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.

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The economics of outrage: Why you haven't seen the end of Katie Hopkins

Her distasteful tweet may have cost her a job at LBC, but this isn't the last we've seen of Britain's biggest troll. 

Another atrocity, other surge of grief and fear, and there like clockwork was the UK’s biggest troll. Hours after the explosion at the Manchester Arena that killed 22 mostly young and female concert goers, Katie Hopkins weighed in with a very on-brand tweet calling for a “final solution” to the complex issue of terrorism.

She quickly deleted it, replacing the offending phrase with the words “true solution”, but did not tone down the essentially fascist message. Few thought it had been an innocent mistake on the part of someone unaware of the historical connotations of those two words.  And no matter how many urged their fellow web users not to give Hopkins the attention she craved, it still sparked angry tweets, condemnatory news articles and even reports to the police.

Hopkins has lost her presenting job at LBC radio, but she is yet to lose her column at Mail Online, and it’s quite likely she won’t.

Mail Online and its print counterpart The Daily Mail have regularly shown they are prepared to go down the deliberately divisive path Hopkins was signposting. But even if the site's managing editor Martin Clarke was secretly a liberal sandal-wearer, there are also very good economic reasons for Mail Online to stick with her. The extreme and outrageous is great at gaining attention, and attention is what makes money for Mail Online.

It is ironic that Hopkins’s career was initially helped by TV’s attempts to provide balance. Producers could rely on her to provide a counterweight to even the most committed and rational bleeding-heart liberal.

As Patrick Smith, a former media specialist who is currently a senior reporter at BuzzFeed News points out: “It’s very difficult for producers who are legally bound to be balanced, they will sometimes literally have lawyers in the room.”

“That in a way is why some people who are skirting very close or beyond the bounds of taste and decency get on air.”

But while TV may have made Hopkins, it is online where her extreme views perform best.  As digital publishers have learned, the best way to get the shares, clicks and page views that make them money is to provoke an emotional response. And there are few things as good at provoking an emotional response as extreme and outrageous political views.

And in many ways it doesn’t matter whether that response is negative or positive. Those who complain about what Hopkins says are also the ones who draw attention to it – many will read what she writes in order to know exactly why they should hate her.

Of course using outrageous views as a sales tactic is not confined to the web – The Daily Mail prints columns by Sarah Vine for a reason - but the risks of pushing the boundaries of taste and decency are greater in a linear, analogue world. Cancelling a newspaper subscription or changing radio station is a simpler and often longer-lasting act than pledging to never click on a tempting link on Twitter or Facebook. LBC may have had far more to lose from sticking with Hopkins than Mail Online does, and much less to gain. Someone prepared to say what Hopkins says will not be out of work for long. 

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