What’s chiselling away at poor countries’ tax revenues (and the UK’s too)?

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Award winning Private Eye journalist and former tax inspector Richard Brooks (who is behind the Vodafone tax story, and very much more that is well worthwhile) is co-author of the ActionAd report on SAB MIller I mentioned yesterday. It’s that fact that gives me confidence in the report. And today he’s writing in the Guardian, saying (in part):

So what explains such chiselling at the expense of the poorest? Schemes like this are used by many multinational businesses. Activities and assets to which profits can be allocated, often extremely tenuously, are stripped out of all "normal" tax rate countries and moved to tax havens, including Switzerland and the Netherlands, that cynically adapt their laws for this purpose. Not even the poorest countries are spared.

The rules of the international tax game are set by the developed economies' club, the Organisation for Economic Co-operation and Development, and are forced on developing countries through "double taxation agreements" they must sign if they are to have any hope of attracting foreign investment. These treaties largely transfer the rights to tax the royalties and fees from the country where they are paid to the one where they're received even when, as with Switzerland and the Netherlands, that country has no interest in taxing them. Ghana recently signed one such agreement with Switzerland as a very expensive price for Swiss agreement to divulge details of money stashed by wealthy Ghanaians in Swiss bank accounts.

More alarmingly still, in London heavy corporate lobbying has forced imminent changes to arcane "controlled foreign companies" laws that enable Revenue to tax profits diverted by British companies into tax haven subsidiaries. The changes would give UK multinationals carte blanche to siphon profits from developing countries into the world's tax avoidance hotspots.

It has long been understood that sustainable development can only happen when national economies are strong. Fair tax is at the heart of this equation. It requires multinational companies to turn away from tax schemes and tax havens, treating their tax obligations as part of the "corporate social responsibility" that they are so keen to advertise. Governments, meanwhile, must write new rules of the international tax game — to be played without dice loaded against the world's poor.

He’s right.

And yesterday George Osborne did three things to make things worse.

First he confirmed a low tax rate on patents to encourage profit to be artificially relocated to the UK.

Second, he’s going to relax the controlled foreign company rules which will make it much easier for multinational corporations to hide profits in tax havens.

Third, he’s going to provide a new election for foreign branch operations in the UK which looks awfully like the US “tick the box” regime which has facilitated massive tax abuse.

George Osborne is doing all he can to undermine our tax revenues and those of developing countries at the same time as a result.

Words fail me (well, at least ones repeatable here do).

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