{"id":15030,"date":"2012-04-15T10:40:11","date_gmt":"2012-04-15T09:40:11","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=15030"},"modified":"2012-04-16T12:42:02","modified_gmt":"2012-04-16T11:42:02","slug":"how-come-the-big-business-tax-gap-is-12-billion-a-year-when-they-and-hmrc-deny-it","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/04\/15\/how-come-the-big-business-tax-gap-is-12-billion-a-year-when-they-and-hmrc-deny-it\/","title":{"rendered":"How come the big business tax gap is \u00c2\u00a312 billion a year when they and HMRC deny it?"},"content":{"rendered":"

I've just referred<\/a> to this morning's\u00a0Observer\u00a0editorial<\/a>, which in\u00a0turn\u00a0references my 2008 report for the TUC, The Missing Billions<\/a>.<\/p>\n

It has for some time been sport amongst the big accounting firms, libertarian groups and certain parts of the Treasury to say I got that report wrong, claiming the gap I identified was just down to 'legitimate' tax avoidance. In itself \u00a0that is an odd claim. \u00a0By definition all tax avoidance is legal (which is, admittedly, not quite the same as legitimate). That legality does not, as George Osborne put it, prevent it being \u201cmorally repugnant\". He's got the point even if the big firms haven't.<\/p>\n

But the claim those groups have made is also wrong. What they suggest is\u00a0that \u00a0what I did was count such things as capital allowances on the purchase of equipment as being a tax avoidance activity. Well, in part, I might have done, but then \u00a0since \u00a0almost the whole of the structured finance activity in most large banks is based upon such abuse \u00a0that would be \u00a0a legitimate \u00a0thing to do. But that was only part of the \u00a0issue I identified. \u00a0My figure for tax avoidance by large multinational corporations operating in the UK was at \u00a312 billion some \u00a310.5 billion bigger than the estimate presented by HM Revenue & Customs<\/a>. That was because I started with the accounts of those multinational companies and worked down, whereas HMRC started with the tax returns submitted to them and sought to identify anything they might consider tax avoidance within those returns. \u00a0Those are, however, fundamentally different approaches to addressing this problem.<\/p>\n

HMRC's approach assumes that the tax returns that they receive from the largest companies in the UK correctly reflect the profits that they earn in this country \u00a0and then looks for any tax avoidance within \u00a0those declarations. My approach, which started with the global accounts of the companies in question, sought to establish \u00a0an estimate of the likely profit that those companies should have declared in this country if they had not engineered their affairs to ensure that large part of that profit was relocated to tax havens and other such places through what is, in itself, tax avoidance activity. \u00a0That tax avoidance activity in the structuring of these multinational corporations is completely ignored in HMRCs' approach but is, of course, by far the most important part of the tax avoidance activity of these companies.<\/p>\n

To give some indication of the differences that might arise \u00a0we just need to look at a report in the Mail \u00a0on Sunday<\/a>, published today, \u00a0which, although it does not acknowledge it, was based upon methodology that I have created, and about which I was interviewed during the course of the preparation of the article. The\u00a0article\u00a0in question, by\u00a0long\u00a0time tax hack Alex Hawkes, says the following<\/a>, \u00a0and because of its importance in the current debate I reproduce most of it in full, claiming a public interest defence for doing so:<\/p>\n

Internet giants avoided about \u00a3650\u00e2\u20ac\u2030million in UK corporation tax in 2010 by legally taking payments via offshore companies, according to analysis by Financial Mail.<\/em><\/p>\n

The research into the tax paid by Apple, Amazon, Google, eBay and Facebook will reignite the debate as to how much tax multinationals pay.<\/em><\/p>\n

In most cases British customers are buying goods or services from offshore divisions of the internet groups, not their British arms.<\/em><\/p>\n

\"What<\/em><\/div>\n

Figures from the companies\u2019 American filings suggest that the five made revenue of \u00a312.2billion in Britain in 2010 from British consumers and advertisers.<\/em><\/p>\n

On the basis of their global profit margins for the year, that would mean profits for the five from sales to British customers would have amounted to almost \u00a32.5billion. Corporation tax at 28 per cent would have seen them pay \u00a3685million.Instead, subsidiaries established by the five in Britain paid just over \u00a319million in 2010, or 0.8 per cent.<\/em><\/p>\n

Facebook, Google and Apple base their European operations in Ireland, where the corporation tax rate is half the UK\u2019s, while Amazon and eBay base theirs in Luxembourg.<\/em><\/div>\n

Facebook said it could not comment because it was in a closed period before its American listing.<\/em><\/p>\n

Google said it had an obligation to shareholders to \u2018set up a tax efficient structure\u2019. EBay said: \u2018We comply fully with all applicable tax authorities and regimes.\u2019 Amazon said: \u2018We have a single European headquarters in Luxembourg.\u2019<\/em><\/p>\n

Apple declined to comment.<\/em><\/p><\/blockquote>\n

In 2010 just five companies \u00a0paid just \u00a319.3 million in tax compared to a \u00a0reasonable estimate of \u00a3685 million \u00a0that might have been owing. \u00a0That means that the tax gap with regard to these companies, \u00a0on my basis of calculation, would be some \u00a3666 \u00a0million. \u00a0It is quite possible that on HMRCs' basis of calculation it would be zero.<\/p>\n

Now you can see how we came up with such different estimates.<\/p>\n

Now I think you can also see who is, very obviously, and very logically, right.<\/p>\n

I think it is time for that debate be considered over, \u00a0 but I have a strong suspicion that some small minds in the Treasury will cling to it \u00a0for some time yet.<\/p>\n","protected":false},"excerpt":{"rendered":"

I’ve just referred to this morning’s\u00a0Observer\u00a0editorial, which in\u00a0turn\u00a0references my 2008 report for the TUC, The Missing Billions. It has for some time been sport amongst
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