Tax avoidance » Tax Research UK

How can HMRC be serious about large company tax abuse when they’re cutting the staff who tackle it by 20%

HMRC, Tax avoidance, Tax evasion 10 Responses »

Apr 182012

Graham Black of the Association of Revenue & Customs – the union for senior staff at H M Revenue & Customs – had a first rate article in the Guardian yesterday. As he put it:

Our chancellor has never been noted for his great communication skills. Over the past few months, however, it would seem that on the issue of tax avoidance, George Osborne has been very clear.

He was going to come down on avoiders like a “tonne of bricks” and, naturally, he was shocked to find that the wealthy were paying little tax. He would introduce a general anti-avoidance rule to deal with all this, and he had invested £900m in HM Revenue & Customs (HMRC) to tackle evasion and avoidance. Understandable, when the country faces a huge deficit and, on the government’s own conservative estimate, at least £40bn of taxes are going uncollected. What better way to show that we are all in it together.

But,as Graham knows (and as Graham knows I know – for we are well acquainted) he had his tongue firmly in his cheek when saying all that. Graham is not convinced. As he puts it:

But is the government tough on avoidance? It has produced a report on an anti-avoidance rule. Who did it ask to develop this – a member of HMRC perhaps, or a barrister used by HMRC to combat avoidance? No, it used Graham Aaronson QC, well known for representing large business and wealthy people in tax disputes. And Aaronson’s suggestion is a rule so narrowly drawn that it will legitimise most of what the public recognises as avoidance.

Precisely so – because what the tax abuse industry will say is what is not covered by the GAAR is acceptable tax avoidance – and Aaranson’s done his mates a good turn as a result.

There’s more than that though:

What of all those extra resources for HMRC? When it was formed by merging the Inland Revenue and Customs & Excise in 2005, it had nearly 100,000 staff. Now it has 65,000, and this will continue to fall over the next two years to 56,000. This is an almost 50% cut that has far outstripped the genuine savings from merger and IT improvements.

Any organisation facing 10 years of successive cuts would struggle with the consequences, and the problems HMRC has faced in recent years stem from this. In the spending review, the Treasury intended to cut the HMRC budget by a further £3bn over three years, but only cut it by just under £2bn – and this is what Osborne calls an investment of £900m. I know of nowhere else where a £2bn cut is described in such a way.

Precisely. It is Orwellian to do so. Disingenuous if you like. Or just a lie. I can live with all those descriptions. They’re all true. And this has consequences. As Graham notes:

Despite what the chancellor says, the number of such professionals is falling, by around 450 by 2015, and many of those have gone already. Even the part of HMRC that deals with the largest corporates is continuing to shrink, and will do so by 20% by 2015.

Staggering, isn’t it? As Graham asks:

Does it make sense to cut the one part of the government that brings cash in, when we are having to cut back on services to the vulnerable across the board?

The answer is of course no. And as Graham makes clear – and I completely agree – more staff, with a proper anti-avoidance rule will help no end to beat tax avoidance. ARC reckons the yield on investment is 20:1. So do I. £1 billion of spend and £20 billion of yield, I reckon. They’re slightly less ambitious, but let’s not worry about that now. The issue is, as Graham again says:

In Britain, we have a remarkably compliant tax population that knows taxes are a price we pay for a decent society. It will continue to do so while the system is seen to be fair and policed in an even-handed way. If we continue to facilitate avoidance and cut the resources HMRC has to combat it, then we may lose that general level of compliance. And, once lost, it will be difficult to regain.

Quite so.

And very well said.

Stop rewarding tax avoidance

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Apr 182012

This is from the Greenlining Institute report called ’Tech Untaxed: Tax Avoidance in Silicon Valley, and How America’s Richest Company Pays a Lower Tax Rate than You Do’ that I referred to earlier today and is one of their most simple and effective recommendations:

Stop rewarding tax avoidance. Corporations using offshore tax havens to dodge U.S. taxes should be barred from receiving taxpayer-funded federal contracts.

We could, of course, do the same here.

Silicon Valley Tech Untaxed – or how Apple ducks all its corporate responsibility to pay tax

Tax avoidance, USA 7 Responses »

Apr 182012

I take the following edited extracts from an op ed in the San Francisco Chronicle written by Samuel S. Kang, who is general counsel and Tuan Ngo, who is a legal associate, both of them at the Greenlining Institute, www.greenlining.org. That organisation has just published a new report called ’Tech Untaxed: Tax Avoidance in Silicon Valley, and How America’s Richest Company Pays a Lower Tax Rate than You Do’. It does, of course, refer to Apple:

If you’re like most Americans, you just paid your federal income taxes. And chances are you paid at a higher tax rate than America’s wealthiest company.

Think about that for a second. Apple earned more than $34 billion in profits last year, and the company’s value recently soared past half a trillion dollars. That’s more than the gross domestic product of oil-rich Saudi Arabia.

Yet Apple paid a lower tax rate last year than a typical California schoolteacher – indeed, lower than most American families.

And it’s not just Apple. For our new report, “Tech Untaxed: Tax Avoidance in Silicon Valley, and How America’s Richest Company Pays a Lower Tax Rate than You Do,” we examined the Securities and Exchange Commission filings of 30 top tech firms listed in the Fortune 500. We found that most of these tech giants – many based in Silicon Valley – are making extensive use of offshore tax havens to avoid paying taxes on their immense profits.

It’s not fair.

These companies use a variety of devices to stash profits in countries known as tax havens, such as Bermuda and the Cayman Islands, sheltering them from U.S. corporate income taxes. From 2010 to 2011, the amount of cash held overseas by these 30 top tech companies shot up by 21 percent, to just less than $430 billion. Apple and Microsoft had the biggest increases in cash held offshore.

These 30 companies – which, by the way, got $18.7 billion in federal contracts in 2011 – have seen their tax rates drop like a rock, from 23.6 percent in 2009 to 19.9 percent in 2010 and 16 percent in 2011. Apple’s tax rate plunged even more dramatically, from 24.8 percent in 2009 to 14.7 percent in 2010 and 9.8 percent in 2011. Apple’s 2011 tax rate was lower than that of American households making an average of $42,500 per year. We hear a lot of whining from the corporate world about the United States’ supposedly excessive top corporate tax rate of 35 percent, but that rate is a sham. These huge, profitable companies don’t pay anything close to it.

Bear in mind that this is happening at a time when draconian cuts to the federal budget are a real possibility. For example, Congress and the president have agreed to devastating cuts that could be triggered in January. According to the Coalition on Human Needs, these cuts will kill job training for 670,000 Americans, deprive 75,000 preschoolers of access to Head Start and squelch an astonishing 2,300 health research projects.

We can do better. First, Congress should fix the tax code. It can start by passing the Stop Tax Haven Abuse Act, a broad package of reforms designed to curb abuse of offshore tax havens that was introduced last year. Other changes could rein in abuse of “deferral,” which encourages corporations to accumulate profits offshore indefinitely.

Second, Congress should stop rewarding tax avoidance by barring federal contracts with corporations that use offshore tax havens to dodge U.S. taxes. And it should not pass the repatriation plan being pushed by a high-powered corporate lobbying campaign, which would let companies bring their offshore cash into the United States at a drastically reduced tax rate – essentially a Christmas present to Apple and Google, paid for by you and me.

The accounting details get complex, but the basic issue is simple: Wealthy companies shouldn’t be able to evade paying their fair share by gaming the system in ways ordinary Americans can’t.

I wholeheartedly agree.

And it’s good to see that the same momentum for change that is starting here is also gathering support in the USA.

As for Apple – I wish there products weren’t so good. Then I could boycott them. But you can love the product and hate the company for what it does I guess. In that case, that’s what I do.

ISO 9001 and tax – a way forward for tackling tax abuse?

Tax avoidance 5 Responses »

Apr 182012

I received a fascinating mail from a person I’ve never met called David Lucas the other day. He said:

The frustration felt because many companies are not paying their rightful tax is eclipsed when it is realised that many of these companies are making their profits from central government, local government, health service and other public body contracts, e.g. A4e.

The government seems to be incapable of doing the bleeding obvious of only giving contracts to companies that pay their tax.

I, a retired agricultural engineer, and some friends are followers of your blog and readers of your book, but are in no way experts. Out of some interesting discussions an idea has emerged which may or may not be novel, which I feel is worth passing on to you.

I believe that companies that bid for government contracts to be in the bidding are required to be ISO9001 accredited. And many well known companies are proud to proclaim their ISO9001 accreditation, Amazon for example.

If the good governance of ISO9001 were extended to include, for example, the payment of tax in the country that produced the profits, would this not solve the problem of off shoring and other tax dodges?

It seems to me, after looking at the International Organisation for Standards (ISO) web site that they are almost there.

Does this idea stand a chance of success and will ISO be persuaded to take it up? Perhaps the OECD could do the persuading.

I think the idea well worth sharing.

Anyone know more about ISO 9001 and how easy this would be to do?

And thanks to David.

Other ideas of this calibre are welcome.

Corporation tax at 5.5% is ‘almost government-approved avoidance’

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Apr 172012

No, I didn’t write that headline. The Tax Journal did. As they note:

Heather Self, a Director at the law firm McGrigors provided an overview of a major reform of the UK’s controlled foreign companies (CFC) anti-avoidance rules in a Tax Journal webcast published yesterday.

These are the rules of which the the Tax Journal notes:

Anti-poverty campaigners claim that the changes will ‘water down’ the CFC rules and cost developing countries up to £4bn a year. The reform comes at a time of widespread criticism – on all sides of the political spectrum – of corporate tax avoidance by some of the world’s largest groups.

So what did Heather Self have to say? Well, it was this:

‘I’m assuming that a UK-headed group with some bank debt has a genuine operating company, elsewhere in the world, that needs finance for its business. If the UK plc sets up an offshore finance company, it can funnel that bank debt through the finance company to the operating company, get a deduction in the UK for the bank interest, a deduction in the operating company for the loan, and then the really good news – the tax in the finance company will only be 5.5%. That’s a quarter of the corporation tax rate of 22% which we’re now heading for. In summary, a double deduction in exchange for just a 5.5% charge.’

Yes, you read that right: there could be 44% of tax deduction and 5.5% of charge – a tax subsidy of 38.5% as a result.

This is the reality of the Tories way of addressing tax avoidance – to give yet more tax breaks to their friends in big business.

Max Hastings should take note.

5 steps to tackling tax avoidance now

Tax avoidance, Uncategorized 68 Responses »

Apr 122012

I’ve been challenged to suggest five steps that could be taken now to tackle tax avoidance, given that the topic is in the news.

First of all, let’s be clear why this issue is important. I estimate tax avoidance costs the UK £25 billion a year. I stress, that’s an estimate. That means it’s an informed guess – I’m not saying this figure is right. What we do now know though is that it is substantially more realistic than the government’s own estimate of £5 billion. That is why this issue is now under discussion. When George Osborne now admits that just 20 taxpayers may be avoiding £145 million between them we know that this issue is of enormous economic consequence.

So, these are my top five ways of tackling tax avoidance, each if them in short summary:

1. Introduce a proper general anti-avoidance rule

This is a perennial demand of mine and is absolutely essential if we are ever going to be tax avoidance.

A general anti-avoidance rule is essential once we realise that all tax regulation is written and it is an inevitable fact of life that words have uncertain meanings, however much we like to deny it and however hard Parliament works to try to define them in taxes acts. That means all tax law is open to abuse if the only basis on which it can be interpreted is the strict meaning of words, which cannot be known until a judge has ruled on the issue. So, we need a better basis for interpretation and that is to look at the purpose of the law, and the intention of the taxpayer and then decide if the two coincide. If they do, then everything is fine. If they don’t then quite clearly action needs to be taken.

Now, no one wants a general anti-avoidance rule which gives a tax authority complete right to decide when, if, and how somebody should pay tax. There is obviously massive uncertainty in that as well. But thankfully we have a precedent for such a general anti-avoidance rule, and it was, curiously, created by the House of Lords. In 1982 the House of Lords ruled upon a case and their resulting decision came to be known as the Ramsey principle. In order for the Ramsay principle to apply, there had to be:

1) a series of transactions; which are

2) pre-ordained; and

3) into which there are inserted steps that have no commercial purpose apart from tax avoidance.

Under Ramsey the artificial step inserted for tax avoidance was ignored when calculating the tax due– effectively delivering a general anti-avoidance principle.

Unfortunately, the Ramsey principle was largely overturned in a subsequent decision of the House of Lords in 2001, and that is one reason why tax avoidance has become so rampant in the last decade. Now we need it back, and a general anti-avoidance rule that would put it into UK law is now essential.

I stress of the current proposal from the government for a general anti-avoidance rules nothing like this at all and I explain why here.

2. Country-by-country reporting

A very welcome development over the last few weeks has been the increase in discussion of the impact of transparency upon tax avoidance. There seems to be almost universal agreement that most people are embarrassed about being found to be tax avoiding. As a result there also seems to be near universal agreement that the more information there is on public record about a tax payer’s affairs the less chance there is that they will undertake tax avoidance activity.

My estimate of tax avoidance splits into two near equal parts. One half relates to the activities of individuals and the other to the activities of large companies. By definition there are many fewer large companies than there are individuals and each of those companies also pays (or should usually pay) a great deal more tax than any individual, and so also has a great deal more opportunity to tax avoid. As a consequence, demanding transparency from multinational companies who have greatest opportunity to use tax havens and their associated arrangements to avoid their tax obligations in the UK is the obvious place to start with a transparency agenda.

Large companies do, of course, have to prepare and publish their accounts, but those accounts do not at present include any indication at all of what a multinational company does in each and every country in which it operates. So we have no idea of what its sales are, what its profits are, how many people it employs or at what cost, and most importantly of all, of course, how much tax it pays in each and every country in which it operates.

Country by country reporting by multinational companies would solve this problem. Those companies would then have to publish a profit and loss account showing all the above noted information for each and every country in which they operate. As a result we will know precisely what they do in the UK, how much tax they pay here and how much in addition that they don’t pay here because we will know how much of their profit is shifted into tax havens.

There is an official proposal for a form of country by country reporting before the European Parliament at present, but it only relates to the extractive industries. This is not therefore something that is now on the fringes of debate. The OECD is looking at it, the International Accounting Standards Board is looking at it and so is the European Union. In that case it is time to put pressure on all these bodies to introduce a comprehensive country by country reporting requirement to reduce the tax avoidance activity of multinational corporations to the benefit of this all. There is more information on this issue here.

3. Increasing the number of staff at HM Revenue & Customs

A lot of tax avoidance is complicated. It takes time to investigate it, time to assess it, time to react to it and time to push through the resulting demand for additional tax due. All that time has to be undertaken by real people, sitting in real offices, doing a real days work on behalf of the UK. They are employed by H M Revenue & Customs, and yet right now far too many of the people employed by our tax authority are facing the risk of redundancy.

I’m well aware that the government says that it is investing up to £900 million in additional funds to tackle tax avoidance but that has to be set against the background of £3 billion of total cuts to the budget of HM Revenue & Customs over the life of this Parliament. You cannot tackle tax avoidance and cut the resources available to address this issue at the same time. As a result it’s now essential that we change our attitude towards spending on staff at HM Revenue & Customs and not see them as a cost, but to see them as a revenue generation opportunity, with the people in question being gainfully employed to ensure that there is a level playing field on which all business in the UK operates where no one gets an advantage by tax cheating to give them an unfair benefit in the marketplace. There is in this a double benefit. We get a more efficient, fairer, competitive and vibrant market and we have more tax paid at the same time. This is a pro-business tax policy for the UK.

4. Reforming small business taxation

One of the first objectives of any tax avoider is to get their income out of their hands, where it might be subject to income tax rates of up to 50% present and potentially to national insurance charges as well, and into the hands of another person who will pay tax at a lower rate, possibly with no national insurance paid. That obvious ‘other person’ is a limited company, and anyone can form such a company for a tiny outlay of under £100 at this point of time in the UK.

Too often this then means that the income that an individual has earned is artificially diverted into making payment to someone else, or that income from unemployment that should be subject to national insurance is converted into what looks like investment income paid in the form of dividends to which no national insurance applies. We now know that thousands of people are paid in this way by the government each year, and there will be tens, if not hundreds of thousands, of people paid in this way in the private sector each year as well. All of this is tax motivated.

I have no desire to impede small-business because it is in many ways the backbone of our economy. Nor do I want to put an impediment in the way of those businesses that really need to raise capital through a limited company, and to retain profits to reinvest in their enterprise. But let’s be clear, that is a small minority of companies these days. The vast majority of small limited companies are owned by just one person, have a share capital of under £10, do not retain profit for investment in the business, and are basically the incorporated persona of their owner/manager. We need to recognise this fact and create appropriate structures for limited liability entities for use in the 21st-century economy when at present we are struggling with the legacy of a structure designed in the 19th century.

I explored this issue in much greater depth here, but what we need to do now is change the format of incorporation for most small businesses in the UK so that something much like a limited liability partnership, which has been available in UK law since 2000, becomes the standard format for the small limited liability business. This means that they enjoy limited liability, but at the same time the owners are taxed upon the profits arising in the business each year under income tax rules as if they were partners in an unincorporated business. This means that the opportunities for tax avoidance are limited, national insurance at self-employed rates is paid (and this is lower than on employment income) and many of the admin burdens that exist in the management of a limited company are eliminated because the taxation rules of limited liability partnerships are at present much simpler than those of companies.

There are enormous advantages to making this change. It will reduce the admin burdens on small business, it will reduce tax avoidance, it wil differentiate between those companies which are setting out to establish larger scale enterprises and those which are always intended to be small-scale operations (not that there is anything wrong with that) and it will help create a level playing field between smaller companies of all types who would then be face broadly consistent tax rates whether they are incorporated or not. That has to be good for fair competition in the UK economy as well.

5. Tackling tax havens

Tax havens are often associated with tax evasion activity, where a person simply hides their income, gains or wealth from the view of H M Revenue & Customs, but that is not always the case. They can also be used for tax avoidance. Some of this will be easily undertaken by those who are not domiciled in the UK (and tackling the domicile rule remains an important issue in the tax avoidance agenda) but they are also widely used by those who are resident as well. iIn many cases this happens because people think that such activity will not be found out, whether the transactions undertaken is legitimate or not. Certainly, keeping such activity out of the public domain is a key objective of those who use tax havens, which is why I so frequently refer to them as secrecy jurisdictions.

The UK has more tax havens under its care than any other country in the world. The Channel Islands, the Isle of Man, the Cayman Islands, the British Virgin Islands, Gibraltar and others are all ours. We have a duty, first of all, to make sure that these places are as open and transparent with us as we expect financial institutions in the UK to be, not least because most of the financial institutions located in these tax havens are owned by UK-based organisations.

We have to go further than that though. International cooperation to stop taxing the people is essential, and the European Union has been extremely important in this process. Currently the UK is undermining the EU’s initiatives to tackle tax havens by signing a deal with Switzerland. That deal must be cancelled because it will at the very least seriously delay and will quite possiby ultimately completely prevent progress on the upgrade of the European Union Savings Tax Directive which would, if implemented in the form currently proposed be the best weapon to shatter tax haven secrecy that the world has ever seen.

I am, of course, aware that the Austria and Luxembourg are siding with tax cheats and tax criminals in opposing this upgrade to this European directive. However, it is essential that the UK commits itself to tackling tax avoidance by siding with the European Union against such tax cheats and the governments that help them, including Switzerland, which has for all practical purposes joined the existing European Union Savings Tax Directive. We must now proactively demand that those countries that help people avoid their obligation to pay UK tax must be transparent with us in ensuring that everyone who owes tax in this country has their affairs made known to us so that demands for payment can be made.

6. Just in case you want some more

I could of course have suggested some other items for inclusion in the above list. I will give no great detail on them here but would suggest they might include:

a. Renegotiating the basis on which multinational companies allocate their profits between states. The OECD’s arm’s-length principle which has been the basis for this calculation for well over half a century is now completely outmoded, and a new basis of allocation is now essential. The UK could lead this process.

b. Aligning the income tax and capital gains tax rates for individuals. Nigel Lawson did, of course, do this with great success. It immediately eliminates an obvious route to undertake tax avoidance, and that is why the rates should be aligned again.

c. Some moves have been already put in place to cut the value of allowances and reliefs available to the wealthiest taxpayers but the measures in question may not have gone far enough. Consideration of further restrictions is an essential part of addressing the problem of tax avoidance because in some areas the opportunity for continuing avoidance is far too easy to locate within our tax system.

d. The USA has for a long time had what it calls an ‘alternative minimum tax rate’ which has had the intention of limiting tax abuse. We need to investigate the same sort of system in the UK.

e. There is a paradox in the UK tax system that income earned from employment ( by the proverbial ” hard-working family”) is much more heavily taxed because of the application of national insurance than is income earned from investment. Avoiding national insurance has as a result become the tax accountants first port of call as a consequence. There is an obvious way to remedy this, and to create a level playing field for all taxpayers whatever their source of income, and that is to introduce an investment income surcharge on investment income (for everyone but pensioners, I suggest) with investment earnings of, say, more than £5,000 a year being subject to that additional charge that is equivalent to national insurance. Yet again the object is to create a level playing field, and when there is a level playing field the opportunity to tax avoidance is greatly reduced.

Transparency is key – and here’s how to deliver it

Tax avoidance, Uncategorized 2 Responses »

Apr 112012

Transparency

Sarah Montague argued from an unanticipated angle in the debate that she chaired between me and Ian Liddell-Grainger, Conservative MP and Chair of the All Party Group on Tax on BBC Radio 4′s Today programme this morning. Her point was that transparency might solve a great many of the problems that arise with regard to tax avoidance, and she is undoubtedly right. The moral pressure that results from having your tax affairs put into the public domain, or even having your accounts put into the public domain, is an enormous influence upon behaviour.

I did, immediately, offer some words of caution though. For example, putting tax returns into the public domain does not stop tax avoidance. As I pointed out on the programme, one of the first objectives of anybody undertaking tax avoidance is to divest themselves of the apparent legal ownership of their income, whilst retaining the benefit of it. So they part with their income to companies and trusts or into offshore arrangements that will ensure that they can continue to fulfil their objectives whilst not putting their income on their own personal tax return, at least for the time being.

Secondly, as I also pointed out, given that we are not at present monitoring the existing demands for transparency, extending those demands to putting personal tax returns online may be a step too far right now, even if a current debate on how that could be done would be an undoubted indication of progress.

Instead I suggest that it is more important to set out now the steps we need to take to ensure that there is as much tax transparency as possible before we go near the contentious issue of putting personal tax returns online. The best reason for saying so is that there is a great deal to be done!

Multinational corporations and country by country reporting

The first and most obvious area where we lack any form of transparency at present is with the activities of multinational companies. We quite simply do not know what any multinational company does in each and every country in which it operates. So we do not know, for example, what level of sales in undertakes in any country, whether to third parties (i.e. genuine customers) or to other members of the same group that make up the multinational corporation.

Secondly, we do not know how many people multinational corporations employ in each country in which they operate, let alone what profit they make and (perhaps most importantly) how much tax they might owe, and as importantly, how much they do not owe. And this is not only true for countries like the UK, we also need this data for tax havens as well where it’s quite possible the vast majority of transactions will be undertaken on an intra-group basis with the intention of shifting profits out of the sight of organisations like H M Revenue & Customs so that no taxes due. This is why it is vital that we have country by country reporting, explained in more depth here.

Getting small company regulation right

Secondly, it is vital that we now properly regulate all limited liability entities in this country. As I have shown in my research vast numbers of limited companies that exist in the UK never file accounts. In addition, hundreds of thousands of companies simply disappear each year without ever having accounted for their trade either to the Registrar of Companies, to whom they have a duty to send accounts, or to HM Revenue & Customs. In addition, when they do file accounts with Companies House a significant number make use of the available option to not file their profit and loss account, the result being that we know almost nothing about the level of trade that they undertake. This in my opinion is an abuse of the principle of limited liability, because the privilege that represents is not being properly accounted for.

We’ve seen the consequence in the debate between Ken Livingstone and Boris Johnson in the run-up to the London mayoral election. If only Ken Livingstone had decided to be open and transparent about his affairs then he would have a much greater chance of being elected now than he has.

So, as a consequence there are three reforms necessary in this area. The first is to require the proper accounts be prepared and filed with regards to the use of limited liability companies – abbreviated accounts must go. The second is to ensure that the resources are allocated to demand that these accounts are always put on public record and that no company can be struck off without being held to account for the taxes that it owes. The third is that we need to make sure that the information gathering entitlements of HMRC are extended so that they can see through such companies to ensure that they can collect tax from the people who really owe it. Unless we do this then frankly any other discussion of tax transparency becomes fairly meaningless.

Putting trusts on record

The third process that we need to address with regard to tax transparency is making sure that other structures use of tax planning, such as trusts, are accounted for both to our tax authority and on public record. Trusts are complex arrangements used by relatively few people. They can, of course, have a completely legitimate purpose. My own will has a trust arrangement built into it so that if I were to die and my wife were to also die before the time that our children reach adulthood anything that I might wish to leave to them will be held in trust until they can be considered responsible for the management of the money in question. This is sensible and no one would wish to stop that but equally it is vital that such arrangements be known about, be accountable and be taxable in full and there is a real risk that given the current absolute absence of any record keeping with regard to these arrangements that substantial amounts of tax light be lost as a result. When we’re moving to a situation where discussion of having individual people’s tax returns online is taking place then we can now very clearly take the prior step of demanding that the tax returns of all artificial structures created under statute law be online before individuals are required to make a similar disclosure. As such a Register of Trusts, equivalent to the Register of Companies, is now an essential part of the regulation of tax in the UK if abuse is to be tackled.

Tackling offshore

But of course, none of this has much benefit if anyone can get round it by moving their affairs offshore, as some would undoubtedly do. We therefore have to promote standards of transparency not just in the UK but inside the European Union too and way beyond it in the world’s tax havens. Such standards are being created. For example, the European Union Savings Tax Directive would, if revised as currently proposed, shatter much of the secrecy that now surrounds the operation of companies, trusts, foundations and other abusive structures in places as far apart as Switzerland and the British Virgin Islands, as well as within the European Union itself.

There are, of course, obstacles to this progress and they are easy to name: the most obvious are the governments of Luxembourg and Austria who are standing up for tax criminals by outrageously blocking progress on this issue to ensure that those who wish to abuse democracy, the tax systems of their home states, and the rule of law can do so. This is criminal activity on the part of those governments, and they must be named and shamed for doing this. In the long-run EU may have to consider whether such criminal behaviour on the part of the government can be reconciled with membership of the European Union.

Real reform – on the laws of beneficial ownership

Then what? Well actually, the next step is to reform company law. All the recommendations so far basically simply put on record what already exists. But what exists is not good enough. So, for example, as I showed in a recent Tax Justice Network podcast, it is incredibly easy to form a company in the UK which is virtually anonymous. It is a straightforward matter to buy a compay, to record its address at a nominee’s office, to use the services of nominees as both director and company secretary, to have nominee shareholders own the company, and to have that company open a bank account outside the UK which can be used to record transactions which would then be entirely hidden from view within our tax system. All of this can be set up for less than £1,000. If that is the case then demanding transparency is pointless; a crooks charter already exists in the UK because we do not demand that the real owners of a company be identified on public record or that the real people who actually control the affairs of the company be identified at Companies House, and that the identity of the bankers to each and every company be recorded on public record so that the transactions that it undertakes can be identified and traced if necessary. All these issues have to be addressed if we believe in an agenda of transparency that ensures the tax abuse cannot arise.

Accounting for charities

And finally, and within the current discussion, the regulation of charities has to improve just as much as the regulation of companies has to improve because the Charity Commission is, just like the Registrar of Companies, massively under resourced at present so that they can hardly process the paperwork they get, let alone review its usefulness or accuracy, or chase missing documents, of which there are far too many within the UK charity system. As a result this sector can at present be used by the unscrupulous and the acts of those who are unscrupulous can be swept under the carpet by anyone without fear of being found out. That is ludicrous and yet is commonplace and shows a fundamental lack of faith in our political system in the power of regulation to deliver social benefit.

My point is simple: we may well want to move to a position where individual tax returns are on public record, as is already the case in some countries, such as some of those in Scandinavia. However, before doing so we have a lot of work to do on the structures most commonly used for tax abuse, and that’s where the transparency agenda must begin.

Now who is going to pick up and run with it?