Why tax evasion matters so much

 Economics, Tax evasion, Tax Havens, Tax justice, Uncategorized  35 Responses »
Nov 252011
 

The research the Tax Justice Network has published this morning on tax evasion is, I think, shocking.

The full report is here. I’ve posted a summary table of tax evasion for 145 countries, here.

The real question is why does this matter? What’s the problem with the UK losing £69.9bn a year to tax evaders? What’s the problem with Italy losing €183bn a year as a result of its 27% shadow economy – a shadow economy of the same size as that in Greece and more than twice the size of that in the UK?

The answer is that it matters for three reasons. The first is that we wouldn’t have a world economic crisis now if we hadn’t had tax evasion. The current crisis focuses on the Euro. Italy is at its epicentre. It has external debt of €1.9 trillion. If only it had suffered the UK’s rate of evasion in the last decade then its deficit would be less than half that sum now. The same would also be true for Greece, and only slight less so for Spain. In other words, if tax evasion in these countries had been taken seriously and been tackled in these countries we would not have a Euro crisis today. That’s how important tax evasion is.

Something similar could be said for the UK. The USA has an evasion rate about two thirds that of the UK. If we had reduced our tax evasion rate to US levels in the last decade we might owe £200 billion less in debt now. Alternatively, cuts of more than £20 billion a year could be avoided in the UK economy now with our debt still being tackled at the current rate. That could prevent most of the current stress in the NHS; sixth formers would still have maintenance allowances and we might not be facing a national strike next week. That’s how important tax evasion is. We wouldn’t need cuts if we tackled it.

Perhaps as important as either of those is, however, the long term impact of tax evasion. When tax evasion is widespread, and that’s obviously true in Greece and Italy but it’s also becoming the case in the UK too, then honesty goes out of the window. No one knows who to trust. No one can succeed running an honest business. Corruption becomes endemic. And with that all prospects for investment in growth, wealth creation, public goods, our future, the elderly, the young and the disadvantaged disappear too. In other words, tax evasion creates poverty.

That’s why tax evasion matters.

 Posted by Richard Murphy at 7:06 am

The Red Book

 Labour, Tax justice  2 Responses »
Nov 242011
 

Might I recommend The Red Book?

It’s published by Labour Left and is a free download, here.


And yes, I disclose an interest. I wrote the chapter on tax.

 Posted by Richard Murphy at 7:57 am

The Courageous State and Amazon

 Courageous State, Ethics, Tax Havens, Tax justice, Uncategorized  33 Responses »
Nov 162011
 

The pedants are already out in force seeking to attack The Courageous State. One of the unexpected challenges relates to the fact that the book is on sale on Amazon. The Kindle edition is on sale now at £7.15 and the book will be there in the next few days, just as soon as they have physical supplies.

Why the challenge? As one commentator said on the blog this morning:

I’m a supporter of what you’re trying to do but this time your two-faced hypocritical attitude stinks. Not only do Amazon use tax havens but they also use LVCR through the Channel Islands thus making thousands of people poorer. If by selling your book through Amazon is not supporting companies using tax havens, I don’t know what is. Shame on you! Now post this if you dare?

Another on Twitter reads:

Inspired by your pragmatism, I shall keep using BVI and IOM subsidiaries whilst praying for someone to shut them down

Well, to the first commentator, if you think I wouldn’t dare post that you underestimate my courage, by a very long way.

Second, and more importantly, I really do think those making such comments really do show a profound misunderstanding of what I say, and what I propose.

The simple fact is I could, I suppose, become a monk and live wholly self sufficiently in some remote place to try to avoid all the harm tax havens cause. And no one would notice. And nor would it help. I would not change a thing.

I do seek to change things. Indeed, I can fairly claim I have. Many in the Crown Dependencies will more than readily testify to the impact I have had on them and their economies. The latest such impact is active involvement in and support for the campaign to end Channel Islands’ VAT abuse – which is another campaign now successfully concluding.

These changes, and many others would not be possible without using a computer – supplied I know via offshore entities, using software supplied in the same way, powered by electricity supplied by companies who use offshore, and on, and on and on in all aspects of my life.

I could sweat about this stuff and devote all my effort to trying to avoid companies relating to offshore but as Action Aid have shown, using my methodology, in the modern economy that is going to be very hard indeed.

So I have to make another choice. I sek to be tax compliant. 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. Selling books and Kindle editions through Amazon is tax compliant on my part. My refusal to sell through these media would reduce the chance of my message being heard. And it would make no difference to Amazon at all. If I thought it would I’d do things differently, but I know it won’t – and meaningless gestures don’t get us far.  So given I’m compliant, I move on and instead devote my effort to changing the system, not the minutiae within it.

And that is fundamentally different from the hopelessly hypocritical position of the Twitter commentator (who is hiding behind a pseudonym , of course). He is consciously choosing to be non tax compliant. I’m not. I’m being completely tax compliant – and am at the same time making it harder for companies like Amazon to abuse.

In the messt real world in which we all live that’s the best I can do. You can call me a hypocrite if you like. But since I never claimed to be a saint I’m really not sure how that helps you. But systemically opposing tax abuse by major corporations will change things.

No doubt those raising the question would like me to spend my time worrying about the small stuff. Well, bad luck: we’ll continue changing the system. That’s much more important, and we’re good at it.

 Posted by Richard Murphy at 9:46 am

Cameron’s opponents aren’t just anti-EU, most are also pro-flat tax – and that’s all about making the rich richer

 Conservatives, Europe, Flat tax, Tax justice, Uncategorized  19 Responses »
Oct 252011
 

Cameron faced his backbenchers yesterday on the EU, and lost.

But the EU was not the whole reason for this. Polly Toynbee had what was, without doubt, the best line on this issue:

But the “in or out” debate was never just a dry calculation of national interest. The two sides stand for profoundly different visions of the good society. A few Labour mavericks straddle the divide, but most anti-Europeans are from the far right for good reason. To them EU red tape, health and safety, human rights and labour regulations throttle British business.

Their vision is of a Britain thriving by undercutting basic protection of the workforce – working hours, maternity rights, holidays, sickness, security at work, equal treatment of agency workers. Read the sceptics’ outpourings to see their vision of our island as a low-tax, maybe flat-tax haven for the super-rich, free to treat employees as “flexibly” as they like. This is a fine distraction from the real cause of our worsening economic crisis – this government’s extreme austerity choking demand.

She’s right. Those voting against Cameron weren’t just anti-EU. They’re anti society as we know it in the UK and want to throw it all over in favour of radical transformation that will hasten the flow of funds from the poor to the rich; something flat taxes are designed to do.

If in doubt look to their inspiration across the pond: Rick Perry is proposing a flat tax. There is only one explanation – and that is that these taxes push governments to the very margins of existence – which is exactly what their proponents want. If in doubt look at the detailed analysis of the proposal by my friends Citizens for Tax Justice in the USA. They say Perry’s plan would give:

- Enormous tax cuts for the richest five percent of taxpayers and of $209,562 for the richest one percent in 2010.

- Tax hikes for all other income groups. The bottom 95 percent of taxpayers would pay an average of $2,887 more in federal taxes in 2010.

That’s what the Tories oppising Cameron really want.

There’s going to be a role for those in favour of tax justice for a long time to come.

 Posted by Richard Murphy at 9:28 am

A Manifesto for Tax Justice

 Tax justice  7 Responses »
Oct 242011
 

I wrote the following late last year. Little has changed. I offer it again to those wondering what we must do to bring capitalism back under democratic control as part of the widespread demand that we create social justice in our country and throughout the world.

The pdf version of this document is here.

Overview

The UK is facing the largest round of cuts in government spending ever proposed by a Whitehall administration. At the same time the UK faces:

  1. The biggest ever tax gap in its history[i].
  2. The lowest number of staff ever employed by HM Revenue & Customs[ii].
  3. The lowest headline and effective rates of corporation tax in its history[iii].
  4. Low levels of tax for its banks[iv].
  5. High levels of corporate tax avoidance[v].
  6. Significant errors in tax administration[vi].

There are numerous indications that large sections of the UK population find it unacceptable and want action to be taken to address these issues.

This Briefing sets out a manifesto the tax justice – a demand for changes that would transform the way in British taxation policy and management could be transformed.

Cuts and the Tax Gap

We note

  1. The cuts planned by the ConDem government[vii].
  2. That there is a tax gap in the UK made up of £70 billion of tax evasion, £25 billion of tax avoidance and £25 billion of unpaid tax[viii].
  3. That the government has got rid of 30,000 employees at H M Revenue & Customs and is planning to get rid of 13,000 more over the next four years[ix].
  4. The massive errors in the calculation of people’s tax bills by H M Revenue & Customs[x].

We demand:

  • That the government stop the cuts.
  • That all job cuts at H M Revenue & Customs be cancelled.
  • That 20,000 new staff be recruited at H M Revenue & Customs to tackle the tax gap.
  • That H M Revenue & Customs be told to raise the right amount of tax at the right time from the right person and that it be given the resources necessary to ensure it can do so.
  • That we have a General Anti-avoidance Provision that bans tax avoidance[xi].
  • The tax system is made progressive so that the rich always pay more than the poor[xii].

Business tax and the banks

We note

  1. That big business is not paying the tax expected of it[xiii].
  2. That big business is the only part of the economy expecting a tax cut over the next four years[xiv].
  3. That by 2014 big business will be paying tax at lower rates than any small business and any individual in the UK[xv].
  4. That the banks who created the current financial crisis are paying very little tax as a result of it[xvi].
  5. The new bank levy will raise less than the one off Bankers’ Bonus Tax[xvii].
  6. That the government is opposing a Robin Hood Tax on the riskiest transactions banks undertake that could raise billions of pounds a year[xviii].

We demand:

  • That tax laws applicable to big business be rigorously imposed.
  • That planned tax cuts for big business be cancelled.
  • That banks be denied tax relief on losses already funded by the state.
  • That the bankers’ bonus tax be made permanent.
  • That the government introduce a Robin Hood Tax instead of the bank levy.
  • That country-by-country reporting be required of big business so anyone can monitor where they make their profits and pay their taxes[xix].

Tax havens

We note:

  1. That the UK is responsible for ten tax havens[xx].
  2. The UK is itself a tax haven for rich foreigners because of its domicile rule[xxi].
  3. There has been almost no progress in increasing transparency in tax havens[xxii].
  4. Latest deals with tax havens like Switzerland confirm their right to provide banking secrecy[xxiii].
  5. Tax havens are estimated to cost the UK £18.5 billion a year[xxiv].

We demand:

  • That the UK force its tax havens to reform
  • That the UK domicile rule be abolished
  • That automatic exchange of information between states on income earned by people and companies be established so that no one can hide their income from tax authorities
  • That deals that preserve banking secrecy with Switzerland and other states be scrapped before they are signed
  • That the secrecy surrounding offshore companies and trusts be banned.

Endnotes

 

 Posted by Richard Murphy at 7:56 am

Where do the funds in Jersey come from?

 Jersey, Secrecy jurisdictions, Tax avoidance, Tax Havens, Tax justice  1 Response »
Oct 132011
 

Jersey’s defence to the Action Aid report on tax haven subsidiaries, broadcast on local radio and in the media is threefold.

First, Jersey law has not been broken, so what’s the problem (the same could have been said of those practicing apartheid in South Africa at one time by the way, but let’s not go further).

Second, using Jersey only implies tax avoidance, not evasion. But then, as Denis Healey said, the difference between avoidance and evasion is the thickness of a prison wall and to claim that using an ISA in the UK is the same as routing funds through complex structures in Jersey are the same thing is disingenuous in the extreme.

Thirdly, the world benefits from Jersey, and most especially the UK benefits from all the investment into the UK that comes from Jersey.

The first two are obvious guff (to put it nicely) so let’s look at the third. This argument comes from a US academic called Prof Jim Hines, oft associated with my friends at the Oxford Centre for the non taxation of Business Taxation. What Jim Hines found when undertaking a study was that countries next to tax havens have high rates of inward foreign direct investment and so, he concluded, benefitted from the existence of the neighbouring tax haven. Jersey is using this argument to say that the UK beenfits from its existence.

The trouble with Jim Hines work was that he never asked how the money got into the tax haven in the first place because (and this bit is not rocket science) the cash flowing out of Jersey was obviously not generated in Jersey, it flowed in there in the first place. And where did it flow from (the question Hines did not ask)? Well almost certainly from their nearest neighbouring large economy, of course. Where else?

So where does all the money flowing into the UK from Jersey come from? Why, the UK, most likely. And why does it go through Jersey on its way from the UK to the UK? To avoid tax, of course (re which, see above). In which case it costs us, and does not benefit us.

So would Jersey now like to stop making such fatuous claims? Because they’re really not worthy of any government or quasi-government spokesperson who wishes to be taken seriously.

 Posted by Richard Murphy at 3:57 pm

Why corporate abuse of tax havens matters

 Secrecy jurisdictions, Tax avoidance, Tax Havens, Tax justice, Uncategorized  14 Responses »
Oct 122011
 

The almost inevitable response to Action Aid’s report on tax haven abuse by major corporations has already arrived on this blog. It says (and I have tidied the grammar a little):

The whole tax haven thing is nonsense, Where do companies like Vodafone get the money to pay taxes? From their customers, so by asking for corporations to pay more taxes you are implicitly saying you want the cost of things you goods/services they provide to go up in price.

Such claims are simply wrong. This may be how the world work’s on the neoliberal economists blackboard. It;’s not how the world really is.

Let me for a moment unpack some of the assumptions inherent in this claim:

1) A company only generates cash inflows from customers;

2) The company has no choice about paying tax;

3) The company can always pass any tax charge it has to pay on to customers;

4) The company is a neutral party in all this: a rational, automaton, independent agent;

5) No one else but customers can pick up the tax charge placed on a company and it follows that customers get the benefit of law taxes.

None of these things is true.

First, companies are massive recipients of tax benefits. They get trained staff, for free. Their staff get healthcare provided for free, meaning they turn up in the morning. When staff can’t work they’re cared for by the state, for free. Much of staff’s pension is paid for by the state, not by an employer. The company enjoys the infrastructure of the satte, for free (or very little). Even the company structure itslef and the right for it to claim property is provided by the state, for next to nothing. So it’s not true that cash into companies comes only from cutsomers. Massive subsidies come from the state to all business.

Despite this a company has a massive choice about where and how to pay or not pay tax, which is what Action Aid were highlighting. It can relocate profits almost at will, and as the report from the US I have referred to this morning shows, that is exactly what they do. And they take these choices to benefit a particular group in society – and that’s the well off and not customers.

Third, there’s no evidence at all that companies can necessarily pass on all tax they pay to customers. If they can then it is very obvious that competition is not working - because if it were that would not be true. So free-marketeers can’t have it both ways. Either competition prevents generic passing on (generic VAT rises perhaps apart) of the fact that tax is passed on proves that monop[oly power is in operation and a bigger issue arises of tackling it.

Fourth, companies are biased in this. I again refer to the report from Carl Levin in the US. If tax haven use clearly benefits a few at cost to the many companies choose to do that. Never ever believe any claim that companies are neutral agents: they are not. They exist to redistribute income to their management first and members second unless competition prevents it. The evidence is clearly that the competitive pressure is not there – but in that case that is the issue that needs to be addressed.

And finally, if real markets existed then shareholders would pay the cost of extra tax just as right now the benefit of that abuse does not flow to customers but goes instead to shareholders. And if the beenfits flow to shareholders then we need to ensure that the costs do too. But tax havens prevent that. And that’s why they matter. Because they increase poverty. Ands that’s not by chance. That’s by choice. And it is a choice that has to be prevented.

 Posted by Richard Murphy at 10:01 am

Would you please sign Carline Lucas’ e-petition calling for Tax Justice?

 Tax justice  11 Responses »
Oct 122011
 

Might I ask a favour and ask that you sign Caroline Lucas MP’s e-petition for tax justice?

The petition reads as follows:

We applaud campaigns by trade unions, church groups, and civil society demanding tax justice and join them in calling on the Government to take action to identify those avoiding and evading tax. Firstly, the Chancellor should force all multinational companies filing accounts in the UK to reveal their use of tax havens and publish what profits they earn and what tax they pay in each country in which they operate, without exception. Secondly, banks should be required by law to give details of all accounts they maintain for companies operating in the UK so HMRC and Companies House can chase any companies who pretend to be dormant to evade tax. These two simple changes could help recover billions of pounds of lost tax for the UK by revealing those hiding their income from view.

You can sign here.

Thank you.

 Posted by Richard Murphy at 9:13 am

The FTSE 100 and tax havens

 Secrecy jurisdictions, Tax Havens, Tax justice  18 Responses »
Oct 112011
 

Action Aid has published a report today on the use of tax havens by FTSE 100 companies that builds on work originally done here. In its summary of its findings it says:

The full extent to which FTSE 100 companies use tax havens has, for the first time, been compiled, analysed and published in an accessible and searchable format by ActionAid.

Of the 100 biggest groups listed on the London Stock Exchange, 98 use tax havens. ActionAid’s research shows just how embedded the use of tax havens is in the structures of nearly all Britain’s biggest companies.The findings are of particular concern because many FTSE 100 groups are set to benefit from plans currently under consideration by the Treasury to give multinational companies using tax havens an £840 million tax break, by relaxing the very rules designed to prevent tax-haven abuse.

An expanded tax revenue base in developing countries is the only sustainable source of funding for governments to invest in reducing poverty and inequality. It means that they don’t need to depend on aid and can achieve self-reliance. Yet, the OECD estimates that developing countries lose almost three times more to tax havens than all the aid they receive each year. Spent effectively, this sum would easily be sufficient to achieve the Millennium Development Goals.

Corporate tax avoidance, one of the main reasons companies use tax havens, has a massive impact on developing and developed countries alike. The lack of transparency makes it difficult for developing country tax authorities to identify and collect taxes owed by global companies operating in their countries. With this in mind, ActionAid’s research raises serious questions about many of Britain’s best known businesses. How has the use of tax havens reached such epidemic levels? What is the impact on the UK exchequer, the stability of the international financial system and the ability of developing countries to raise tax revenues to invest in reducing poverty?

ActionAid found that:

- The FTSE 100 largest groups registered on the London Stock Exchange comprise 34,216 subsidiary companies, joint ventures and associates. _

- 38% (8,492) of their overseas companies are located in tax havens.

- 98 groups declared tax haven companies, with only two groups, Fresnillo and Hargreaves Landsdown, who did not._

- The banking sector makes heaviest use of tax havens, with a total of 1,649 tax haven companies between the ‘big four’ banks. They are by far the biggest users of the Cayman Islands, where Barclays alone has 174 companies.

- The biggest tax haven user overall is the advertising company WPP, which has 611 tax haven companies.

- The FTSE 100 companies make much more use of tax havens than their American equivalents.

- There are over 600 FTSE 100 subsidiary companies in Jersey (more than in the whole of China), 400 in the Cayman Islands and 300 in Luxembourg – all tiny tax havens.

We believe that the FTSE 100 have big questions to answer about why they require such a massive number of companies registered in tax havens. While this piece of research in itself does not prove tax avoidance, it highlights the extent of these multinational groups’ operations in places that provide tax advantages and help obscure information.

In recent times, politicians around the world and across the political spectrum have talked tough on cracking down on the use of tax havens to avoid taxes. With both developing and developed countries continuing to suffer the effects of the global financial crisis, decisive action to tackle tax havens from both the UK government and G20 leaders is well overdue.

 Posted by Richard Murphy at 6:43 am
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