data might be
Richard
What if it isn’t invested? What if it’s hoarded – dead money held offshore which might, at best, be held in gilts and treasuries?
What if it’s used to purchase rents, extracting the value created by others and contracting the economy? What if it’s used to bid up asset prices, or support them in a value-destroying bubble?
Those last two points are worth examining closely, as the value added by extractive industries is largely balanced out by rent-seeking and the creation of artificial shortages – so taxing the excess profit is an important economic correction in a sector which distorts free trade in every national economy.
I am well aware that extreme Libertarians (and mainstream North American public opinion) considers taxation to be the unjust extraction of value from productive enterprise into a pointless and bottomless pit of wilful waste; but functioning democracies can and do have productive uses for taxation, and an economically-effective concept of the common good which supports a fair profit for all – even the oil industry.
That’s why Norway has a Sovereign Wealth Fund – it develops its own oil through Statoil, its state subsidiary – and the UK hasn’t.
Cui bono?
Yet HMRC do not include this in their Tax Gap estimates and apparently do not regard it as tax avoidance at all!
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/364009/4382_Measuring_Tax_Gaps_2014_IW_v4B_accessible_20141014.pdf
“Avoidance is exploiting the tax rules to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no commercial purpose other than to produce a tax advantage. It involves operating within the letter, but not the spirit of the law.
It does not include international tax arrangements such as base erosion and profit shifting (BEPS). Measures for tackling this are overseen by the Organisation for Economic Co-operation and Development (OECD). The OECD defines BEPS as tax planning strategies that exploit gaps and mismatches in tax rules to make profits disappear for tax purposes or to shift profits to locations where there is little or no real activity, but the taxes are low resulting in little or no overall corporate tax being paid.”