Tax avoidance isn't a left or right issue, it's a cancer eating our democracy

Everything you need to know about tax.

I must confess, I am a tax-dodger. As I am a Tory, and you are a New Statesman reader, this may come as no surprise. My sin was grave - last night, on my way home from work I bought some biscuits on a two for one deal, thus avoiding several pennies of VAT. We all avoid tax to a certain extent; many people pay accountants to reduce their tax bills - indeed, anti-tax crusader Richard Murphy has written articles advising people on how to minimise their tax liability.

However, it's clear that, despite the frantic attempts of assorted people to claim otherwise, there is no moral equivalence between cutting your bill by a few hundred pounds and offshoring your entire income to cut your tax by 99 per cent while chortling about it into a cigar. One is prudence; the other smacks of outrageous dishonesty, no matter how "legal and completely above board" it may technically be. However, the debate is massively clouded by where you personally draw the line between the two. To paraphrase Justice Potter Stuart, hard-core tax avoidance is hard to define, but we know it when we see it.

Of course, once you start looking into this issue, you realise there is a titanic gulf between what you can avoid as an ordinary citizen and what you can avoid as a millionaire. Equally, millionaires look with envy at the truly astounding skyscrapers of tax evasion (sorry, "avoidance") carried out by multinational corporations and billionaires.

However, this truly shocking behavior has been partially obscured by a huge smokescreen of partisan rumour and innuendo that activism & counter-activism has built up around the issue. For example, Philip Green is widely held to be the biggest tax villain of all time, whereas, in fact, by the standards of the super-rich, he's actually very scrupulous indeed. That, and other surprising facts about personal and business taxation, are what I'm going to break down in an attempt to shed some light on the topic.

Billionaires and Us

In 2006 (when figures were last available) James Dyson contributed the bulk of the income tax paid by the 54 billionaires then resident in the UK. Out of £14.7m paid by all 54, he contributed £9m. That's a whopping 61 per cent of the total tax take from billionaires. Current figures are not available, but it is widely agreed in the tax accounting community that JK Rowling and James Dyson are the only UK billionaires who pay a tax rate even remotely proportional to their income. So, on average, your grandma pays tax at a rate roughly 250 times that of the richest people in Britain.

But presumably, the HMRC goes after all these billionaire tax-evaders, right?

No. Mostly because there is a difference between the theoretically legal "avoidance" and the illegal "evasion".

However, even high end evasion is hardly seen as a priority. Over the last few years HMRC spent £633,000 on publicity around tackling high-end tax evasion, compared to £17.5m on publicity around tackling benefit fraud. By that crude measure, HMRC considers tackling benefit fraud about 27 times more important than tackling high end evasion.

When HMRC does go after tax avoiders and evaders, it often attacks low earners with irregular incomes - see this Guardian article for a typical but absolutely shocking case.

Ah, but Willard, what about all our consumption taxes - surely VAT on high-spenders is also not ignored - that does affect non-doms. If you spend £1.1m on a sports car from a swish Park Lane garage you'll pay more VAT than I'll pay income tax in a decade, right?

No.

Very few sports cars, yachts & £1m-pound plus mansions pay a penny of VAT or stamp duty. Indeed, flyers at the motor show, the boat show and so on occasionally boast of this fact. The way the tax is avoided is the cars/houses/yachts are transferred as assets to a paper company, the company directors value them at zero pounds (usually by applying depreciation over 10 years straight away), then the company is sold, usually for a token amount.

Many choose to buy their sports cars in the Emirates and have them flown in, because it saves money. They then fly them out before they would be due to pay any importation duty. This adds up and becomes irrational over time, but for some people, tax avoidance has become a competition to see how little you can pay; some would rather spend more money than give a penny to the government.

Millionaires and us

By setting up a limited company and taking a dividend as a shareholder rather than earnings, high earners are often taxed at a lower rate than any other employee. Once you are earning over around £60,000, your tax rate can drop sharply if you so choose.  Once you hit an income of about £150,000, paying tax at a higher rate than corporation tax becomes essentially optional, as the accountant is always cheaper than the tax bill.

The idea behind this is to encourage entrepreneurial activity, by compensating you for the risk involved in running a small business - but in fact it's just turned into a huge tax dodge. For example, almost all hedge fund managers pay a 10 per cent tax rate on their income; it's estimated there are 15,000 earning more than a million a year, but they pay a lower tax rate than their cleaners. This is due to income from private equity and hedge funds being classed as "carried interest", a change brought in by Gordon Brown in 2002. This is why the 50p tax rate is a charade - for most people it isn't a factor, as they don't technically earn income.

How did this happen?

The UK’s tax code is now the longest and most complex in the world, according to Lexis Nexis. This makes avoidance incredibly easy. And the UK tax code has become tremendously more complex since 1999.

The complete Tolley’s Tax Guide – the handbook of tax legislation – is now 11,520 pages long, more than double the 4,998 pages filled by the 1997 edition.

Reading it out loud would take over 120 hours. Assuming eight hours per day, that’s over fifteen working days or three weeks. And that’s just to read it, of course, at top speed – not to understand it. That would take more than a lifetime, especially given that hundreds (if not thousands) of new pages are added every single year.

This illustrates the tax system’s absurdity. Nobody understands it, not even HMRC or any individual accountant. You would need a team of dozens of professionals to start to be able to navigate it properly in its entirety. Ordinary people and employers don’t stand a chance.

The section on corporation tax alone is now 1,897 pages, 185 per cent longer than it was in 1999-2000. The income tax chapter is 1,801 pages, 54 per cent longer; the capital gains tax guide is 1,463 pages long, 70 per cent longer; the inheritance tax guide is 958 pages long, 63 per cent longer. With every revision of the rules, high level avoidance has become easier.

But really, what does this mean to me? I mean, I might do it if I was minted.

It does affect you, because the more money that leeches out of the state in avoidance, the more you have to pay. Britain's most affluent determine where most of their earnings go, while we ordinary taxpayers often pour a much larger chunk of our cash into the communal pot. Nicholas Shaxon puts it brilliantly in his book, Treasure Islands:

Imagine you are in a supermarket and you see well-dressed individuals passing through a special checkout. There is also a large item added to your bill, extra expenses, which subsidises their purchases. Sorry, says the Supermarket manager, if we didn't charge you more they would shop elsewhere. Now, pay up.

Frankie Boyle put it more succinctly on Twitter this morning:

If you're rich, don't look at it as tax avoidance, look at it as a children's hospital buying you a pool table.

Corporate Tax Avoidance

Corporate Tax Avoidance in the UK is scandalous. Let's just take one example - bananas

In 2006, Dole, Chiquita and Del Monte sold £350m worth of bananas in the UK. That's a lot of bananas, I'm sure you'll agree. On that £350,000,000 of turnover, they paid less than £235,000 in tax.

Why?

First off, you only pay tax on profits. This means that it's possible to structure your company so, on paper, you are making almost nothing. This is incredibly widespread. For example, according to the National Audit Office, one third of Britain's 700 top businesses paid no tax at all in 2007 - and bear in mind that was at the end of a seven-year long boom. Indeed, many were net recievers of government money.

For example, how much tax do you think Debenhams paid in 2007?

It received around £9m of taxpayers' money, and paid zero pounds, zero pence.

It did this by having a complex chain of ownership, structured to take account of "liabilities" which its owners control. So, it can always make a loss, because the private equity firms that own it can juggle the interest rate on the loans which it bought the firm with. Other firms do it by having chains of ownership which stretch all around the world, but many of which end up in the British Channel Islands - a sleepy archipelago with 90,000 inhabitants but 800,000 registered firms.

There are estimated to be 400,000 corporations registered in Jersey alone, and around a trillion pounds worth of assets, all untaxed by the UK. Some Jersey lawyers "sit" on the boards of over 500 companies to grant them these exceptions. Plenty of perfectly ordinary buildings in St Helier are "home" to hundreds of businesses. For example, the New Raj Tandoori St Helier is home to around 800 UK businesses; next door is an office block which "houses" defence giant BAE systems and 1,108 other firms.

Oh, that's what all this UK Uncut stuff if about, isn't it? Philip Green, Topshop and all that.

Actually, no. Topshop pays 140 times as much tax as Google, despite being a smaller and less profitable business.

Arcadia, Green's retail business, is one of the most highly taxed and responsible companies in the UK. It's paid £290m pounds in corporation tax since 2006, paying at full rate - it is scheduled to pay £80m this year.

Green's personal tax affairs (where he took a £1.5bn dividend and paid no tax due to his wife's residence in Monaco) are of course open to criticism, but he is on the record as saying he made a conscious choice to pay business tax, but not personal taxes. In fact, the UK's biggest tax avoider is internet search giant Google. The UK represents 28 per cent of Google's earnings and is Google's second biggest market after the US. However, in 2009, it paid only £600,000 in tax, on £1.25bn of UK income; an effective tax rate of 3.2 per cent.

Google's European arm has a huge base in London - it has thousands of UK employees and uses local services and infrastructure. However, it pays its tax through a convoluted chain of foreign dependencies known in the trade as "the double Irish", where profits are siphoned between Ireland and Holland to get this low rate. The reality is, the more tax that companies like Google avoid, the more the tax burden falls on the rest of the public.

But HMRC cracks down on this, right?

No. In fact, last year, HMRC spent the bulk of its investigation budget investigating 20,000 small firms, none of which had a turnover of over £2m, to make sure they had at least seven years of paperwork for their taxes, and prosecuting those who could not produce it. It is unknown how many small firms were bankrupted arguing these cases, but Tory MP Priti Patel estimates it to be in the hundreds.

But there's another problem...

If Topshop pays 140 times as much tax as Google, despite being a smaller and less profitable business, then that creates a huge business problem.

It creates a situation where there is a race to the bottom - a UK-based business that doesn't avoid tax will be far less profitable, and far less able to expand and invest than a competitor who is cheating. Thus, honest businesses are forced into the tax evasion game.

Of course, because of access to international tax havens, and ever more sophisticated means of avoiding tax, this means that globalised multinationals have a titanic advantage in terms of taxation over their domestic rivals, stifling innovation and competition even more.

In conclusion, this isn't a left-wing problem or a right-wing problem - it's a huge cancer eating at our democracy, our business community and our ability to pay down the deficit.

Our tax code is fundamentally broken, easily abused by the unscrupulous, and HMRC is absolutely not fit for purpose. These are crucial national problems that can't be swept under the rug with a wave of the hand and saying "well, I'd do it too if I had the money".

If, like me, you're a Tory, and even if you don't think much of the crusty jugglers of UK Uncut, the next time you look at a Google doodle, remember, some poor bloke slogging in the heat of Afghanistan would be better equipped if they actually paid the same rate of tax as your greengrocer.

This article draws heavily on facts and figures from Robert Peston's book 'Who Runs Britain?' and Nick Shaxon's 'Treasure Islands'. If you want the complications of Britain's tax nexus explained, I cannot recommend a better place to start. 

Update: this article was edited at 17.46 on 21 June 2012.

Police guard the entrance to HMRC during a demonstration against corporate tax avoidance in 2011. Photograph: Getty Images

Willard Foxton is a card-carrying Tory, and in his spare time a freelance television producer, who makes current affairs films for the BBC and Channel 4. Find him on Twitter as @WillardFoxton.

Photo: Getty
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In the chaos of the Middle East, the world must stand behind the Kurds

The Kurdish people have shown themselves to be a small beacon of light in a sea of darkness.

It is one year since the lifting of the Siege of Kobanî. Many of us can recall harrowing images of the black flags of Isis flying threateningly from the surrounding hills, of car bombs being driven into the city’s defences, and of heroic citizens defending their houses and families from the despotic invaders intent on killing them. The Siege of Kobanî was the Stalingrad of the Syrian civil war – a true turning point in the battle against Isis.

Since then, we have seen a significant escalation in the involvement of the international community in Syria and Iraq. But to what end? Syria remains divided between various competing forces; Iraq is a half-governed country with declining influence over its populace. Foreign governments play power games across international boundaries which have long-since ceased to be relevant, least of all to those wishing to establish an Islamist caliphate.

Beheadings, suicide bombings, barrel bombs, religious extremism, violent intolerance, mass movements of people – these are just a few terms most associated with the Middle East today. To say the region is complex is an understatement bordering on ignorance.

In a recent PBS documentary, Inside Assad’s Syria, a television crew was sent to Damascus to cover its sectarian, religious and ideological divides. It showed us two halves to the city: one which lives in liberty and security; and another which resides in barrel-bombed apartment blocks and streets overrun with groups opposed to Bashar al-Assad.

In the southwest of Syria, pro-democratic force control pockets of land and fight Assad’s forces. In the northwest, Hezbollah works with Assad’s army to fight Islamist groups. Further north are areas ruled by groups with affiliations to Al Qaeda, such as the powerful al-Nusra Front. In the east, highways and cities have fallen to the apocalyptic regime of Isis, which stretches far across the old border into Iraq. What future does the Middle East have with such contrasting ideological and religious divides? It is near-impossible to offer a positive view for the future.

Resolving these issues will only be achieved in the long term and through a combination of local agreements (and perhaps the portioning of areas) of international oversight. In the short term, what can we do as citizens of a country with vested interests but limited power?

One of the problems of Western coverage and commentary is that we rarely view the Middle East in any way except through the prism of war. Debate is focused narrowly on the issues of intervention, extremism and migration. People are commonly talked about in derogatory terms with most mistakenly referred to as migrants, when many are fleeing from death and destruction.

These are people who, like us, desire to live in peace and security. They want to raise families and contribute to their communities. Although there are theological differences between Shias, Sunnis, Kurds, Christians, Jews and various minorities, for centuries these groups have lived alongside each other with general tolerance and respect. Churches have existed in the same cities as mosques. Yet the internecine conflicts have ruined the multiculturalism balances in Syria and Iraq. Communities have been divided against each other, sometimes on pain of death. The region is overrun with regressive forces.

Here in the UK, our view of foreign policy is shaped by the forming of alliances with progressive forces – that is those countries, governments and parties committed to values similar to our own. With the conflicts in Syria and Iraq as they are, dominated by regressive forces, our foreign policy is in disrepute. Who should we support in Syria? How can we continue to support Iraq’s army if it is being led on the ground by Iranian generals?

There is one force within the region that is progressive. They share our commitment to democracy, the rule of law and liberty. They have cohesive, well-led armed forces which not only protect their peoples, but also others in fear of persecution. Their women fight alongside their men, often in leadership positions. They have been the bulwark against Isis advances in both Iraq and Syria. They liberated Kobanî from oppression in tandem with US forces.

The Kurdish fighters of the People’s Protection Units (YPG) in Syria and the Peshmerga in Iraq have proved their strength and longevity in the face of enormous challenges. Lacking the weaponry appropriated by Isis, they have fought bravely and slowly liberated areas from tyranny. In doing so, they have treated non-Kurdish citizens well and protected them as they would wish to be protected by others. They have put their lives on the line for the common good, such as the taking of towns and cities outside of Kurdish areas. In doing so, they have refrained from declaring an expansion of Kurdish territory, instead stating that such lands will be handed over to local progressive groups when it is ready to do so.

Perversely, Western governments depend on Peshmerga and YPG forces to fight without adequately arming them. In Turkey, the same Kurdish citizens who would fight for the YPG against Isis are prosecuted and sometimes killed during clashes for protesting in favour of devolution. Turkey’s Kurdish populations in towns like Sur, Cizre, Nusaybin and many others are living under curfew. Yet we do nothing to raise this an issue.

Yet is it the Kurdish people that will be the first army to defeat the ideology of Isis. And because of this they are the biggest target. Their men and women are free. They live in lands governed by democracy, social justice and equality. They hold values in direct opposition to Isis but living in cities just miles apart. The Kurds are the only progressive force in the region which shares our values, has a commitment to democracy and has armies strong enough to protect its peoples.

If we believe in supporting those who share our values, we must show them our solidarity. Our support must go to Kurds as a whole not just those who fight for our interests, because the challenges Kurds face go beyond the borders set by the UK and France in 1920. These borders have been disregarded not only by Isis and al-Qaeda but also by Turkey, Iran, Saudi Arabia and Qatar, which have each ignored international boundaries in pursuit of their interests.

It is fair to say that this simple notion of solidarity leads us to certain complications. Kurdistan is an ancient region divided up by imperial powers between Turkey, Syria, Iraq and Iran. How do we support the Kurds without alienating our allies in Ankara and Baghdad?

During the 1991 Gulf War, the US, UK and France established a no-fly zone over Iraqi Kurdistan to protect Kurds from Saddam Hussein’s air force. A year later, the first free and fair elections were held in Kurdistan. It was also the first such election in the whole of Iraq. A decade on, whatever the merits of the conflict, the Peshmerga were allies of the Coalition during the 2003 invasion of Iraq. Since then, Kurdistan has remained steadfast in its commitment to a democratic future.

In Iraq, there is already a functioning Kurdish state in all but name. It is a pioneering force for democracy in the Middle East. In Iraqi Kurdistan there is a core set of values based on tolerance, respect and freedom of expression. Inclusiveness is enshrined in law. Women are recognised as equal citizens, with a law requiring that a minimum of 30 per cent of National Assembly seats must be taken by women. Furthermore, seats are also reserved for minority communities, with the Christian and Turkmen communities guaranteed at least five seats each. These values mirror our values.

We should adequately arm the Kurdish forces of the YPG and Peshmerga to adequately protect their lands. We must do whatever it takes to ensure Isis is restricted from further post-liberation resurgences, as was seen in the Kobanî region following the redeployment of Kurdish forces to Iraq. Over 350 were killed or injured in that resurgence, simply because YPG and Peshmerga forces are overstretched.

We should also seriously consider supporting Iraqi Kurdistan in its long-term ambition to be an independent state – when the time is right. No other people deserves it as do the Kurds. It is the largest homogenous nation on earth not represented by a unified state. They have a right to determine their own future. True, there are major issues to contend with – most notably corruption, political infighting and the continued presidency of Masoud Barzani beyond his legal mandate – however these issues can be overcome with the close help and guidance of the international community.

Outside of Kurdish controlled-areas lie lands ridden with conflict. We have seen our fellow citizens, friends and trading partners have their lives ruined by the twisted and hate-filled soldiers of Isis. In Syria, close to Kurdish cities, pro-democratic forces have been wiped out by Isis or other Islamist groups linked to Al-Qaeda. The rest of Syria is pock-marked with the barrel bombs dropped by Assad’s forces. Even within Kurdish-controlled areas, bombs have been dropped from Turkish planes on Kurdish YPG soldiers fighting for values which we would call our own. The region is highly complex and constantly changing.

Turkey is therefore a key player. Yet in recent years President Erdogan’s administration has escalated the conflict with the Kurdish citizens it represents. Peace talks between Abdullah Ocalan, the leader of the Kurdistan Workers Party (PKK), the People’s Democratic Party (HDP) and the Turkish government ended unsuccessfully in 2015. Erdogan appears determined to militarily crush the PKK before any negotiations around a lasting peace can recommence.

Turkey has refused to recognise either the YPG or the PYD – the main political party of Kurds in Syria – as a legitimate force on the ground, due to its concerns that any Kurdish autonomy in Syria may motivate Kurds in Turkey to demand similar rights. Before the Syrian civil war there were thought to be between 16-20 million Kurds resident in Turkey, in contrast to just two million in Syria.

For Erdogan, this issue is of greater importance than what is occurring in Syria and Iraq. During the Siege of Kobanî, Ankara refused Kurdish YPG fighters the right to travel across the border into Kobanî to fight Isis forces. Rather than allow them to protect their families and friends, Turkey sprayed them with tear gas and removed their weapons. Significant international pressure belatedly led to Ankara allowing Peshmerga Forces to travel from Iraqi Kurdistan and enter Kobanî through Turkey – and just in time to save the city from Isis. In the interim period, Isis recruits routinely crossed over the border with ease.

The Erdogan administration’s conflict with its own Kurdish citizens is undoubtedly complex. Many Kurds in Turkey want some level of recognition and autonomy but it is not known how many desire outright independence. A free and fair poll has never been carried out and would not be tolerated by Ankara. President Erdogan prefers to suppress opinion rather than encourage it. Where is our solidarity for people demanding human rights?

While Turkey’s air forces have been bombing the Kurdish-controlled Kandil mountainous areas in Iraq, often missing Kurdish forces, Ankara has remained a strong ally of the government in Iraqi Kurdistan, which it sees as a correcting force against the regional influences of Riyadh and Tehran. However, Ankara fears an independent Kurdistan and the effects this may have on the Kurdish populations of Turkey and Syria. Ankara fears the establishment of a Greater Kurdistan, an option which is not on the table and most Kurds do not think is achievable.

Each of these issues is interconnected. Though Kurds in Iraq may carry different passports to those in Syria and Turkey, they similarly identify as Kurdish peoples. They share a culture, a religion and a language. The challenges faced by Kurds in Syria are of utmost concern to Kurds in neighbouring countries. There is a fraternity that must not be dismissed.

The Kurdish question in Turkey is obviously complicated. Turkey remains a critical member for the NATO alliance with its landing strips used to carry out bombing raids on Isis. Therefore, keeping Ankara on side is important to Washington. This is why we in the West have been relatively silent on the Kurdish issue. Meanwhile, the international and national boundaries of Iraq and Syria are now so distorted to be almost beyond repair. Kurds control areas beyond that of Kurdistan, with no other force strong enough to protect people in those areas. In our determination not to ‘put boots on the ground’, we ask Peshmerga and YPG forces to do the heavy lifting and endure the casualties of a conflict we in part caused. This is unfair to the Kurdish people.

We must encourage Turkey to end the Kurdish conflict within its borders. Ankara must resume peace talks with Abdullah Ocalan and the HDP – now the third biggest group in the grand assembly of Turkey. Ankara should accept that the Kurdish question cannot be resolved by militarily means. The overarching issues of inequality, equal citizenship and minority rights are beyond the control of even the strongest of strongmen.

The UK can help resolve the Kurdish question. We have long been a supporter of Turkey’s aspiration to become an EU member. We should agree to accelerate that process in return for allowing the EU to broker a peace. We have a duty to the citizens of any state which harbours ambition to join us. We have a duty to protect people’s human rights.

At the same time, we should support the Peshmerga and YPG as they fight a common foe. Defeating Isis forces in Iraq and Syria would reduce the Islamists’ ability to train home-grown jihadists and send them back to European cities. We should support them with weapons and finances in return for guarantees over human rights and post-conflict governance of the areas they retake from Isis.

The Kurdish people have shown themselves to be a small beacon of light in a sea of darkness. If we believe in the values of democracy, tolerance and freedom of expression – we must support those peoples that practice them. There are small steps we can take to show them our solidarity. We must do what we can to support them.

Ibrahim Dogus is the Director of the Centre for Turkey Studies (www.ceftus.org) and the Director of the Centre for Kurdish Progress (www.kurdishprogress.org).