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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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.