Stemming the Flood?: new TUC report on tax avoidance

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Tax avoidance measures announced by the Government since April 2008 have raised nearly £1 billion, but far more could be done with tougher measures and more staff at HM Revenue and Customs (HMRC), a TUC pamphlet says today .

The TUC Touchstone Extra pamphlet Stemming the Flood? - written by TUC tax advisor Richard Murphy - calculates that anti-avoidance measures announced in the 2008 Budget, 2008 Pre-Budget Report (PBR) and 2009 Budget have so far raised around £990 million in extra tax revenues.

The pamphlet also argues that G20 proposals to crack down on tax havens and the Code of Practice on the Taxation of Banks - a draft of which was published in June 2009 - may both lead to a more effective tax regime if properly implemented.

But there have also been disappointments and missed opportunities, most importantly the failure to tackle income shifting - where higher rate tax-payers shift their income to basic rate or non-tax payers, says the TUC. The Government has backed away from addressing this despite initiating a consultation exercise, the pamphlet says.

The TUC believes much more could be done to raise money through a fairer tax system that makes it harder for people to avoid or evade paying the proper amount of tax. A previous TUC report - The Missing Billions - calculated that the UK has a tax avoidance gap of £25 billion.

Stemming the Flood? sets out a series of proposals that the Chancellor could include in next week's PBR to close the tax avoidance gap, including:

  • a minimum rate of tax to be paid on the income of those earning more than £100,000 a year to ensure that they do not unduly benefit from tax reliefs and allowances;
  • abolishing the UK's domicile rule as a first step towards simplifying overly complex rules on personal tax residence;
  • introducing a new law called a 'general anti-avoidance principle' that treats all tax avoidance as unacceptable and therefore open to challenge;
  • tackling income shifting by reforming the way in which small companies are taxed to simplify current arrangements and prevent abuse; and,
  • stopping the current round of HMRC staff cuts.

TUC General Secretary Brendan Barber said: 'The Government has made a good start in cracking down on tax avoidance and HMRC has showed real determination in chasing the tax dodgers.

'But there is still huge potential to raise a significant amount of money from a fairer tax system that asks the super-rich to make a proper contribution.

'The best way to tackle the deficit is to get the economy growing again, but there will still be a need to take further action.

'Too many say the next Government will have to make big cuts in vital services or make ordinary people pay more tax. But there is an alternative and that is to ask those who did so well out of the boom to start paying a fairer share of tax.'

Other tax avoidance proposals in Stemming the Flood? include:

  • creating a new statutory basis for determining when a person is tax resident in the UK as is currently being considered by the Treasury;
  • reform of the rules on company residence so that the artificial relocation of a company's place of management and control in order to escape the UK tax net is harder to achieve;
  • tackling abuse arising from companies transferring the ownership of intellectual property into tax havens;
  • charging all capital gains on assets held for less than a year to income tax and increasing the rate of tax on remaining gains to reduce the incentive to shift income so that it is treated as if a gain;
  • demanding that all tax havens in the world enter into Tax Information Exchange Agreements with the UK;
  • promoting the use of new mechanisms for Automatic Information Exchange between all tax jurisdictions;
  • increasing co-operation on taxation and accounting internationally to ensure that companies are held to account for where and how they operate and are required to act as good corporate citizens, including in the payment of their dues to society as a whole and in each location in which they operate;
  • making the Bank Code of Conduct legally enforceable;
  • introducing a Code of Conduct for all taxpayers, tax advisers and the Government itself, with increased penalties for non-compliance; and,
  • applying the 'name and shame' provisions now being used to target tax evaders and large companies to the bankers, lawyers and accountants who might have assisted those so named.