New Times,
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  1. Business
  2. Economics
8 December 2015

The Cadbury’s affair shows where the Conservatives’ priorities really are

George Osborne talks a good game on tax avoidance - but his actions fall far short of the necessary.

By Seema Malhotra

The tax loophole that has allowed the Mondelez, the company that bought Cadbury, to avoid corporation tax should be closed. It would have been made illegal if Labour had won the election.

George Osborne says he shares Labour’s commitment to defeating aggressive tax avoidance. But the revelation in the Sunday Times about Mondelez International – formerly part of Kraft – shows he still has a long way to go. Since its £11.5 billion takeover of Cadbury in 2010, Mondelez has paid no corporation tax in the UK.

Let me be absolutely clear, Labour is committed to supporting British businesses, and of course to encourage foreign businesses to invest in our country. Just as we encourage British businesses to invest abroad.

However we believe that in return for the strategic and financial support – via research development, education and infrastructure investment – that the UK Government provides provide to large multi-national companies, they should pay their fair share of tax, just as everybody else does.

By listing an £8 billion debt bond and on the Channel Islands’ stock exchange and then deducting interest on it from their UK tax bill, the company is exploiting the “Quoted Eurobond Exemption”.

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This exemption excludes corporate debt listed on recognised stock exchanges from UK withholding tax. It was originally implemented to make it easier for companies to obtain finance from the international bond markets – a legitimate objective that the Labour supports. It is also legitimately used by investors seeking to minimise the administrative burden that would arise from their individual investors having to file separate rebate claims under the terms of double taxation treaties.

However what Mondelez appears to have done– and it is not alone in this – is issue Eurobonds between companies within the Mondelez group on the Channels Islands stock exchange, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the UK to a fellow group company, where otherwise deduction of tax would be required.

Mondelez’s actions are currently legal – but they shouldn’t be. If Labour had won the General Election we were committed to changes the tax rules so that where bonds have been actively issued to connected parties they would not qualify for a deduction from UK withholding tax. This is another one of our policies we would be more than happy for George Osborne to steal.

Labour is pro-business. We want more of them and to support, in particular, more high—tech manufacturing businesses that can create the high-skill, high-pay jobs that British people need. That is why I will next week be launching a review of how effectively we use tax reliefs to encourage businesses to invest.

However, we also want them to contribute greater tax revenues to reduce the deficit that Osborne has failed tackle. That’s why last week John McDonnell said a Labour government would introduce a “Good Business” kitemark scheme, to promote those businesses that do the right thing. And that is why clamping down on tax avoidance schemes like Mondelez’s is so important.

Of course, we also need to tackle tax avoidance internationally. That is why we are urging the British government to support the OECD’s “Base Erosion & Profit Shifting’ (BEPS) initiative”. But that shouldn’t stop us taking effective action in the UK – which Osborne has consistently failed to do while he has been at the Treasury. And that’s why it’s a false economy for him to cutting HMRC tax inspectors when we need more tax revenue not less.

It’s also why it is disappointing to see some business figures saying that shareholders expecting the executives of a company to reduce their tax bill by aggressive tax avoidance strategies. That type of short term-thinking is one of the reasons for the weak, unbalanced UK economy we have today.

The great America jurist Oliver Wendell Holmes said “Taxation is the price that we pay for a civilized society”. Once corporations and citizens start to believe that is a price not worth paying, the fabric of a civilization begins to break down. A responsible government acts to protect the economic security of its citizens and the society they live in. A Labour government will take that responsibility seriously.

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