Twelve steps to stop tax avoidance

Tax avoidance is now endemic, with companies and the wealthy often paying derisory amounts of tax. Public anger has so far met with hollow rhetoric, handwringing and vested interest rationalisations. Robust steps to stamp it out are needed.

Today's tax avoidance goes far beyond loopholes and clever schemes. An elaborate, interlocking system for "legitimately" not paying tax allows vast amounts of money to trample over "official" tax and the economy.  

Tax revenues are being cored out. Britain is losing out on £60-85bn in company and personal taxes across the spectrum from "legitimate" avoidance, through "offshore" wealth, to outright evasion. Each £10bn lost is equivalent to the income taxes from two million average households.

Meanwhile taxes on company profits and returns from wealth (unearned income, capital gains etc) make disproportionately small contributions to the public purse. 

Avoidance gives larger, multi-national and "offshore" companies illegitimate market and competitive advantages. And gives overseas companies and offshore/avoidance "finance" all the cards in acquiring, running or asset stripping companies and markets. The effects feed down the entire tax, supply and value chains, distorting the economy and compounding the coring out of British jobs and businesses.  

And it's corrosive. Companies and people succeed for detrimental reasons, and everyone else comes under pressure to do the same. Those avoiding tax wrap themselves in the letter of the law and their "duty” to take advantage, even while, under threat of even more disappearing down the rabbit-hole, governments are pressured into reducing taxes even further. 

Endemic avoidance relies on means legitimated by the tax system:

  • Using companies, trusts and partnerships to shelter earnings or assets.
  • Overseas residency of people or companies, particularly in tax havens. 
  • Exploiting tax differences within the tax regime and between jurisdictions.
  • "Offshore" supply, production or ownership of companies or trade.
  • Transfer pricing; moving sales, costs or profits between subsidiaries or jurisdictions.

Criteria, rules and enforcement are then permissive. Nominal compliance requirements work hand-in-glove with opaque, fragmented financial reporting to subvert any rationale or constraints. And we permit, even encourage, a network of banks, tax havens, secrecy regimes, accountants and lawyers acting as the systems pro-active facilitators and cheerleaders. 

The Government's present “biggest ever crackdown” continues the tradition of curbing loopholes and avoidance only in the narrow "abuse" sense. Legitimated avoidance has been reaffirmed and extended (in parallel to cutting official corporation tax for large companies by a third). Indeed, changes to taxing earnings from overseas subsidiaries are an open license.

But international consensus that action is urgently needed is growing. In July all G20 countries, including Britain, endorsed the OECD's preliminary plan for tackling avoidance. This identified key problems but needs translating into concrete policies and action on the ground by national governments.

Curtailing British avoidance needs to simultaneously cut away its legitimating means, limit its advantages, make it harder to disguise and significantly strengthen enforcement. Specifically:

  1. Limit or remove the legal standing of – blacklist – companies or ownership from jurisdictions with cannibalistic tax and secrecy regimes (with "restricted" and "banned" categories).
  2. Restrict qualifying criteria for offshore and residency statuses.  Overseas ("offshore") ownership should be substantive not nominal; "non-domicile" status limited and finite in time; and "non-resident" status exclude those with lives, businesses or wealth in essence in or derived from the UK.  
  3. Curtail the benefits and permissiveness of offshore, ownership and residency statuses.  Non-domicile, non-resident, trusts and partnership advantages all need cutting back. Similarly, reverse the preferential treatment of "overseas" profits and firewall between remitted and non-remitted earnings.   
  4. Increase the costs and disadvantages of ownership or residency statuses. Tax charges can be increased, in particular made more progressive. Possibly (re)introduce an exit tax for British companies or citizens taking overseas residency, relocating or emigrating. 
  5. Require companies (and appropriate individuals) to provide transparent country-by-country accounts. Furthermore, the accounting and tax presumption for the assessment and validity of inter-group or cross-border charges would be strict apportionment of national sales and actual costs.
  6. If it exists, happens or is owned here, it's taxed here and taxed the same. For instance, tax UK on-line/remote sales where the sale is made; rather than as at present often "supplied" from "overseas" to avoid VAT and/or "booked" in another country to avoid company taxes.   
  7. Inhibit cross-jurisdiction costs, charges and tax exemptions that can be deducted for tax purposes, particularly between associated companies. These must be necessary, substantive and proportionate; with specific limitations on inter-group costs, debt, intellectual property and goodwill charges.
  8. Automatic information exchanges with other countries; not just existing by-request arrangements (where the number of UK requests is miniscule). Joining the existing European network is a good start.  
  9. Confront avoidance facilitators and promoters. Bar banks licensed or operating in Britain from operating in or providing facilities to British citizens or companies from "restricted jurisdictions". Require UK financial companies to automatically disclose all offshore accounts and holdings. And make advisory firms directly liable for tax penalties from avoidance they have promoted or facilitated. 
  10. Vigorous, properly empowered enforcement. Enact robust general anti-avoidance provisions. Significantly enhance HMRC's assessment powers, resources and personnel. And increase tax avoidance penalties, with both principals and intermediaries liable.  
  11. Major tax reform. Avoidance inducing disparities of tax treatment join improving economic performance, major fiscal problems and greater fairness in making reform long overdue. Today's complexity of taxes and rates needs replacing with consistent, equal treatment of all types of earnings – employment, unearned incomes, company profits and capital gains – while rebalancing between over-taxing of work and under-taxing big companies, wealth and "finance".
  12. Change the permissive and fatalistic culture. Given the corrosive damage being done, leaders and government can and should be taking vigorous action. Not paying proper taxes and mediating avoidance should cause explicit censure and sanctions. This includes recognising the City's complicity in wholesale tax avoidance from other countries as well as Britain.

But needed most is the political will and determination to take on the powerful vested interests that influence and lobby remorselessly to protect and extend today"s pernicious system. 

Photograph: Getty Images

One time Barrister, economist and media and technology entrepreneur, Chris Nicholas now writes and lectures on economic policy and political economy.

India Bourke
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Pegida UK: the new face of Britain’s far-right movement, and how to challenge it

“Let them drink tea,” Birmingham tells Islamophobes.

“Spooky,” is how Pegida UK – the latest branch of a global, anti-Islam, protest group  chooses to describe its silent march on the outskirts of Birmingham. 

“Islam is Nazism incarnate,” announces its new leader, Paul Weston, to a few hundred soggy, sober, brolly-clad protesters waving “Trump is Right” placards. 


Pegida UK protestors march through the rain. Photos: India Bourke

Such numbers are a far cry from the tens of thousands who attended the movement’s inaugural rallies in Germany in 2014, in response to the perceived “Islamisation” of Europe. And they would be derisory if the cheers Weston receives from his supporters weren’t quite so chilling, nor echoed so far.

For Pegida UK is not alone. From Calais to Canberra, thousands marched in the name of the movement’s toxic platform of anti-immigration and anti-Islam last weekend. I went to see the Birmingham rally to find out why such a protest is taking place in Britain.

***

"Today is the first of many European wide demonstrations that will bring people together like never before,” Tommy Robinson, UK founder and ex-EDL leader, tells the assembled crowd. “It's planting the seed of something huge.”

Robinson hopes to exploit a gap within Britain’s far-right. Traditional groups are fractured: the British National Party was decimated at the last election, standing just eight of a previous 338 candidates. In its place, a swell of smaller, extremist bodies – from the Sigurd Legion to National Action – are pressing an ever more militant agenda. Pegida hopes to scale back the hooliganism in order to garner a wider appeal, but it shares these groups’ confrontation with Islam, and each may spur the other on.

“With Pegida we’re seeing the rise of a seminal new threat,” says Birmingham MP Liam Byrne. “In the rise of Isis and politicians like Donald Trump, you have forces determined to promote a clash of civilisations between Islam and the West. Pegida is trying to surf that wave and make sure it crashes on our shores.

Opponents hope the movement will suffer the same implosion that felled the BNP and EDL, with both leaning  too much on their leaders’ personal brands. Robinson certainly seems as adolescent as ever: laughing as he swipes away a photo of a scantily-clad blonde on his iPhone screen to show me the international Pegida leadership’s “hidden” Facebook group.

Their new apparently "suited and booted" middle-class following is also less than wholehearted. One pin-striped IT executive I speak to seems embarrassed by the whole affair: “I’m just a cowardly family man who can’t see a solution being offered by mainstream politicians. I’d be sacked if they knew I was here,” he says, declining to give his name. 


A Pegida protestor poses in front of the main stage.

As long as such hesitation prevails, Pegida UK will struggle. Still, there’s a sense more needs to be done to ensure its demise.

Matching protest with counter-protest is the traditional leftwing response, and this weekend saw thousands of Pegida opponents take to the streets across Europe. Yet, in some cases, direct confrontation can risk drowning out – even alienating – the very voices it seeks to win over.

“Smash the facists into the sea,” instructed the Twitter account of the North London Antifa group ahead of last weekend’s far-right, anti-immigration protest in Dover, where injuries were sustained by demonstrators on both sides.

***

Instead, many now believe a better answer begins with that most British of pastimes: tea and a chat.

On the day before the Birmingam march, hundreds of the city’s cross-party leaders, religious figures and citizens gathered together at Birmingham Central Mosque to share their concerns over shortcake and jalebi.

“Groups like Pegida are parasites on the real concerns people have,” says John Page from the anti-extremism group Hope not Hate. “So we have to listen to these issues to close the cracks.

Initiatives around the city will attempt to take this approach, which sets a welcome lead not just for the UK, but Europe too.

The blanket smearing by groups like Pegida of Islam as a religion of sexist, homophobic Jihadi Johns places the burden of action disproportionately on the city’s Muslims. “It is our turn now to suffer these attacks,” says Mr Ali, Birmingham Central Mosque’s 42-year-old administrator. “It was the Irish, then the Jews, and now it is the time for us. But we are proud to be British Muslims and we will do what we can to defend this country.” 

A permanent visitors gallery, Visit-my-Mosque events, and publications that condemn Isis, are just some of the ways the community is challenging demonisation. It is even hosting a documentary crew from Channel 4 – a bold move in a city still reeling from Benefits Street.


Birmingham resident, Luke Holland, at a peaceful counter-protest in the city centre.

Mr Ali says: “The extreme right know nothing about Islam, but neither do many Muslim extremists.” The mosque is therefore in the process of formulating a “code of conduct”, making clear that hate speech of any kind is unacceptable.

"We have to help young people become the next Chamberlains and Cadburys and Lucases of this city," regardless of background, says Labour councillor Habib Rehman. Instead of letting them slip into despair and extremism of any kind, "we have to tell them: 'Yes You Khan!’”

Tea and talk is not the most dramatic response to Pegida’s claim it will have “100,000 decent people on the street” by the end of the year. But, in Birmingham at least – the city of Typhoo, where bhangra is as familiar as Bournville, and “No dogs, no Irish!” still sits heavy on the collective mind – tea, for now, means hope.

India Bourke is the New Statesman's editorial assistant.