Governments and Tax


Cross-posted from Peter Dombi’s website Our Broken System


This week the issue of corporate Tax Avoidance was in the news – again. Firstly it was reported that Thames Water, despite making profits of £259m, will not being paying any tax this year*. (With corporation tax at 20% that’s a loss to the taxpayer of £52m – even more galling when you consider that Thames is intending to pay £100m in dividends to its various shareholders.) Thames has managed to do this by making judicious use of ‘capital allowances’.

Next up, there were protests outside high-street favourite Boots, following on from a campaign to get the government to investigate the company’s tax affairs. Since being taken private in 2007 it is estimated that the company has avoided about £1.3bn in tax* (enough to cover 3 years of NHS prescription fees) by channeling its profits through Tax Havens and using Limited Liability Partnerships .

File:UK Uncut protest outside Vodafone, Church Street, Liverpool.jpeg

Vodafone: The frequent target of anti-tax-avoidance protestors. Picture © Jonathandeamer

And finally Vodafone were in the frame again, and the subject of a series of protests by UK Uncut about their perpetual tax avoidance tactics. Despite being headquartered in the UK, they  run large amounts of their profits through the tax haven of Luxembourg, the result of which is that, even though the UK is highly profitable for them, they haven’t paid any corporation tax here since 2011. They are also still bearing bad blood after a dodgy tax deal with the Inland Revenue in 2001 let them off £6bn in tax.

These are of course only the latest in a long series of scandals involving companies such as Starbucks, Google, Amazon, Facebook,  Apple etc – all companies which have extensive operations in this country but claim, incredibly, to make almost no profit here. There are many legal loopholes they can use to avoid tax, the most common of which is Transfer Pricing. However the crucial point is this – although it is very easy to point the finger of blame at these outfits, ultimate responsibility for all this deception lies with the government. Legislation can easily be made to deal with tax loopholes, but the government simply refuses to do it  – in fact, worse, they help facilitate it (for example George Osborne’s recent changes to the Controlled Foreign Companies act has made tax avoidance by UK-based multinationals much easier.) The excuse they give is that the UK must be ‘competitive’ on tax law in order to attract businesses. Competitive on tax of course means competing with other countries to see who can charge the least tax and, by necessity, who can make the largest cutbacks to public services; and as all countries are doing this it becomes nothing other than a  perpetual spiral of decline – the so-called ‘race to the bottom’ – the main tool of which is Austerity. (It’s also worth remembering that with tax avoidance costing the economy £95bn/year, clamping down on that would remove the requirement for austerity completely). In addition, and ironically for those who support the idea of free markets, such practices by  multinationals give them a huge advantage over smaller UK companies who can’t avoid tax, the result of which is that many small UK businesses could be driven into bankruptcy.

It is obviously unacceptable that large, unaccountable corporations should be able to hold governments to ransom in this way, but they can only do it because governments allow them to, under the guise of being ‘pro-business’. (Helped along with a fair bit of funding for their political parties  and some strong behind-the-scenes lobbying as well.) In this way our whole democratic system has been corrupted by the power of money, and true power now lies with those who control the politicians, not we who elect them. And until people wake up and stop voting for the same old parties, this situation will continue indefinitely, with ever increasing wealth for those at the top, and ever-declining living-standards for those at the bottom.

* Thames Water: Boots: Vodafone:

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