{"id":20865,"date":"2013-05-20T07:46:38","date_gmt":"2013-05-20T06:46:38","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=20865"},"modified":"2013-05-20T07:53:35","modified_gmt":"2013-05-20T06:53:35","slug":"labours-new-tax-policy-welcome-moves-in-many-right-directions-but-country-by-country-reporting-has-to-be-there","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2013\/05\/20\/labours-new-tax-policy-welcome-moves-in-many-right-directions-but-country-by-country-reporting-has-to-be-there\/","title":{"rendered":"Labour’s new tax policy: welcome moves in many right directions but country-by-country reporting has to be there"},"content":{"rendered":"

Labour has now published its new\u00a0corporation\u00a0tax policy<\/a>, in four parts, each of which I consider in \u00a0turn:<\/p>\n

1. HMRC<\/strong><\/p>\n

Both the administration and enforcement of the tax rules have been\u00a0impacted by cuts to HMRC resources, with the Chancellor pushing\u00a0through over \u00a32 billion of deep cuts. The Government plans to cut a\u00a0further 10,000 HMRC staff, which risk being a false economy, as there\u00a0has to be a limit to HMRC\u2019s capacity to do more with less.\u00a0Despite all the rhetoric about tackling tax avoidance, the progress made\u00a0by this Government is limited at best. The deal struck with Switzerland is\u00a0less transparent than a similar deal struck with Liechtenstein by the last\u00a0government.<\/p>\n

The latest NAO report has shown what can be achieved when a\u00a0government is serious about tax avoidance and praises Labour\u2019s\u00a0disclosure laws for closing down avoidance opportunities and bringing in\u00a0\u00a312bn of extra tax since they were introduced. But HMRC needs to be given sufficient resources to do its job effectively.<\/p>\n

We will consider what powers HMRC might be given to strengthen the\u00a0corporate tax regime in the UK, within international frameworks, and\u00a0how Corporation Tax could be better administered and collected.<\/p><\/blockquote>\n

I unambiguously welcome this move. It is timely, right and necessary.<\/p>\n

2. General Anti-Abuse Rule<\/strong><\/p>\n

The current government has introduced a General Anti-Abuse Rule\u00a0(GAAR) targeted, by its own admission, to tackle only the most\u00a0egregiously abusive tax avoidance schemes.<\/p>\n

Although the Government sets great store by this measure, if it means\u00a0that fewer efforts are made to update targeted anti-avoidance measures,\u00a0or it if is a mere fig-leaf for the withdrawal of resources from HMRC, then\u00a0we will not see any reduction in aggressive and abusive schemes.<\/p>\n

We will look at how the GAAR can be strengthened to ensure there is\u00a0a reduction in aggressive, abusive schemes, as well as what additional\u00a0measures might be required.<\/p>\n

We will also consider how we can ensure that tax avoidance activities not\u00a0covered by the GAAR aren\u2019t, by implication, deemed acceptable.<\/p><\/blockquote>\n

Again, this is appropriate and welcome. I can support this move and the\u00a0commitment\u00a0to see how the\u00a0General Anti-Abuse Rule works before deciding next steps is fair. And if the last means a clearance system, it's better still.<\/p>\n

3. Transparency<\/strong><\/p>\n

We need an end to tax secrecy. At the moment it is too easy to set up complex\u00a0networks of companies within a group, some of which can be based in tax\u00a0havens, and move profits between them. This can make it very difficult to\u00a0assess the overall amount of tax paid. Multinational groups can and should be\u00a0able to structure however they wish, but there is no reason why they should\u00a0not have to produce a simple statement of the amount of corporation tax they\u00a0pay in the UK, in a way that all of us can understand, experts and non-experts\u00a0alike.<\/p>\n

To make that happen the government should put concrete proposals on the\u00a0table for the G8 to deliver internationally agreed action on tax transparency.<\/p>\n

There are a number of immediate areas where we should be showing\u00a0leadership:<\/p>\n

i. Pursuing a new system of disclosure for multinational companies, that\u00a0will require information to be published that will be of and practical benefit\u00a0to the revenue authorities in developing countries where they operate.\u00a0An approach based on Intelligent Transparency will deliver real benefits\u00a0without imposing a heavy administrative burden on companies or creating\u00a0masses of data that developing country revenue authorities simply cannot\u00a0use;<\/p>\n

ii. Extending the Disclosure of Tax Avoidance Schemes regime, which Labour\u00a0introduced, to global transactions;<\/p>\n

iii. Opening up tax havens, with requirements to pass on information about\u00a0the individuals operating through networks of company or trust structures;<\/p>\n

iv. Assessing the impact of changes to the Controlled Foreign Company rules\u00a0on the UK and developing countries.<\/p>\n

If multilateral agreement takes too long to be achieved, we need to examine\u00a0how the necessary transparency of revenues, profits, and taxes paid can\u00a0be delivered through UK government action, to provide leadership in the\u00a0international community.<\/p>\n

Companies will have a strong incentive to pay their fair share of tax when it\u2019s\u00a0clear to everyone where rules are unfairly being manipulated.<\/p>\n

So Labour will consider how best to publish a simple statement of the amount\u00a0of Corporation Tax paid by a company, or group of companies, in the UK. We will\u00a0also look at what other transparency measures might be necessary to assess\u00a0whether companies and individuals are paying the right amount of tax in the\u00a0UK, as well as how international transparency can help ensure a sustainable\u00a0tax base in the UK and the developing world.<\/p><\/blockquote>\n

I'll be candid: I'm disappointed here. The words that are missing are 'country-by-country reporting'. They reached the papers. Ed Miliband clearly said them. I ma baffled why they can't be\u00a0included\u00a0here. And what is proposed is not good enough:<\/p>\n

a) A statement of tax paid in the UK without statements on sales, costs, labour spend, profit and\u00a0investment. Accounting\u00a0information\u00a0is only valid in\u00a0comparison. This statement will be of very little value as a result.<\/p>\n

b) There's no point having a\u00a0statement\u00a0for the UK and\u00a0nowhere\u00a0else: we need everywhere (especially tax havens) to make sense of whether the tax paid here is fair, or not.<\/p>\n

c) We do, of course, need data for\u00a0developing\u00a0countries. But we need it here in the UK too.<\/p>\n

d) Country-by-country reporting is not an admin burden: every company has to have this data anyway. And any developing\u00a0country\u00a0tax administration that can read accounts could use\u00a0country-by-country reporting data. Saying they'd be over-burdened with data is just wrong as a result.<\/p>\n

e) I admit, I have never seen how extending DOTAS internationally could work. I can't see how HMRC could know if they got accurate data, or none at all and as such can see no way such a scheme could be enforced in which case I admit I can't see how it could ever be workable.<\/p>\n

f) Tax haven\u00a0transparency\u00a0is vital and I am pleased it is\u00a0explicitly\u00a0referred to: but let's be clear about the fact we also have to know this data in the UK and we're a long way from doing so right now.<\/p>\n

g) Assessing the impact of all tax policy on developing countries is, I\u00a0agree\u00a0essential.<\/p>\n

Now\u00a0maybe\u00a0I'm being too critical: the words used to brief the press have been stronger than this policy paper. In that case I would be pleased. And I note that this is exploratory: if Labour want me to advise, I'm happy to do so.<\/p>\n

4. Domestic reform<\/strong><\/p>\n

This isn\u2019t just about individual companies. We are going to have to reform the\u00a0current rules that allow companies to make profits in Britain but pay no tax.\u00a0That means reform of our Corporation Tax system. In the 21st Century value\u00a0is now often in brands, intellectual property, customer loyalty and ideas which\u00a0can be traded globally between different parts of a corporate group. The rules\u00a0need to be clearer, tighter and properly enforced.<\/p>\n

Labour will examine the international lessons to be learned on how we can\u00a0improve UK rules, particularly from countries where rules are more strictly\u00a0applied. We will also consider whether transfer pricing rules can be improved\u00a0and if there are better ways to assess the value of intangible assets being\u00a0moved within corporate groups.<\/p>\n

With the Coalition Government full of tough talk but still failing to act on tax\u00a0avoidance, either at home or abroad, One Nation Labour will deliver the tax\u00a0fairness and transparency required for a system that can support a recovery\u00a0made by the many, not just for a few at the top.<\/p><\/blockquote>\n

These commitments are good: the direction of travel is right. But there's no mention of moving on from arm's length pricing towards better ways of\u00a0allocating profits between states, and that is essential. Transfer pricing can't,\u00a0eventually\u00a0be improved: it's an intellectually flawed system.<\/p>\n

So, this paper is a welcome step forward, but the bullet point summary Labour obviously supplied to the\u00a0Observer\u00a0today was so much better. It said Labour\u00a0would<\/a>:<\/p>\n

\u00e2\u2013\u00a0 Pursue a new global system where multinationals must publish their revenues, profits and other key corporate information useful to revenue authorities in each country in which they operate.<\/p>\n

\u00e2\u2013\u00a0 Force multinationals to publish such information in the UK even if international agreement cannot be found on the issue, as they do in Denmark.<\/p>\n

\u00e2\u2013\u00a0 Make it a legal requirement for multinationals operating in the UK to disclose details of any tax avoidance schemes they are using globally.<\/p>\n

\u00e2\u2013\u00a0 Seek reforms to \u201ctransfer pricing\u201d rules to stop companies from shuffling money to other parts of their firm based in tax havens in return for spurious services.<\/p>\n

\u00e2\u2013\u00a0 Open up the ownership of companies sited in Britain\u2019s tax havens to the UK revenue authorities, but also seek to allow developing countries access to such information.<\/p>\n

That's the sort of language we really need.\u00a0I'll hang on to that list. And offer Labour help any time they want it on these issues.<\/p>\n","protected":false},"excerpt":{"rendered":"

Labour has now published its new\u00a0corporation\u00a0tax policy, in four parts, each of which I consider in \u00a0turn: 1. HMRC Both the administration and enforcement of
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