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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Is there such a thing as responsible betting?

Punters are encouraged to bet responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly.

I try not to watch the commercials between matches, or the studio discussions, or anything really, before or after, except for the match itself. And yet there is one person I never manage to escape properly – Ray Winstone. His cracked face, his mesmerising voice, his endlessly repeated spiel follow me across the room as I escape for the lav, the kitchen, the drinks cupboard.

I’m not sure which betting company he is shouting about, there are just so many of them, offering incredible odds and supposedly free bets. In the past six years, since the laws changed, TV betting adverts have increased by 600 per cent, all offering amazingly simple ways to lose money with just one tap on a smartphone.

The one I hate is the ad for BetVictor. The man who has been fronting it, appearing at windows or on roofs, who I assume is Victor, is just so slimy and horrible.

Betting firms are the ultimate football parasites, second in wealth only to kit manufacturers. They have perfected the capitalist’s art of using OPM (Other People’s Money). They’re not directly involved in football – say, in training or managing – yet they make millions off the back of its popularity. Many of the firms are based offshore in Gibraltar.

Football betting is not new. In the Fifties, my job every week at five o’clock was to sit beside my father’s bed, where he lay paralysed with MS, and write down the football results as they were read out on Sports Report. I had not to breathe, make silly remarks or guess the score. By the inflection in the announcer’s voice you could tell if it was an away win.

Earlier in the week I had filled in his Treble Chance on the Littlewoods pools. The “treble” part was because you had three chances: three points if the game you picked was a score draw, two for a goalless draw and one point for a home or away win. You chose eight games and had to reach 24 points, or as near as possible, then you were in the money.

“Not a damn sausage,” my father would say every week, once I’d marked and handed him back his predictions. He never did win a sausage.

Football pools began in the 1920s, the main ones being Littlewoods and Vernons, both based in Liverpool. They gave employment to thousands of bright young women who checked the results and sang in company choirs in their spare time. Each firm spent millions on advertising. In 1935, Littlewoods flew an aeroplane over London with a banner saying: Littlewoods Above All!

Postwar, they blossomed again, taking in £50m a year. The nation stopped at five on a Saturday to hear the scores, whether they were interested in football or not, hoping to get rich. BBC Sports Report began in 1948 with John Webster reading the results. James Alexander Gordon took over in 1974 – a voice soon familiar throughout the land.

These past few decades, football pools have been left behind, old-fashioned, low-tech, replaced by online betting using smartphones. The betting industry has totally rebooted itself. You can bet while the match is still on, trying to predict who will get the next goal, the next corner, the next throw-in. I made the last one up, but in theory you can bet instantly, on anything, at any time.

The soft sell is interesting. With the old football pools, we knew it was a remote flutter, hoping to make some money. Today the ads imply that betting on football somehow enhances the experience, adds to the enjoyment, involves you in the game itself, hence they show lads all together, drinking and laughing and putting on bets.

At the same time, punters are encouraged to do it responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly. Responsibly and respect are now two of the most meaningless words in the football language. People have been gambling, in some form, since the beginning, watching two raindrops drip down inside the cave, lying around in Roman bathhouses playing games. All they’ve done is to change the technology. You have to respect that.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war