As GSK is exposed, the government must clamp down on tax dodging

Panorama adds another company to the list of tax-dodgers

The BBC’s Panorama tonight will add to a long list of allegations of corporate tax dodging. Companies like GlaxoSmithKline, which Panorama claims has used complex offshore structures to avoid millions in UK tax, now join Barclays, Vodafone, Amazon, Apple, Boots, SABMiller and Topshop (amongst others), accused of aggressive tax avoidance.  In a time of austerity, public anger continues to grow against those companies believed to be operating under different rules to the rest of us. 

In an interview last year, GSK’s own chief executive Andrew Witty lamented that:

one of the reasons we've seen an erosion of trust, broadly, in big companies is they've allowed themselves to be seen as being detached from society and they will float in and out of societies according to what the tax regime is. I think that's completely wrong.

Recent polling by ActionAid supports this view (pdf): 79 per cent of UK citizens want to see tougher action from government against tax avoidance. This is an issue that unites voters from all parties; 74 per centof Conservative voters, 83 per cent of Labour voters and 87 per cent of Liberal Democrat voters want to see tax loopholes for big multinationals closed.

Rhetorically at least, the government has responded. George Osborne branded aggressive tax avoidance "morally repugnant" in this year’s Budget speech.  But at the very same time, tucked away in the technical detail of the Budget, are changes that would actually water down the UK’s anti-avoidance rules for multinationals, making it easier for them to avoid taxes. 

These "Controlled Foreign Company Rules" have protected the UK tax base for the last 25 years, making it less lucrative for companies to siphon profits into tax havens, as HMRC have simply topped up the company’s overall tax rate to match the standard UK rate.

While some have inevitably found loopholes in these rules, they’ve been an important tool to discourage profit shifting into tax havens. Not only have they helped protect the UK tax base – they’ve also protected developing countries from tax avoidance by UK companies.

The Government's new proposals in the Finance Bill, currently being scrutinised in parliament, will radically alter this. The Treasury's own figures show they’ll lose revenues of almost £1bn as a result.

Developing countries, meanwhile, could lose as much as £4bn a year – almost half the UK aid budget. The OECD estimates that developing countries currently lose three times more to tax havens than they receive in aid.  This means less money that can be invested in schools, hospitals and roads, keeping countries locked in the cycle of poverty. With the government staunchly (and rightly) defending its decision to spend 0.7 per cent of GNI on aid, it seems nonsensical to be making it harder for developing countries to reduce their dependency on aid by raising their own revenues.

One chink of light is an amendment to the Finance Bill tabled by the Liberal Democrats and supported by Labour, that the changes are not made without a proper impact assessment (recommended by the IMF and World Bank), and measures to mitigate the damage. Hopefully the Conservatives on the Bill Committee will join this emerging consensus.  

Another important remedy would be to open up tax haven operations to scrutiny.  Low headline tax rates – like those in Luxembourg that Panorama claims UK companies have exploited - are just one of the attractions of tax havens for tax dodging (over half of FTSE100 companies have a total of 336 subsidiaries registered in Luxembourg). The other is secrecy. As with impenetrable Swiss bank accounts, this veil of secrecy prevents effective scrutiny of deals done in tax havens. Indeed, ActionAid research has shown that 98 of the FTSE100 use tax havens, where they locate almost 40 per cent of all their overseas subsidiaries. 82 also have operations in the developing world.

If the government is serious about tacking tax avoidance, and serious about sustainably ending poverty, it needs to be putting its weight behind international efforts to break tax haven secrecy, making multinationals publish accounts of their tax haven subsidiaries. 

Right now, though, it should urgently rethink its plans to water down the UK’s anti-tax haven rules. It should be making it harder – not easier – for British multinationals to siphon their profits into tax havens, and make sure they pay their tax bills right around the world. 

Update: Response from GlaxoSmithKline

A spokesperson for GlaxoSmithKline responded to Panorama's investigation with the following statement:

GSK is very disappointed with this programme which was extremely misleading and lacking in context.  Specifically, the programme’s selective use of facts led to a misrepresentation of GSK’s actions and a failure to recognize GSK’s significant UK tax contribution.

GSK strongly refutes any allegation of wrongdoing. At all times the company proactively disclosed its tax transactions to the relevant authorities and both the UK and Luxembourg tax authorities are agreed that GSK paid all the taxes due.

GSK is a global company with 95% of its sales outside the UK however 20% of the company’s tax bill is in the UK. In total, over the period covered in the broadcast, GSK paid around £1billion in UK corporation and business taxes, plus an additional £1.3bn through income taxes of its UK employees.

The difference between UK and EU laws in this area has always created uncertainty for global organisations like GSK. GSK supports the new Controlled Foreign Company tax rules developed by the UK government related to the taxation of overseas earnings which will provide greater certainty despite the fact that they will increase the company’s UK tax bill.”

Treasure Island: Grand Cayman, which has no income tax or corporation tax. Photograph: Getty Images

Mike Lewis is a tax justice campaigner at ActionAid

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Building peace in a dangerous world needs resources, not just goodwill

Conflict resolution is only the first step.

Thursday 21 September is the UN-designated International Day of Peace. At noon on this day, which has been celebrated for the last 25 years, the UN general secretary will ring the Peace Bell on the UN headquarters in New York and people of good will around the world will take part in events to mark the occasion. At the same time, spending on every conceivable type of weaponry will continue at record levels.

The first couple of decades after the end of the Cold War saw a steady reduction in conflict, but lately that trend seems to have been reversed. There are currently around 40 active armed conflicts around the world with violence and suffering at record levels. According to the 2017 Global Peace Index worldwide military spending last year amounted to a staggering $1.7 trillion and a further trillion dollars worth of economic growth was lost as a result. This compares with around 10 billion dollars spent on long term peace building.

To mark World Peace Day, International Alert, a London-based non-government agency which specialises in peace building, is this week publishing Redressing the Balance, a report contrasting the trivial amounts spent on reconciliation and the avoidance of war with the enormous and ever growing global military expenditure.  Using data from the Institute for Economics and Peace, the report’s author, Phil Vernon, argues that money spent on avoiding and mitigating the consequences of conflict is not only morally right, but cost-effective – "every dollar invested in peace building reduces the cost of conflict".

According to Vernon, "the international community has a tendency to focus on peacemaking and peacekeeping at the expense of long term peace building."  There are currently 100,000 soldiers, police and other observers serving 16 UN operations on four continents. He says what’s needed instead of just peace keeping is a much greater sustained investment, involving individuals and agencies at all levels, to address the causes of violence and to give all parties a stake in the future. Above all, although funding and expertise can come from outside, constructing a durable peace will only work if there is local ownership of the process.

The picture is not wholly depressing. Even in the direst conflicts there are examples where the international community has help to fund and train local agencies with the result that local disputes can often be settled without escalating into full blown conflicts. In countries as diverse as East Timor, Sierra Leone, Rwanda and Nepal long term commitment by the international community working with local people has helped build durable institutions in the wake of vicious civil wars. Nearer to home, there has long been recognition that peace in Ireland can only be sustained by addressing long-standing grievances, building resilient institutions and ensuring that all communities have a stake in the outcome.

At a micro level, too, there is evidence that funding and training local agencies can contribute to longer term stability. In the eastern Congo, for example, various non-government organisations have worked with local leaders, men and women from different ethnic groups to settle disputes over land ownership which have helped fuel 40 years of mayhem. In the Central African Republic training and support to local Muslim and Christian leaders has helped reduce tensions. In north east Nigeria several agencies are helping to reintegrate the hundreds of traumatised girls and young women who have escaped the clutches of Boko Haram only to find themselves rejected by their communities.

Peace building, says Vernon, is the poor cousin of other approaches to conflict resolution. In future, he concludes, it must become a core component of future international interventions. "This means a major re-think by donor governments and multilateral organisations of how they measure success… with a greater focus placed on anticipation, prevention and the long term." Or, to quote the young Pakistani winner of the Nobel Peace Prize, Malala Yousufzai: "If you want to avoid war, then instead of sending guns, send books. Instead of tanks, send pens. Instead of soldiers, send teachers."

Redressing the Balance by Phil Vernon is published on September 21.   Chris Mullin is the chairman of International Alert.