Tax Research UK

War on Want issued the follwoing press release today:

Tax haven poverty alert

The City of London today came under fire for paying out million of pounds in Christmas bonuses while denying many of the world’s poorest countries the tax owed by British companies.

The anti-poverty charity War on Want attacked the City amid reports that dozens of London bankers at Goldman Sachs have been awarded bonuses of at least £5 million each in a record global bonus pool of £9 billion.

Leading earners included chairman Lloyd Blankfein, in line for £35 million, and Simon Dingemans, senior European mergers and acquisitions banker, who will get over £10 million in shares and cash. According to the reports, hundreds of top moneymakers at Goldman’s Fleet Street offices will receive £500,000-plus after the company had an outstanding year advising on massive takeover deals.

Other banks are expected to hand out large bonuses, including Barclays Capital, DresdnerKleinwort, Lehman Brothers, UBS and Morgan Stanley.

The International Monetary Fund has branded the City an onshore tax haven for its role in helping companies dodge tax.

War on Want claims tax dodging and capital flight costs Africa an estimated £75 billion each year - five times what the continent receives in aid.

It says taxes paid by companies and individuals play a crucial part in enabling governments to fund essential public services, including healthcare, education, clean water and electricity.

But developing countries lose an estimated £250 billion every year as a direct result of corporate tax dodging - money which could be used to reach the UN’s anti-poverty goals several times over. Among the goals is environmental sustainability, which engages UK environment secretary Hilary Benn this week at the Bali climate change talks.

Britain also loses an estimated £100 billion a year through tax dodges. This is enough to double funding for its health service, to cover the full state pension, end student fees and enable the UK to reach the UN aid target of 0.7 % of national income overnight.

War on Want says one popular way of dodging tax is to register companies in tax havens. Many of the world’s tax havens are British - the City of London, Crown dependencies such as Jersey, Guernsey and the Isle of Man, or overseas territories, including the Cayman Islands, Bermuda and the British Virgin Islands. Tax havens allow firms to get away with paying minimal tax - and in some cases none at all. They also place little or no reporting requirements on companies, allowing them to keep secret the true sums they should be paying in tax. This then denies vital revenue to the countries in which those companies have made their profits.

Trade mispricing represents another favourite method of dodging tax. This involves selling items between different parts of a multinational corporation and deliberately mispricing the sales so as to shift the company’s tax obligations to countries where the firm will pay less tax. In this way companies have “charged” themselves over £4,000 for a ballpoint pen and under £1 for a whole prefabricated building in order to dodge the tax they owe.

John Hilary, campaigns and policy director at War on Want, said:

It is a scandal that the City of London is handing out these bonuses while denying developing countries billions of pounds in tax owed. Executives on these bonuses can get to eye up luxury cars or second homes while millions of poor people struggle to survive. The government should make City firms pay their full taxes before dishing out these obscene Christmas bonuses.

I agree.

Richard Murphy Africa, CSR, Economics, Ethics, Tax Havens

The Guardian reports that:

Gordon Brown plans to harness at least 20 of the world’s biggest multinational companies, including Google and Vodafone, to tackle a “development emergency” in the world’s poorest countries and put the international community back on course to achieve seven UN development goals by 2015.

Google are on the list.

But they’re tax avoiders. Big time tax avoiders. It’s why they also have their European HQ in Ireland, so they don’t pay tax in the UK; tax the UK could use to honour its development commitments.

I’m not saying business is not part of the development solution: it is. But tax avoidance is not. Why can’t Brown see that? And why does he keep applauding those who are making the plight of the developing world, not better as a result? Because that’s exactly what those who use tax havens do. All of them, without exception.

Richard Murphy Africa, Development, Economics, Ethics

For the second day running a really great article on tax from Africa. This comes from Jeremiah Owiti of the Centre for Independent Research in the Kenyan Business Daily:

In Kenya, it is time that tax policy in general and tax justice in particular are mainstreamed and addressed in national policy discussions.

This could be the key to sustained high economic growth rates required to lift millions of Kenyans out of poverty.
It could also be crucial to generating national political consensus, which is a necessary ingredient for building a nation in which all can live a life of dignity and opportunity, regardless of ethnicity, region, or economic class.

Such moves if guaranteed can generate overall national wealth and also we could witness sustainable development.

Read the rest of it too. It’s good stuff. It’s what drives those of us who work for TJN. It’s hard for many in developed countries to see tax as a source of hope. Read this and you’ll realise just how much it is.

Richard Murphy Africa, Development, Tax Justice Network

The Big 4 accountants do know the difference between tax avoidance and tax planning. Take this by Kairo Thuo in the Kenyan Standard. Kairo is a manager with Deloittes:

We should all plan for taxes to ensure that we only have to pay what we have to pay. The best way to plan for taxes is to plan transactions to ensure that they have the least tax burden. This is where the difference between tax planning and tax avoidance comes in.

A tax avoidance plan commences with the desired results, consequently forcing documentation to tally with the desired results. In a tax plan, one starts with the desired transaction, not results.

The difference between the two is not just a matter of semantics. A tax avoidance scheme can usually be identified because the procedure in place supports the tax position, it may fail to support the other elements of the transaction (as is the case where tax evaders suppress their turnover only to find that their financials do not impress the bank manager).

The beauty about tax planning is that there is no risk of anyone challenging the taxpayer as they are not tax driven.

I agree with him. I also agree with his comment that:

Let us take the case of MPs. Forget about their salaries and retirement packages, but focus on the fact that have managed to pass laws that protect their hefty packages from taxation.

The case of MPs is one of institutionalised tax avoidance. There is nothing illegal with the MPs not paying taxes as there is no law that they are breaking. However, we would agree it is immoral for them not to pay taxes.

So, here we have the Big 4 in Africa saying there is a moral dimension to tax.

Now why can’t they say that elsewhere. I’m massively encouraged by this, and the courage of Kairo Thuo in saying it.

Richard Murphy Africa, Corruption, Ethics, Tax avoidance, Tax compliance

It’s not just the Tax Justice Network thinking about tax in Kenya right now. The following is part of a thoughtful piece on tax by Hassan Kulundu published in the Kenya Times today and deserving wider coverage (so I hope they’ll forgive the extensive quote). It draws attention to real issues that need to be addressed in African taxation, and which the Tax Justice Network for Africa will want to deal with:

Taxes and taxation are generally regarded as unpleasant subjects, which call to mind Justice John Marhall’s often-cited dictum that “the power to tax is the power to destroy.” But against this aura of unpleasantness must be set the statement of Justice Oliver Wendell Holmes, Jr that “taxes are the price we pay for civilisation.”

Taxes are the most important source of government revenue, which are compulsory payments by persons or corporations. Thus taxes involve a transfer of control over resources from persons or corporations to the state. However, taxes themselves are burdensome since they reduce the economic power that would otherwise be possessed by individuals or organisations. But the activities that are financed by the tax revenue are presumed to bring benefits to individuals or organisations.

Hence an examination of the burden of taxation should extend to an examination of the whole of a government’s budget and tax system to ascertain the burdens and benefits for individuals and organisations. This examination is a complex undertaking but rewarding if Kenyans approached it with honesty.

Without prejudice or political mischief aforethought, the tax regime, especially in President Kibaki’s regime is annoyingly unfair, and that is why the Narc administration has earned itself the infamous distinction of “a government of the rich.” Certain taxation policies have left people wondering whether or not this government really cares for the welfare of the majority of poor Kenyans.

For example, during the last national budget read by Finance minister Amos Kimunya, Kenyans at large were surprised at how different tax brackets were created for different manufactures of different consumer commodities. A point in case was when Mr Kimunya, in his infinite wisdom, decided to zero-rate the production of the ‘Senator Larger’ brand of alcohol manufactured by the giant East African Breweries but slap a 65 percent duty on Keroche Industries who produce the same quality of liquor and targeting the same market. Worst still, there are other importers of similar fortified brands, but who only pay 45 percent duty.

The question that even baffled the Parliamentary Finance Committee was that, why did Keroche Industries, an indigenous small scale company trying to meet the consumption ability of poor Kenyans be made to pay 65 percent duty on its sales yet one of its competitors is exempted from tax and others made to pay 20 percent less?

Richard Murphy Africa, Development, Tax Justice Network