Tax avoidance debate hijacked by misconceptions

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Leading tax experts have come out in defence of companies that have been “named and shamed” by parliamentary committees for paying little or no corporation tax

At a discussion on international corporate tax avoidance at the House of Commons yesterday, Miles Dean, founder of Milestone International Tax Partners, accused the Public Accounts Committee (PAC) of reducing what is a topical and important debate into “finger-pointing and ranting” at four companies – including Amazon and Starbucks – whose low level of UK corporation tax payment was completely within the law.

“Tax is paid on profit, not revenue, and the thought that multinationals should be taxed in the same way as corner shops is a myth that needs to be busted,” he said.

And QC David Goldberg described the criticisms levelled by the energy and climate change select committee at Npower  this week as “shameful”.

“Npower was criticised for not paying corporation tax. It cannot be possible on any rational basis to criticise the company for doing that when it has legitimately claimed reliefs after investing billions in capital projects.”

Dean said that the two-year press campaign against tax avoidance was full of misconceptions and misinformation that had blurred the line between tax avoidance, tax planning, egregious tax avoidance, tax evasion and tax dodging, to the extent that even legitimate activities were described as tax dodging.

This had been fuelled by the PAC’s behaviour which had dragged the debate into a place where it did not to go. “I have had enough of fair share and morality arguments,” he added. “The real debate on tax is not that multinationals are not paying their fair share but what the government wants to achieve with the tax legislation.”

If it wanted to attract more companies to set up in the UK and increase its tax take, he said, then the current level of criticism was not giving out the right message.

“Companies have done no more than apply the rules of the country,” Goldberg added. “To call it avoidance is at best childish, at worst rabble-rousing.”

He said the major problem with the tax system was that the legislators did not understand how the legislation worked, which was not surprising given that the UK had more than 14,000 pages of extant tax law.

The fact that the current system did not deliver enough of a contribution to state revenues concerned Kamaljeet Jandu, national officer of the GMB Union. He said that the £25bn tax that went missing from the UK’s coffers every year as companies shifted taxable profits around the world would have prevented the cuts in welfare benefits that have resulted in food banks in virtually every town throughout the UK.

He suggested that the GAAR should be strengthened so that it penalised tax avoiders rather than glamorised them, and he called for a financial transaction tax to be imposed “to make financial institutions pay something back to society” and an increase in corporation tax.

Despite Jandu’s “fair share and morality” approach, there was common ground among the speakers that the UK legislation needed a complete overhaul.

“Perhaps, corporation tax for the 21st century is simply the wrong tax,” Goldberg said. He personally would get rid of all reliefs which he believes “distort human and corporate behaviour”, and go for a really simple tax regime. And he pointed to Hong Kong’s system as the most successful tax regime in the world.

Suggestions from the audience of tax experts, MPs and academics, varied from a low, flat rate system to taxing shareholders rather than companies or no longer taxing profits.

However, they all agreed with Tim Crossley of law firm Memery Crystal. “The PAC’s emphasis is on sound bites, not intellectual debate,” he said. “This debate should actually be about paying tax under a system that is fair, well-balanced and well-resourced.”

Julia Irvine

 

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  • Comment by Soulfulmoaner

    Oh dear! Dean and Goldberg seem to be reducing this important debate to criticism of the PAC and the E&CCSC. Is someone trying to protect their income streams? Let's deal with facts instead.Essentially all corporates are taxed in the same way. It's called a level playing field. Npower themselves don't seem to understand why they pay so little UK corporation tax (compare Mr Massara's comments to the Daily Mail 16/4/2013 with NPowers own website here http://www.npowermediacentre.com/Press-Releases/npower-response-to-38degrees-campaign-1243.aspx ) . The RWE Npower plc accounts show that interest paid to the German parent is largely responsible for the low UK corporation tax liability not capex. That's profit-shifting and the debate is whether that's acceptable or not. If you believe in democracy that is down to the Government of the day and ultimately the electorate. The PAC are to be congratulated on bringing this to the public's attention.

  • Comment by Kerry Stephens

    Ok so change the UK system, low tax on GAAP compliant income or tax shareholder distributions, but you are still left with the transfer pricing problem and the failings of the International system. Even on shareholder taxation the concern is whether cross border transactions with affiliates contain a distribution element, over or under priced as the case may be against arms length pricing. Perhaps the only "easy" answer is a turnover tax (against EU rules as we stand) and brutal on low value added businesses with slim margins. Even then there would a hail of abuse from many if it were at anything less than 20% (what the man in the street thinks he pays), where even 1% could cripple many businesses. The GMB man above should know better, he seems to be saying cash flow is for spending. Same mistake as third world regimes make when they nationalise big local industries thinking they can live off the cash flow forever,realising too late that you have to invest to keep up the cash coming.