Osborne takes the first step on tax avoidance. Now for the rest…

The chancellor's GAAR should help ensure tax justice. But it's only a start, writes Salman Shaheen

George Osborne’s article in the Observer following the G20 meeting of Finance Ministers in Moscow at the weekend provides the first sign that Britain is finally ready to tackle tax avoidance and help reform an international tax system that is almost a century out of date. But the Chancellor will have to go much further than these warm words alone if he is serious about clawing back the money multinationals are avoiding paying in the UK, and helping developing economies move from aid to a more sustainable form of growth.

Osborne is bang on the tax-free money when he identifies the problem as a systemic one. The international tax system was designed, after all, for the nation state in the days before globalisation. But tax avoidance occupies a space between laws. It is not so much that it is legal, as companies practising these aggressive schemes claim in their defence, but that the laws as they exist are inadequate to cover it.

The result is the press is left picking over the PR disasters of Google, Amazon, Starbucks and most recently Associated British Foods, while a cash-strapped Britain finds itself with a tax gap of £123bn according to Richard Murphy of Tax Research. In an era of austerity, public mistrust of corporates and government and increased risk for companies increasingly coming under challenge for structures they’ve employed for decades, no one wins from a system that promotes uncertainty and an unlevel playing field.

On this, the Chancellor is absolutely right. The trouble is the actions he has lined up to back these necessary words will make little more than a dent in the tax avoidance industry. If the problem is systemic, as he identifies, then it can’t be solved by tinkering around the edges, only wholesale reform.

For one, he trumpets the General Anti-Abuse Rule (GAAR) he is introducing, essentially a net allowing HMRC to challenge artificial and abusive tax avoidance schemes which, because they are often complex or novel, could not have been contemplated directly when formulating the tax legislation.

But as Michael Meacher – who is pushing for a much stronger version of the GAAR in Parliament – told me, the government’s proposal will only catch the most egregious schemes, letting the rest slip through:

The real purpose of the GAAR is not to counter tax avoidance, but to narrow its definition, making everything else ethically and technically acceptable because it is outside that narrow remit.

Secondly, Osborne points to Britain’s push in the EU and in the Extractive Industries Transparency Initiative for limited forms of country-by-country reporting to provide greater transparency in the oil, gas and mining sectors.

This is a vital first step. But if Osborne is serious about tax transparency, he must now make the case for a much more robust form of country-by-country reporting whereby every large multinational corporation in every sector would be required to publish in their annual audited financial statements a country consolidated profit and loss account, limited balance sheet and cash flow data on tax paid for every jurisdiction where they have a permanent establishment for tax.

Finally, Osborne backs an OECD report to the G20 on base erosion and profit shifting. This is to be welcomed and much will depend on the outcome of the action plan that is put to the G8 in July.

But Osborne must recognise that merely tinkering with the transfer pricing system, whose weaknesses have left the UK and developing countries alike open to multinational corporations shifting their profits into tax havens, is not enough. Osborne should be pushing for serious examination of a system of unitary taxation, under which companies would submit a global consolidated account in each country in which they are present, then apportion the global profits among these countries by a formula reflecting the genuine economic activity of the company in each jurisdiction.

Only through these measures can the problem of tax avoidance be seriously tackled. Osborne’s words are warm and welcome, but they are just the first step. Now the world will be watching as Britain prepares to host the G8. The Chancellor’s task is not to falter or miss this historic opportunity.

Wiping the first step. Photograph: Getty Images

Salman Shaheen is editor-in-chief of The World Weekly, principal speaker of Left Unity and a freelance journalist.

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The 5 things the Tories aren't telling you about their manifesto

Turns out the NHS is something you really have to pay for after all. 

When Theresa May launched the Conservative 2017 manifesto, she borrowed the most popular policies from across the political spectrum. Some anti-immigrant rhetoric? Some strong action on rip-off energy firms? The message is clear - you can have it all if you vote Tory.

But can you? The respected thinktank the Institute for Fiscal Studies has now been through the manifesto with a fine tooth comb, and it turns out there are some things the Tory manifesto just doesn't mention...

1. How budgeting works

They say: "a balanced budget by the middle of the next decade"

What they don't say: The Conservatives don't talk very much about new taxes or spending commitments in the manifesto. But the IFS argues that balancing the budget "would likely require more spending cuts or tax rises even beyond the end of the next parliament."

2. How this isn't the end of austerity

They say: "We will always be guided by what matters to the ordinary, working families of this nation."

What they don't say: The manifesto does not backtrack on existing planned cuts to working-age welfare benefits. According to the IFS, these cuts will "reduce the incomes of the lowest income working age households significantly – and by more than the cuts seen since 2010".

3. Why some policies don't make a difference

They say: "The Triple Lock has worked: it is now time to set pensions on an even course."

What they don't say: The argument behind scrapping the "triple lock" on pensions is that it provides an unneccessarily generous subsidy to pensioners (including superbly wealthy ones) at the expense of the taxpayer.

However, the IFS found that the Conservatives' proposed solution - a "double lock" which rises with earnings or inflation - will cost the taxpayer just as much over the coming Parliament. After all, Brexit has caused a drop in the value of sterling, which is now causing price inflation...

4. That healthcare can't be done cheap

They say: "The next Conservative government will give the NHS the resources it needs."

What they don't say: The £8bn more promised for the NHS over the next five years is a continuation of underinvestment in the NHS. The IFS says: "Conservative plans for NHS spending look very tight indeed and may well be undeliverable."

5. Cutting immigration costs us

They say: "We will therefore establish an immigration policy that allows us to reduce and control the number of people who come to Britain from the European Union, while still allowing us to attract the skilled workers our economy needs." 

What they don't say: The Office for Budget Responsibility has already calculated that lower immigration as a result of the Brexit vote could reduce tax revenues by £6bn a year in four years' time. The IFS calculates that getting net immigration down to the tens of thousands, as the Tories pledge, could double that loss.

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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