ALTHOUGH it seems likely that companies from all over the world have been using the Panama-based law firm Mossack Fonseca to avoid tax, so far we have mostly only been informed about those from countries that the media think we shouldn’t like.
The data is being searched by media corporations who feel that it is in the most part wrong to release illegally leaked data, so they are cherry-picking data relating to countries that we know have high levels of corruption and that have flouted UN regulations, in line with those media firms’ own ethics.
So, we have been hearing a lot about Putin, China, North Korea, Zimbabwe etc. but we (the UK) won’t be told the full extent of the UK participation in tax avoidance nor how much that is costing the UK Treasury.
The status quo is being protected and although there are some leaks relating to our Prime Minister’s financial affairs, that is being handled with a great care. The former Iceland Prime Minister Sigmundur Gunnlaugsson was named, but as the leader of a country that didn’t toe the line on the bank bailouts and even jailed leading bankers for corruption, he was always going to be a target. Following his resignation it will be interesting to see if Cameron finds himself under the same pressure.
It’s worth pointing out that from what we know so far of the activities of Mossack Fonseca they were doing nothing illegal and neither were the companies that are using them. In fact, you could argue that directors of the companies have a legal duty to their shareholders to maximise profit and if there is a legal way to pay less tax then they are simply doing their duty. If you want to end off-shoring then you need to elect a government that will change the laws and make sure that taxes are paid in the country where taxes are due, but we never have.
Consecutive Labour and Conservative governments, and the Tory-Lib Dem coalition, have followed a policy of deregulation and light-touch oversight and failed to act against tax avoidance on a scale of anything more than lip service. If a government wants to change the law then you need to work with the EU and with nations all over the world to close these loopholes and that would take time.
Maybe the Panama leak will sting the UK government into action, but I don’t expect it will unless there is a forensic examination of the Panama data relating to British companies and an estimation of how much it’s costing the UK Treasury per year.
If you are waiting for the UK mainstream media to do this then prepare for disappointment on two levels. Firstly, if companies are not breaking the law then they actually do have a right to their private data that was obtained illegally not being reported in the press, and secondly, the press in the UK is mostly owned by mega-wealthy media barons who also like to avoid paying as much tax as possible.
Rupert Murdoch’s company (Sky, Sun, Times) has, in the past, exploited legal loopholes and adopted “tax avoidance strategies” to avoid paying billions in taxes. It has been reported that the Rothermere family (Daily Mail) have offshore trusts and that Lord Rothermere inherited his non-dom tax status from his father, who lived mostly in Paris. Richard Desmond’s company (Express and Star) previously issued a statement to BBC Panorama saying: “Our strategy is to comply with relevant regulations while minimising the tax burden for Northern and Shell and our customers. The board considers it entirely proper that Northern and Shell endeavours to structure its tax affairs in a tax-efficient manner.” The Barclay brothers (Telegraph) live on Brecqhou in the Channel Islands or in their other home in the tax haven of Monaco.
There are more examples but it’s worth pointing out that everything they are doing is completely legal and – this is important – encouraged by the establishment.
I remember my accounting lecturer explaining it thus: “Tax avoidance is good but tax evasion is bad, avoidance is a skill but evasion is a crime.” Unless we vote for a Westminster Government that will make certain types of tax avoidance related to deliberate off-shoring illegal, and therefore classed as evasion, then the situation will continue.
If you think all tax avoidance should be illegal what about that ISA you have been saving into? The UK Government is key to any change in tax law globally, as several of the leading tax havens are at least partially under British control. For example, more than half of the offshore corporations set up by Mossack Fonseca are based in the British protectorate of the Virgin Islands.
We are still living with the consequences of the 2008 crash, but it is no longer an economic crisis, rather it is now a crisis in economics. Until 2008, everyone, even the political left (New Labour), believed that prosperity was better delivered by light-touch regulation, low taxes, cutting regulatory oversight and unfettered free trade, and that the system allowing individuals to experience massive growth in personal wealth would mean that the benefits would trickle down to the poorest in society. Neoclassical capitalist economics is now on its way to becoming a minority belief.
Given that Fonseca is only one of dozens of major global law firms offering tax avoidance services it is fair to say that tax avoidance will be costing the UK many tens of billions a year, and at a time of austerity it does seem that the rules for dealing with the hangover of the 2008 financial crisis don’t apply uniformly across society.
Over time I believe that off-shoring should be curtailed and phased out, but big business will always find ways to avoid tax. Maybe we can find ways to encourage them to do it in a way that benefits society? After claiming a three per cent corporation tax cut (proposed by but no longer supported by the SNP) would lower tax revenues and create a race to the bottom during the referendum, George Osborne has announced a corporation tax cut from 20 per cent to 17 per cent in 2020.
If I were the Scottish Government I would forgo that tax cut and introduce a simple corporation tax credit system allowing companies to earn the cut by behaving in ways that drive shared prosperity. The tax refunds could be earned by a combination of behaviours such as paying the real living wage, increasing exports, spending a target percentage of turnover on applied R&D and downstream innovation, hitting equality targets, employing young people and apprentices, prompt payment, especially to SMEs, and employee engagement.
That policy idea offers a legal and ethical tax avoidance alternative that would pay for itself by simultaneously increasing the tax take and encouraging companies to lay the foundations for future economic growth based on shared prosperity. But wait, the Scottish Government doesn’t have control over corporation tax, it was Northern Ireland that power was devolved to, wasn’t it? Oh Well.