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.

Photo: Getty
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Tim Shipman's Diary

The Sunday Times political editor on poker, pasta – and being called fat by Andrew Marr.

A couple of Saturdays ago, I was having dinner with my wife at Padella (which serves the best pasta in London) when the phone rang. It was an irate David Davis. “You’re reporting that a friend of mine has said Philip May wants Theresa to quit. It’s not true. I don’t even know Philip May.” I calmly explained that I wasn’t accusing him and I had his friend on tape. “Who was it?” he asked me. I wasn’t saying. “Well, it’s not bloody helpful,” the Brexit Secretary said before hanging up.

The following day, I woke up to watch Philip Hammond explain to the BBC’s Andrew Marr why his cabinet colleagues had leaked me details of how the Chancellor had branded public-sector workers as “overpaid”. “I don’t know who [Tim Shipman’s] sources are,” he said, after inaccurately suggesting that I was being fed information as part of some Brexiteer conspiracy to discredit the cabinet’s leading Remainer.

On Monday, I did an interview with Eddie Mair in the back of a beer garden in Ireland, where I’m playing cricket. In reality, the leaks had much more to do with colleagues irritated at Hammond’s sometimes grating behaviour. Word reaches me that he regards it all as very unhelpful. It seems odd after 16 years in political journalism to have to say this, but we’re not here to be helpful. It might make sense if our politicians gave us less to write about. Over the past three years, they have delighted us enough.

Back for seconds

Voter fatigue is a recognised problem. No one talks about journalist fatigue. We all hope that Theresa May rejuvenates on her Swiss walk (perhaps regenerating into Jodie Whittaker). Thanks to the decision she took when she last went walking, I’m facing the obliteration of another summer holiday writing a second political tome covering the period since my Brexit book, All Out War, up to the general election. What looked at one stage like the boring second album is now a rip-roaring tale of hubris and nemesis. When I asked for title suggestions on Twitter, there were plenty of votes for “Mayhem” and “Mayday”. The most imaginative was: “The Snarling Duds of May”. Sadly, it’s too long for my publisher.

Catching the big fish

The new-found attention from writing books is a double-edged sword. To my delight, then embarrassment, Andrew Marr referred to me twice as “the doyen” of the print lobby. “We keep trying to stop him,” Marr’s editor, the redoubtable Rob Burley, confided at a rival magazine’s summer party. The following week, Marr said: “The biggest fish in the pool, if only physically, is Tim Shipman…” I got a text from a special adviser friend asking: “Are you paying him?” I pointed out that Britain’s best-known political interviewer had just called me a fat bastard live on national television.

New blood

I make my debut on BBC2’s Newsnight alongside Ash Sarkar of Novara Media, one of the new websites that cheerlead for Jeremy Corbyn. She is nerveless and fluent in her mid-twenties, when I was a tongue-tied naif. People who get the Corbyn phenomenon are rightly getting more airtime. Off the air, she tells me that she’s a “libertarian anarchist” and then asks me where I live. “Are you going to smash it up?” I ask nervously. She smiles. Ash’s main concern is to paint the town red in the Saturday-night sense. A Labour MP draws attention to her Twitter biog, which concludes: “Walks like a supermodel. Fucks like a champion. Luxury communism now!” Bravo. I think…

Brexit gamble

I was greatly cheered by the induction in the Poker Hall of Fame of the late Dave “Devil­fish” Ulliott, the player who did the most to create the TV and online poker boom in Britain. Westminster has a few useful card sharps – Paul Stephenson, formerly of Vote Leave, among them – but I don’t know any politicians who play. By contrast, the US presidents Harry Truman, Dwight Eisenhower, Lyndon Johnson and Richard Nixon were all accomplished poker players.

When I worked in the US, I interviewed a member of Barack Obama’s poker circle when he was a state senator in Chicago. The cautious, composed and occasionally bold player he described was the mirror image of the politician we came to know. His Republican rival in 2008, John McCain, preferred the chaotic gambling of the craps table and his erratic campaign reflected that. Too many of the current cabinet seem to be dice men. What we wouldn’t give for Devilfish running the Brexit negotiations.

Blundering through

Anyone who has ever dealt with McCain would have been saddened by the news that he is suffering from brain cancer, but his resilience almost makes you feel sorry for the tumour. McCain is undoubtedly the most media-friendly politician I have ever met. When I travelled on his plane in 2008, he took every question from the foreign press pack and made us feel welcome. Through him, I also met Steve Duprey, the former boss of the New Hampshire Republicans. He was fond of explaining Duprey’s first law: “In politics, before considering malevolence, always assume incompetence.” I have had much cause to remind myself of that over the past three years.

Paranoid android

If you are looking for a summer read, I recommend Jonathan Allen’s and Amie Parnes’s Shattered, a great insider account of Hillary Clinton’s disastrous 2016 presidential election effort. It shows how a flawed candidate with little ability to connect with the public presided over a paranoid regime of advisers engaged in Shakespearean bloodletting that led to them coming a cropper when fighting a charismatic populist. On second thoughts, you could always wait to read my second book this autumn. 

Tim Shipman is the political editor of the Sunday Times. “All Out War” is now available in paperback (William Collins)

This article first appeared in the 27 July 2017 issue of the New Statesman, Summer double issue