{"id":14289,"date":"2012-02-27T10:00:44","date_gmt":"2012-02-27T10:00:44","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=14289"},"modified":"2012-02-27T10:06:51","modified_gmt":"2012-02-27T10:06:51","slug":"now-the-cbi-admits-tax-avoidance-can-be-abusive-even-though-its-legal","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/02\/27\/now-the-cbi-admits-tax-avoidance-can-be-abusive-even-though-its-legal\/","title":{"rendered":"Now the CBI admits tax avoidance can be abusive even though it’s legal"},"content":{"rendered":"

As the Guardian <\/a>and other papers have reported, the CBI has:<\/p>\n

for the first time admitted that \"black box\" tax schemes devised with the sole aim of avoiding tax are unjustifiable even if they are legal.<\/p><\/blockquote>\n

In other words, they agree that it's possible for legal tax avoidance to be abusive and as such be\u00a0outlawed. Count that as an endorsement of Graham Aaronson's tax <\/a>avoidance rule, timid and weak though it is<\/a>.<\/div>\n
<\/div>\n
That's the good news. But all it means is that the CBI have realised it is in their interests to endorse the lowest common\u00a0denominator\u00a0scheme\u00a0Aaronson\u00a0has\u00a0delivered\u00a0- that tackles only the 'most\u00a0egregious' of tax avoidance schemes and leaves all the routine abuse of\u00a0multinational corporations\u00a0untouched. I have explained <\/a>why this option is really window dressing and is\u00a0unlikely\u00a0to have any\u00a0serious\u00a0impact at all on tax avoidance - which is no doubt, I am afraid, what Lord\u00a0Hoffman, David Cameron, Nick Clegg, George\u00a0Osborne\u00a0and Danny\u00a0Alexander\u00a0wanted. No wonder the Rev Will Morris of the CBI is now willing to endorse it in that case; it permits all the\u00a0abuse\u00a0his members all to happily pursue.<\/div>\n
<\/div>\n
Now at this point I admit I get a little stuck as to their\u00a0justification. As the Guardian reports:<\/div>\n
\n
In a document called Tax and British Business \u2014 Making the Case, the CBI attempts to explain how businesses legitimately limit the amount of tax they pay without resorting to complex\u00a0tax avoidance\u00a0schemes. It uses international comparisons to argue that UK firms pay more than their counterparts in Germany, France and the US after tax breaks and reliefs are considered.<\/div>\n<\/blockquote>\n
The\u00a0difficulty\u00a0is I cannot find this document as yet anywhere on the CBI web site. So I can't analyse it. But according to the Guardian it says:<\/div>\n
\n

It uses international comparisons to argue that UK firms pay more than their counterparts in Germany, France and the US after tax breaks and reliefs are considered.<\/p><\/blockquote>\n

Lamely, John Cridland of the CBI apparently said:<\/p>\n

Cridland said most businesses enjoyed tax reliefs on research and development and capital purchases, which were encouraged by the government.<\/p>\n

\"Business should not engage in abusive tax arrangements. However, in running their normal day-to-day activities, as well as in commercial transactions large and small, businesses need to manage their tax affairs as a key part in operating their businesses,\" he said.<\/p><\/blockquote>\n

Well of course they get these allowances, but let's be clear: R & D allowances are very small and whilst capital allowances are of course much more significant they\u00a0do\u00a0not in any way explain most of the UK tax gap for large\u00a0corporates, an issue that the\u00a0Guardian\u00a0acknowledges I put on the agenda:<\/div>\n

The TUC's Tax Gap report<\/a>, by Richard Murphy, argued that businesses avoided at least \u00a312bn tax a year through sophisticated tax planning and offshoring of profits. Murphy said in the 2008 report that his calculations showed firms had an effective tax rate of 22.5%.<\/p><\/blockquote>\n

The Treasury web\u00a0site\u00a0acknowledges\u00a0this began\u00a0the whole debate on this issue of the tax gap. It's taken four years for that debate to reach the point where the CBI now admits that the mantra \"it's legal so it's acceptable\" cannot be true. That's quicker than glacial progress, but not much. However, having made this breakthrough we're now in a different place: once this point has been\u00a0conceded, and that is clearly\u00a0the\u00a0case, the game changes. Now we're into the arena in which I said this argument was always located - which is that of ethical judgement.<\/p>\n

No one, of course, denies that business should not claim allowances and\u00a0reliefs\u00a0clearly\u00a0intended for their use. To claim capital\u00a0allowances\u00a0and R & D\u00a0relief\u00a0is tax compliant in most cases (there can be doubts when leasing is involved in some cases).\u00a0Tax 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. \u00a0So let's leave that issue aside: we can argue\u00a0whether\u00a0there\u00a0should\u00a0be capital allowances but if there are no one is saying business should not claim them.<\/p>\n

Cridland, the CBI and its tax committee all know that is not the issue. The issues are:<\/p>\n

- \u00a0the use of tax havens;<\/p>\n

- \u00a0the hiding of intra-group\u00a0transactions;<\/p>\n

- \u00a0the ability this gives to hide\u00a0transfer mispricing;<\/p>\n

- \u00a0the movement of assets -\u00a0whether\u00a0intangible\u00a0or cash - off shore to abuse the tax\u00a0systems\u00a0of country like the UK;<\/p>\n

- \u00a0the use of special purpose vehicles to\u00a0hide\u00a0assets,\u00a0including\u00a0for tax;<\/p>\n

- \u00a0the sale of offshore services that are intended to\u00a0undermine\u00a0the tax systems of democratic\u00a0states\u00a0by\u00a0multinational corporations;<\/p>\n

and much more.<\/p>\n

So my suggestion to the CBI is that they stop ducking the issue. As I said in the Independent <\/a>today:<\/p>\n

The GAAR will only tackle the very periphery of abuse. It will leave the vast majority of tax avoidance by multinationals completely untouched.<\/p><\/blockquote>\n

I think it's time we took on the core of the\u00a0problem, not the periphery. So do the people of the UK. It's time the CBI\u00a0realised\u00a0that and\u00a0demanded\u00a0real change from its members.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

As the Guardian and other papers have reported, the CBI has: for the first time admitted that “black box” tax schemes devised with the sole
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