‘Tackle Tax Avoidance Charter’ Briefing Pack This month the G8 will be discussing international action against tax avoidance. While this is hugely important, it is not an excuse for inaction at home. That is why Progress is launching our Tackle Tax Avoidance Charter. Inside this pack, you will find the charter, key background briefing and articles from Margaret Hodge making the political case for change. With supporting material on the international angle, we would also like your help to persuade the government and the Labour party to adopt its principles: First, show your support publicly by signing the petition on our website. Second, pressure the chancellor of the exchequer by emailing or writing to George Osborne ahead of the G8. Third, show a united party supports Ed Miliband’s pledge that a Labour government will take action in the UK to tackle tax avoidance. Ask your CLP to pass a resolution backing our campaign. Visit our campaign website at http://www.progressonline.org.uk/campaigns/tackletax-avoidance Contents The Progress ‘Tackle Tax Avoidance Charter’ Background briefing on the charter Two articles by Margaret Hodge MP, chair of the public accounts committee Article by Melanie Ward, head of advocacy, ActionAid UK Annexe A: CLP Motion supporting Tackle Tax Avoidance Campaign Annexe B: Model letter to chancellor George Osborne MP supporting the campaign
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The Progress Tackle Tax Avoidance charter EXPOSE THE TAX AVOIDERS … 1. ‘Name and shame’ companies and individuals engaged in tax avoidance. This would both have a powerful deterrent effect and help to change the culture among those people who see tax avoidance as legitimate and desirable rather than the abrogation of civic duty that it really is. 2. Open up the tax affairs of large quoted companies, starting with the FTSE 100. We should require companies to be much more transparent about their businesses and profits in the accounts they file with Companies House. HMRC HAS GOT TO GET A GRIP … 3. Challenge the tax arrangements of multinational companies to ensure that they are a true and fair reflection of their economic activity in this country. 4. Get tough on tax avoiders by mounting more prosecutions. 5. Ensure the HMRC has the right staff with the right skills. There needs to be the expertise within HMRC to keep up with those who devise and market tax-avoidance schemes. GOVERNMENT HAS GOT TO GET TOUGH … 6. Draw up a code of conduct to prevent conflicts of interest. Individuals working for large accountancy firms who advise government on tax law should not go on to create new ways of getting round it. 7. Deny public sector contracts to any company engaged in aggressive tax avoidance. 8. Beef up the Office of Tax Simplification which has just six civil servants working for it.
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Tackle Tax Avoidance Charter Background Briefing Winning the argument on the economy is vital to winning the election. Labour needs to persuade the voters about how it can be trusted on its strategy to run the economy and pay down the deficit. We believe that maintaining public expenditure is essential to allow us to invest in efficient, effective and caring key public services which improve the life chances of people across Britain, especially the most disadvantaged. Every pound lost through tax evasion and avoidance is one fewer pound to spend, or a pound of tax that has to be made up from people who are not dodging their fair share of responsibilities. Tax evasion and avoidance have a significant impact on the public finances. HMRC admits to a tax gap of £32bn in 2012. Last year, government wrote off £5bn of tax as being uncollectable, with £10bn more to be written off in future The exchequer also misses out on monies because some of the biggest and most high-profile companies in Britain use avoidance schemes that are deemed legal. This campaign is not anti-business, it is pro-fairness, because the actions of these global companies are anti-competitive and place the jobs, future profits and tax revenues at risk from firms which do not and cannot dodge paying tax, further jeopardising the future of our high streets. Furthermore, every pound lost to the exchequer this way is one fewer pound to spend on better schools for children or equipment for our military. Or is another pound of tax that has to be made up from those of us who play by the rules. The ‘Tackle Tax Avoidance Campaign’ demands the implementation now of simple and practical principles and policies to stop this epidemic of tax dodging: 1. Transparency: naming and shaming companies and individuals would be a deterrent and help challenge the culture of tax avoiders, starting by opening up the books of FTSE 100 companies. 2. Police the tax system aggressively: HMRC must challenge multinational companies’ tax arrangements to ensure they fairly and accurately reflect their economic activity in our country, and mounting more prosecutions. 3. Right staff with the right skills: HMRC must employ people with experience to keep up with those devising avoidance schemes. 4. Code of conduct: prevent conflicts of interest so staff from accountancy firms advising government on tax should not devise ways around it. 5. Government leadership: deny public sector contracts to companies engaged in aggressive tax avoidance, while also simplifying the tax code.
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ARTICLE BY MARGARET HODGE MP, CHAIR, PUBLIC ACCOUNTS COMMITTEE, PROGRESS MAGAZINE, JUNE 2013 PROGRESS’ TACKLE TAX AVOIDANCE CHARTER IS AN IMPORTANT STEP Well done Progress for launching an anti-tax avoidance campaign – this is a hugely important issue for Labour and resonates strongly with the public. In short, it matters and is a vote-winner. It matters to Labour because we too will have to tackle the deficit in government, so getting in every pound of tax due is critical to our ambitions for maintaining public expenditure. We believe in the importance of public spending to equalise life chances, but, as we will face fiscal constraints, we need to maximise the government’s income by making sure we get control of the appalling tax avoidance and evasion that appears endemic among global corporations and wealthy individuals. We are talking big numbers. HMRC admits to a tax gap of £32bn. That is a very conservative estimate and does not, for instance, include the monies we should be collecting from the Googles and Amazons of this world, because their avoidance schemes are deemed legal. In 2012 Amazon earned £4bn in sales in the UK, yet paid only £2.4m in corporation tax while claiming £2.5m from the UK government in grants. In 2011 Google’s revenue from its UK business was $4bn and its global profits were $9.7 billion, but they only paid £6m in corporation tax to the UK government. And last year HMRC wrote off £5bn in tax as being uncollectable with another £10bn projected to be written off in the future. The hearings on tax we have held at the public accounts committee, which I chair, have focused the spotlight on what has been happening for years. The response I have had from the public shows how strongly people feel and how angry they are. When times are hard and living standards are being squeezed, people think it is completely unfair and wrong that they should be paying their fair share of tax while wealthy individuals and the global corporations avoid paying theirs. This is not just a legal issue; it is a moral issue. As citizens of Britain we all have obligations, according to our means, to contribute to the common good which benefits us all. This is not an anti-business agenda; it is a pro-fairness crusade. Indeed, small and medium sized UK businesses are riled that tax avoidance by the multinational corporations puts the UK based businesses at a competitive disadvantage. If Starbucks can cut its prices because it pays no corporation tax, it forces the high street coffee shop that is hounded for the last penny by HMRC out of business, because it cannot compete.
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If Amazon avoids corporation tax – and perhaps VAT – by artificially constructing its business in Luxembourg, it puts John Lewis and the community bookshop at a competitive disadvantage. I am particularly fed up by the plea from multinationals that they pay other taxes, like business rates and national insurance contributions, so can choose not to pay corporation tax. We all pay our council taxes and VAT on the goods we buy. That does not mean we can choose to avoid paying our fair share of income tax. There is real fear at the heart of government that if it gets tough on business, businesses will flee the UK. But as the chief executive of Google, Eric Schmidt, himself admitted in an interview: ‘Google will continue to invest in the UK no matter what you guys do because the UK is just too important for us.’ Tackling tax avoidance will be tough but it needs real political commitment which is why the Progress campaign is so important. You only have to see the size of the tax avoidance industry to understand how unfairly the scales are balanced against HMRC. The big four accountancy firms make nearly £2bn a year from their tax advice business in the UK and they all have big offices in the tax havens. These same four accountancy firms alone have 250 highly paid transfer pricing specialists while HMRC employs only 65 people to challenge the transfer pricing claims of global businesses. No wonder HMRC is always forced into playing catch-up. So we need action under four pillars. First, the government should enable HMRC to be much tougher at challenging the big companies on their artificial structures. Why have we never taken one internet company to court to test their interpretation of the law? Why do we not staff HMRC properly? For every £1 spent on staffing we get £9 back in tax. Second, we need to have much greater transparency. The government hides behind taxpayer confidentiality so that nobody can see how judgements are being made. That lack of accountability will no longer do. The days of sweetheart deals with powerful corporations have to be over if trust in our tax system is to be restored. Naming and shaming those who aggressively avoid tax would provide a powerful deterrent, as most of these businesses care deeply about any reputational damage. Third, we have to simplify our tax code so that it becomes much more difficult to find loopholes. We have a ridiculously long and complex tax code and, although this government promised a radical simplification, the fact that only six people are working on this is evidence that it is only tinkering at the edges. Finally, we do have to work through international institutions, at European, G8 and OECD level so that we stop corporations moving their profits across national borders simply to avoid tax. And we should certainly work to close down the tax havens that claim a link to the UK as dependencies. That is why this campaign to toughen up our government’s resolve before the G8 summit is so important. So support the campaign and do your bit for building a fair tax system in the UK
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ARTICLE BY MARGARET HODGE MP, CHAIR, PUBLIC ACCOUNTS COMMITTEE, PROGRESS MAGAZINE, APRIL 2013 TAX FOR NOTHING In my two and a half years as chair of the public accounts committee, the issue that has most strongly captured the public mood has undoubtedly been that of tax avoidance. This is an issue for the left. We believe in the importance of public expenditure to transform people’s life chances. So ensuring that everybody pays their fair share is essential. The issue is more important than ever in an age of austerity when our public services are under threat and the poorest in our society are facing deep cuts to their income. Every pound of tax we fail to get in means less money for the services on which the most vulnerable depend. The numbers are staggering. HMRC admits that tax gap between what they collect and what they believe is due stands at £32.2bn. Other experts calculate the gap as standing at least twice that amount. Last year the government wrote off £5bn of tax, and they admitted that a further £10bn was at risk of never being collected. Just think how many teachers and nurses that could pay for. HMRC tell us that the amount lost to the Treasury through tax avoidance is around £5 billion each year. I think the real figure is much higher, because this estimate does not take account of the many wheezes used by companies like Amazon and Starbucks. The public accounts committee has been able to shine a light onto unacceptable practices that have been going on for years. I have been shocked by the sheer range and complexity of the devices used by corporations and wealthy individuals to avoid paying their fair share of tax. Companies like Starbucks, Amazon and Google manipulate tax laws to move offshore profits that are clearly generated from economic activity in the UK. Starbucks buys its coffee beans through Switzerland and charges its UK business a 20 per cent mark-up as a way of getting money offshore. Amazon told us that the books we buy are from a company called Amazon EU Sarl, based in Luxembourg. Yet its UK customers buy from amazon.co.uk, we are invoiced from the UK, the book comes from a warehouse in the UK, and, mostly, it comes in a parcel with a UK stamp in a Post Office van. We also looked at the so-called ‘boutique’ tax avoidance schemes used by rich individuals and celebrities, designed to exploit loopholes in legislation or abuse available tax reliefs – such as the film tax relief brought in by Labour to encourage investment in British cinema. By the time HMRC has closed the loopholes, the promoters of these schemes have moved on to the next wheeze while they have earned massive fees and their clients have saved money at the expense of the Eechequer. One promoter shamelessly admitted to the committee that the main purpose of his business was tax avoidance and that every scheme he had come up with had been shut down by HMRC. We have also questioned the ‘big four’ accountancy firms – PwC, KPMG, Ernst and Young and Deloitte. These firms both advise government on tax law and devise ways for companies and individuals to get around it. The Treasury recently brought in a ‘patent box’ tax relief designed to encourage innovation. A tax partner at KPMG was the lead adviser writing the 6
rules for government, and immediately went back to KMPG and marketed the scheme to his wealthy clients as a way to avoid tax. Often companies and individuals try to hide behind the concept of ‘tax efficiency’ to justify their behaviour. Of course everyone should only pay their fair share, but creating artificial structures to move profits offshore, exploit loopholes or abuse tax reliefs to gain a tax advantage that was never intended, is not about ‘efficiency’, it is about getting out of paying the taxes you owe. The behaviour we have uncovered has offended the basic sense of fairness of the British people. People are furious that while families who are struggling with the cost of living continue to pay their taxes unquestioningly, the rich get away with gaming the system. It was fear of what that outpouring of public anger would do to their bottom line that forced Starbucks to cave in and offer a £20m cheque to the taxman. Barclays Bank appears to have sensed the public mood and have announced the closure of their tax avoidance division. The government, too, appears finally to be catching on. Last month the prime minister made a speech in which he rightly attacked ‘aggressive’ tax avoidance as morally equivalent to illegal tax evasion, while the chancellor announced plans to work with other G8 members in the run-up to the summit in July to come up with firm measures to tackle tax avoidance by multinational companies. There appears to be a general recognition by all governments that they have been too slow to respond to the changing nature of the global economy and the dominance of large corporations that operate across tax jurisdictions. That failure is partly due to a lack of courage by governments to take on these companies for fear of a mass exodus of businesses and rich individuals. But I do not believe that companies like Starbucks will simply up sticks and go elsewhere. Online businesses like Amazon and Google are hardly likely to close down their UK operations. They need us as much as we need them. We will have to wait and see whether the government delivers on its commitments at the G8. But while that international cooperation is vital, there are a number of things the Government could and should do now. First, transparency is crucial. It was public anger that forced Starbucks to change its ways. ‘Naming and shaming’ companies and individuals engaged in tax avoidance would both have a powerful deterrent effect and help to change the culture among those people who see tax avoidance as legitimate and desirable rather than the abrogation of civic duty that it really is. We should also look at opening up the tax affairs of large quoted companies, starting with the FTSE 100, and require companies to be much more transparent about their businesses and profits in the accounts they file with Companies House. This government has made much of its commitment to transparency and it should put its money where its mouth is. Second, HMRC has got to get a grip and start policing the system much more aggressively and assertively. That includes challenging the tax arrangements of multinational companies to ensure that they are a true and fair reflection of their economic activity in this country. And it means getting tougher on tax avoiders by mounting more prosecutions.
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The third step is to ensure HMRC has the right staff with the right skills. At the moment it is losing a ‘David and Goliath’ battle with large companies and their armies of highly paid lawyers and advisers. There needs to be the expertise within HMRC to keep up with those who devise and market these schemes. Fourth, there should be a code of conduct to prevent conflicts of interest where the same individuals working for large accountancy firms who advise government on tax law go on to devise and market new ways of getting round it. Government should also deny public sector contracts to any company engaged in aggressive tax avoidance. Finally, those who point out that tax law is the responsibility of government are right. Tax legislation in this country is ridiculously complex and ripe for abuse. Yet the Office of Tax Simplification has just six civil servants working for it. It needs to be beefed up and have a much greater sense of urgency injected into the work it is doing. Until the government delivers on its promises to tackle avoidance, people will not have confidence in the fairness of our tax system. This is a matter of morality as well as economics. Public anger at immoral behaviour by companies and individuals is a powerful tool for government in the fight against tax avoidance; it should also be a spur for it to get on and act.
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ARTICLE BY MELANIE WARD, HEAD OF ADVOCACY, ACTIONAID UK, PROGRESS, MAY 2013 CALLING TIME ON TAX HAVENS Margaret Hodge deserves real recognition for the way that she has led the political charge on tax dodging. Her forensic questioning of Starbucks, Google and Amazon executives has left many of us agog as the companies make a whole range of outlandish claims about why their tax affairs are so. Public anger is at boiling point – polling shows that some 80 per cent demand more action, regardless of which political party they vote for. For the Labour party, things have moved on significantly since I last wrote for Progress calling for Labour to establish a muscular narrative on this subject. Ed Miliband has made an important intervention and Ed Balls and Catherine McKinnell have upped the pressure on the government, which has seen tax dodging race to the top of the political agenda. The launch of the Progress Tackle Tax Avoidance Charter is an important contribution to what needs to be done at a domestic level. Internationally, in just over a fortnight, David Cameron has promised that he will lead G8 action on tax dodging. Whether he is doing the groundwork to galvanise an outcome with the required ambition remains to be seen. One of the points that Ed Miliband made recently was, ‘If everyone approaches their tax affairs as some of these companies have approached their tax affairs we wouldn't have a health service, we wouldn't have an education system.’ In this, he makes a very important point – for this is exactly the case in many of the world’s poorest countries. The appalling truth is that developing countries lose three times more money to tax dodging than they receive in aid every year. Imagine what a difference that money could make if it was funding schools, hospitals and roads across Africa rather than being spirited away to the offshore accounts of multinational companies. It could be transformative – helping poor countries to become self-sufficient and stand on their own two feet. But huge changes are needed if this is ever to happen. As the Progress Charter recognises, companies need to operate much more transparently, showing where they actually do business and pay tax around the world. And as part of domestic action, the UK must deal with the 10 tax havens – some of the crown dependencies and overseas territories – that it is responsible for. Tax havens are the life support system for tax dodging; it simply could not happen without the secrecy they provide. They play no useful role in the global economic system and act as leeches, sucking away the vital funds needed for public services in developed and developing countries alike. At ActionAid, we found that the taxes lost to Zambia from the tax haven transactions of just one UK company, Associated British Foods, was a sum of money 19 times larger than the amount of UK aid given to Zambia to tackle hunger – or enough money to send 48,000 Zambian children to school each year. Scandalous. So tax havens must be given no choice but to clean up their act and start to play by the same rules as other countries. In the case of the 10 UK havens, this means forcing them to join the existing multilateral convention by which countries exchange tax information. This would help rich and poor countries alike to claw back some of the funds lost to them. But it also means a landmark new agreement at the G8 which strikes a terminal blow to tax havens across the world. Crucially, poor countries must be part of this from day one. If, as ActionAid 9
fears, the G8 were to strike a deal with tax havens which left poor countries out in the cold, then this would be a victory for self-interest and continued subordination of the world’s poor, rather than progress towards justice. As an international poverty campaigner, I know from experience that it’s not every day that developed and developing countries face a common scourge in the way that they do with tax avoidance and the structures like tax havens that facilitate it. We must be clear that domestic and international action are two sides of the same coin. The G8 must act in a couple of weeks’ time but that is just the beginning, and not the end, of what is truly needed.
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ANNEXE A: MODEL CONSTITUENCY LABOUR PARTY MOTION TO TACKLE TAX AVOIDANCE The economic crisis, double-dip recession and the Tory-led coalition’s austerity cuts are causing real pain for families, young people and the elderly across Britain. David Cameron and Nick Clegg claim we are all in this together but key public services, local councils and communities have seen their funding slashed, especially for measures to support the most vulnerable at this difficult time. At the same time, there is a group of global corporations and wealthy individuals who are not paying their fair share. Assisted by a highly paid army of tax advisers, they use tax avoidance and evasion schemes worth billions to maximise profits and dodge their responsibilities to society. It is a serious problem, leading to a significant impact on the public finances. HMRC admits to a tax gap of £32bn in 2012. Last year, government wrote off £5bn of tax as being uncollectable, with £10bn more to be written off in future. Many of Britain’s best known companies deploy tax avoidance schemes that are deemed legal. Tackling tax avoidance must be a priority for the next Labour government because: It is good for people. This CLP believes in the power of public services to improve people’ life chances and tackling tax avoidance will deliver missing tax receipts that will help the next Labour government to maintain expenditure on efficient, effective and caring public services which are vital for our communities. It is good for British business and the high street. How can small and medium sized UK firms carry on paying taxes and employing local people, when multinational firms put competitors’ existence at risk by undercutting their prices and wages thanks to tax evasion or avoidance? It is unfair and immoral that when times are hard and living standards are squeezed, decent taxpayers are contributing while those who can afford it most are dodging their responsibilities. At a time when Britain is rightly arguing for international tax agreements to tackle a global issue, we also have to get our policies right here in the UK. This CLP believes that the Labour party’s policy should be to expose firms which are using tax evasion and avoidance; give British tax authorities the powers and the muscle to deal with tax dodgers; and get tough in government through the power of the contracts we control. This is not an anti-business agenda, this is a crusade for fairness. Therefore, this CLP supports the following principles of the Progress ‘Tackle Tax Avoidance Charter’ and calls for the Labour party to adopt its policies.
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ANNEXE B: MODEL LETTER ON THE ‘TACKLE TAX AVOIDANCE CAMPAIGN’ TO CHANCELLOR OF THE EXCHEQUER GEORGE OSBORNE MP Dear Chancellor, I support the fight to tackle tax avoidance and encourage greater transparency and accountability and so I urge you to make this a reality by introducing policies that will benefit people in Britain and internationally today. The economic crisis, double-dip recession and your austerity cuts are causing real pain for families, young people and the elderly across Britain. The government claims ‘we are all in this together’, but key public services, local councils and communities have seen their funding slashed. Instead of your deep cuts, I support policies to deliver economic stability that simultaneously invests in efficient, effective and caring public services from health and education to housing and international aid which are vital for improving the life chances of people in the UK and around the world, particularly the most vulnerable. However, there is currently gross unfairness in the system. Most of us pay the tax we owe but there is a group of global corporations and wealthy individuals – aided and abetted by a highly paid army of tax advisers and lawyers – who are dodging their fair share through tax evasion and avoidance schemes. HMRC admit the tax gap cost £32bn to the UK in 2012, and billions more are lost to tax avoidance by some of Britain’s best-known brands. Every pound lost to your exchequer this way is one less pound to spend on better schools for children or equipment for our military – or is another pound of tax that has to be made up from those of us who play by the rules. This is not a campaign against business, it is a crusade for fairness because it is the actions of tax dodgers are putting jobs and future tax revenues at risk in firms which live up to their responsibilities: How long can jobs last in independent coffee shops that pay taxes, when prices are undercut by global brands channelling profits away through Switzerland? What is the future for local bookshops or the high street which cannot avoid local business rates unlike online stores that claim to be based offshore? British leadership now You can demonstrate Britain’s leadership to other G8 countries by acting now to close these loopholes and stop the epidemic of tax dodging by implementing Progress’ ‘Tackle Tax Avoidance Charter’. The principles and policies are simple: 1. Transparency: naming and shaming companies and individuals would be a deterrent and help challenge the culture of tax avoiders, starting by opening up the books of FTSE 100 companies. 2. Police the tax system aggressively: HMRC must challenge multinational companies’ tax arrangements to ensure that they fairly and accurately reflect their economic activity in our country, and mount more prosecutions. 3. Right staff with the right skills: HMRC must employ people with experience to keep up with those devising avoidance schemes. 12
4. Code of conduct: prevent conflicts of interest so staff from accountancy firms advising government on tax should not devise ways around it. 5. Government leadership: deny public sector contracts to companies engaged in aggressive tax avoidance, while also simplifying the tax code. International Action Indeed, just as tax dodging is hitting the UK, it is hitting the world's poorest countries even harder and Britain has the power to take a lead overseas too. The OECD estimates that they lose three times as much to tax havens as they receive in aid each year. The prime minister cannot talk credibly about dealing with tax dodging as long as 10 of the UK's own overseas territories and crown dependencies continue to act as tax havens. As an immediate first step they must sign the existing Multilateral Convention on tax information exchange before the G8. Then, at the G8, any new deal to combat tax dodging must include developing countries from day one, with a clear action plan of how they will benefit. The government’s stated aims for outcomes of Britain’s presidency of the G8 offer the potential to leave a lasting improvement for citizens around the world but that will only happen if you demonstrate leadership at both home and abroad. You have a chance here to show that we are all in this together but there can be no more cosy deals for the companies and individuals exploiting Britain’s tax laws, for the accountants and lawyers playing both sides of the game, or for rich countries which leave poor countries out in the cold. That is why I support the principles and policies of Progress’ ‘Tackle Tax Avoidance Campaign’ and urge you to implement them both in UK tax policy and in Britain’s arguments for tax reform at the G8. Yours sincerely,
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