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Britain is finally ready to tackle tax avoidance and help reform an international tax system that is almost a century out of date.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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7 problems with the Snooper’s Charter, according to the experts

In short: it was written by people who "do not know how the internet works".

A group of representatives from the UK Internet Service Provider’s Association (ISPA) headed to the Home Office on Tuesday to point out a long list of problems they had with the proposed Investigatory Powers Bill (that’s Snooper’s Charter to you and me). Below are simplified summaries of their main points, taken from the written evidence submitted by Adrian Kennard, of Andrews and Arnold, a small ISP, to the department after the meeting. 

The crucial thing to note is that these people know what they're talking about - the run the providers which would need to completely change their practices to comply with the bill if it passed into law. And their objections aren't based on cost or fiddliness - they're about how unworkable many of the bill's stipulations actually are. 

1. The types of records the government wants collected aren’t that useful

The IP Bill places a lot of emphasis on “Internet Connection Records”; i.e. a list of domains you’ve visited, but not the specific pages visited or messages sent.

But in an age of apps and social media, where we view vast amounts of information through single domains like Twitter or Facebook, this information might not even help investigators much, as connections can last for days, or even months. Kennard gives the example of a missing girl, used as a hypothetical case by the security services to argue for greater powers:

 "If the mobile provider was even able to tell that she had used twitter at all (which is not as easy as it sounds), it would show that the phone had been connected to twitter 24 hours a day, and probably Facebook as well… this emotive example is seriously flawed”

And these connection records are only going to get less relevant over time - an increasing number of websites including Facebook and Google encrypt their website under "https", which would make finding the name of the website visited far more difficult.

2. …but they’re still a massive invasion of privacy

Even though these records may be useless when someone needs to be found or monitored, the retention of Internet Connection Records (IRCs) is still very invasive – and can actually yield more information than call records, which Theresa May has repeatedly claimed are the non-digital equivalent of ICRs. 

Kennard notes: “[These records] can be used to profile them and identify preferences, political views, sexual orientation, spending habits and much more. It is useful to criminals as it would easily confirm the bank used, and the time people leave the house, and so on”. 

This information might not help find a missing girl, but could build a profile of her which could be used by criminals, or for over-invasive state surveillance. 

3. "Internet Connection Records" aren’t actually a thing

The concept of a list of domain names visited by a user referred to in the bill is actually a new term, derived from “Call Data Record”. Compiling them is possible, but won't be an easy or automatic process.

Again, this strongly implies that those writing the bill are using their knowledge of telecommunications surveillance, not internet era-appropriate information. Kennard calls for the term to be removed, or at least its “vague and nondescript nature” made clear in the bill.

4. The surveillance won’t be consistent and could be easy to dodge

In its meeting with the ISPA, the Home Office implied that smaller Internet service providers won't be forced to collect these ICR records, as it would use up a lot of their resources. But this means those seeking to avoid surveillance could simply move over to a smaller provider.

5. Conservative spin is dictating the way we view the bill 

May and the Home Office are keen for us to see the surveillance in the bill as passive: internet service providers must simply log the domains we visit, which will be looked at in the event that we are the subject of an investigation. But as Kennard notes, “I am quite sure the same argument would not work if, for example, the law required a camera in every room in your house”. This is a vast new power the government is asking for – we shouldn’t allow it to play it down.

6. The bill would allow our devices to be bugged

Or, in the jargon, used in the draft bill, subjected to “equipment interference”. This could include surveillance of everything on a phone or laptop, or even turning on its camera or webcam to watch someone. The bill actually calls for “bulk equipment interference” – when surely, as Kennard notes, “this power…should only be targeted at the most serious of criminal suspects" at most.

7. The ability to bug devices would make them less secure

Devices can only be subject to “equipment interference” if they have existing vulnerabilities, which could also be exploited by criminals and hackers. If security services know about these vulnerabilities, they should tell the manufacturer about them. As Kennard writes, allowing equipment interference "encourages the intelligence services to keep vulnerabilities secret” so they don't lose surveillance methods. Meanwhile, though, they're laying the population open to hacks from cyber criminals. 


So there you have it  – a compelling soup of misused and made up terms, and ethically concerning new powers. Great stuff. 

Barbara Speed is a technology and digital culture writer at the New Statesman and a staff writer at CityMetric.