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

Photo: Getty
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The campaign to keep Britain in Europe must be based on hope, not fear

Together we can show the world a generous, outward-facing Britain we can all be proud of.

Today the Liberal Democrats launched our national campaign to keep Britain in Europe. With the polls showing the outcome of this referendum is on a knife-edge, our party is determined to play a decisive role in this once in a generation fight. This will not be an easy campaign. But it is one we will relish as the UK's most outward-looking and internationalist party. Together in Europe the UK has delivered peace, created the world’s largest free trade area and given the British people the opportunity to live, work and travel freely across the continent. Now is the time to build on these achievements, not throw them all away.

Already we are hearing fear-mongering from both sides in this heated debate. On the one hand, Ukip and the feuding Leave campaigns have shamelessly seized on the events in Cologne at New Year to claim that British women will be at risk if the UK stays in Europe. On the other, David Cameron claims that the refugees he derides as a "bunch of migrants" in Calais will all descend on the other side of the Channel the minute Britain leaves the EU. The British public deserve better than this. Rather than constant mud-slinging and politicising of the world's biggest humanitarian crisis since the Second World War, we need a frank and honest debate about what is really at stake. Most importantly this should be a positive campaign, one that is fought on hope and not on fear. As we have a seen in Scotland, a referendum won through scare tactics alone risks winning the battle but losing the war.

The voice of business and civil society, from scientists and the police to environmental charities, have a crucial role to play in explaining how being in the EU benefits the British economy and enhances people's everyday lives. All those who believe in Britain's EU membership must not be afraid to speak out and make the positive case why being in Europe makes us more prosperous, stable and secure. Because at its heart this debate is not just about facts and figures, it is about what kind of country we want to be.

The Leave campaigns cannot agree what they believe in. Some want the UK to be an offshore, deregulated tax haven, others advocate a protectionist, mean-hearted country that shuts it doors to the world. As with so many populist movements, from Putin to Trump, they are defined not by what they are for but what they are against. Their failure to come up with a credible vision for our country's future is not patriotic, it is irresponsible.

This leaves the field open to put forward a united vision of Britain's place in Europe and the world. Liberal Democrats are clear what we believe in: an open, inclusive and tolerant nation that stands tall in the world and doesn't hide from it. We are not uncritical of the EU's institutions. Indeed as Liberals, we fiercely believe that power must be devolved to the lowest possible level, empowering communities and individuals wherever possible to make decisions for themselves. But we recognise that staying in Europe is the best way to find the solutions to the problems that don't stop at borders, rather than leaving them to our children and grandchildren. We believe Britain must put itself at the heart of our continent's future and shape a more effective and more accountable Europe, focused on responding to major global challenges we face.

Together in Europe we can build a strong and prosperous future, from pioneering research into life-saving new medicines to tackling climate change and fighting international crime. Together we can provide hope for the desperate and spread the peace we now take for granted to the rest of the world. And together we can show the world a generous, outward-facing Britain we can all be proud of. So if you agree then join the Liberal Democrat campaign today, to remain in together, and to stand up for the type of Britain you think we should be.