Why Tax Matters
Tax Justice Speaker Tour 2013- 2014
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Tax Matters
£ Tax has a bad reputation, or at least it has been
given one over the last 40 years
BUT…..
• Tax is everyone’s contribution to society
• Tax funds the NHS, education, childcare and the
services that make our society what it is
• Tax is not just government money – it’s about
redistribution
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Misconceptions
£ The public sector is wasteful. The private
sector is incredibly efficient.
BUT…
• The NHS is the 2nd most cost-effective health
service of any developed country
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Misconceptions
£ Benefit fraud
The public believe that approximately 24p in
every pound is lost to benefit fraud.
The truth is…
 It is actually 0.7p in every pound
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Whereas the private sector is
incredibly inefficient
The cost of the ‘internal market’ in the NHS – i.e.
competition between healthcare providers - is
around £10bn
•
That is approximately 10% of the total
budget for the NHS
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Why does tax matter now?
In the UK, most of us are all too aware of why tax
revenue is so important right now:
• Austerity – the coalition government is pushing through the
deepest cuts to welfare spending for nearly 100 years
• This is totally re-shaping the welfare state and the whole way
our economy and society is structured
• It is a political choice to cut spending (and therefore
support for the poorer and more marginalised) rather than
raise money through taxation (on the wealthier and big
business)
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Why does tax matter now?
Because there is still an enormous global
challenge of poverty:
• 1 in 10 people in the world still don’t have
access to clean safe drinking water
• The world’s poorer countries are still crippled
by debt – collectively they owe £3 trillion –
much more than the £81 billion of debt that
has been cancelled
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How are we losing out?
Tax Dodging
• Tax dodging describes the various ways that
companies and rich individuals reduce their tax bills,
whether through lobbying governments for tax
breaks and lower corporate tax rates, exploiting
obscure loopholes in tax laws, or shifting profits into
tax havens. Some of these are legal and some of them
are not, but all increase poverty and inequality.
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How do they do it?
Tax Evasion
• Tax evasion is an illegal act which aims to reduce a
company or an individual’s tax bills. It often involves
misleading tax authorities, not declaring income or
hiding money from tax authorities in a tax haven.
Tax Avoidance
• Tax avoidance refers to the artificial ways companies
and individuals reduce their tax bills.
• Not that different from tax evasion - it just hasn’t
been made illegal yet!
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Tax Avoidance is NOT
• about tax relief on pensions or ISAs
 This is intended to incentivise certain
behaviour, for example:
encouraging people to save for old age.
discouraging smoking by putting tax on
cigarettes.
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Why does tax dodging matter?
• It creates one rule for the rich and big business – and one rule
for everyone else
• It matters because these people and companies are not
contributing to society. They are not paying their share to the
services we all use and rely on. They are not even paying for the
services they use.
• Companies rely on public services to provide education and
healthcare for their staff. If they pay no tax, they are freeloading
off the rest of society
• Those that should be contributing the most, are also those most
able to use complex schemes to avoid paying their fair share.
The opportunities to dodge tax exist mainly for rich individuals
and multinational corporations.
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How much tax revenue is lost?
 In the UK:
• £25 billion in tax revenue is avoided every year (this is a
very conservative estimate);
• 50% from big business, 50% from rich individuals
• To put this in context, – social security and tax credit
fraud combined equals £1.6bn per year – or just 6% of the
total lost to tax avoidance
 In poorer countries:
• £360 billion a year is siphoned out of developing countries
into tax havens
• This is a rapidly growing problem in Sub-Saharan Africa and
Asia
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What on earth are Tax Havens?
Tax havens:
 Are places where secrecy and low tax rates allow people
and companies to dodge taxes
 Have trusts & shell companies, fake directors, lack of
beneficial ownership
 Have limited requirements for residency for tax
 Do not require even basic financial standards e.g.
publishing accounts
 Do not share information with other authorities – e.g.
Swiss banking
 Have low tax rates
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Tax Havens
 In total £20 trillion is now held in tax havens - 13
times the GDP of the UK economy
 If this money was taxed instead, it would generate
£180bn a year (globally)
 This is more than twice the amount that all
rich countries give in overseas aid
So how do companies and people
actually dodge tax?
There are lots of different ways that companies
can cut their tax bills, for example:
• “persuading“ the government to cut the
corporate tax rate to 20%
• Secure massive tax breaks for new technology
for example, fracking
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How do they actually dodge tax? ….
• The most important question about tax
dodging is not about how much you pay – but
where you pay tax
• The goal for a tax dodging company is to get
the profit or wealth from countries where
they would pay taxes ‘onshore’, to countries
where they can pay less ‘offshore’ i.e. tax
havens
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Starbucks
 Paid only £8.6m in corporation tax in the last
14 years; but
They sold £3 billion of coffee
They opened 735 coffee shops
How?
Because it made a loss for 13 of the last 14
years!
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Are you absolutely sure?
• Starbucks brand
– Starbucks UK pays 6% of the value of all UK sales to
Starbucks in Amsterdam for the right to use the
Starbucks brand
– Starbucks Amsterdam has a secret low rate tax deal with the
Dutch government
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Are you absolutely sure?
• Bank of Starbucks
– In the UK, companies can reduce their tax bills by
deducting the interest they pay on loans from their taxable
income
– Starbucks lend Starbucks UK money from another
subsidiary in a tax haven (e.g. Starbucks Cayman Islands)
where the interest payment received from the UK
company is not taxed.
– Starbucks’ entire UK operation is funded by very
expensive debt – a very bad deal for the UK company, but
a very good deal for the Starbucks Company lending the
money.
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Starbucks in debt?
 Swiss Roles
• All of Starbucks UK coffee comes from
Switzerland – not known for its tropical
growing conditions, but better known for its
4% tax rate on profits on commodities
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Transfer Mispricing
• Starbucks Kenya sells its coffee very cheaply – this means that
Starbucks Kenya doesn’t make much profit – so Kenya doesn’t
gain much corporation tax. The coffee is then sold on to:
• Starbucks Switzerland – which then sells the very same coffee
at a very high price to Starbucks UK. This means that it makes
lots of profit where the company can pay a low rate of tax.
• Starbucks UK pays a high price for the coffee, meaning it
makes less profit and so pays less tax.
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What happens next?
• Profit has been shifted out of the UK to the
Netherlands, Switzerland and to whichever country is
lending Starbucks UK money – e.g. Cayman Islands
• All of these companies are treated – for tax purposes
– as wholly separate companies – even though they all
act and exist as part of one global Starbucks brand
• Profit can’t be taxed twice. Double taxation is seen as
very bad, so countries agree treaties to make sure
profits aren’t taxed twice. Once your profit is taxed
(even at very low rates) in Switzerland, Amsterdam etc.
Starbucks can then take it back to the US tax free
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What is the alternative?
 Tax justice - a principle guiding how taxes should
be raised and spent:
 A just tax system is one where money is raised and spent
fairly and transparently, with real democratic oversight and
control
 Taxes should be raised progressively, based on ability to
pay, and spent according to need
 Tax is a means of redistributing wealth. Tax should be used
to reduce inequality in society, and to fund universal public
services – not spent on corporate welfare
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Will tax justice work?
 If we want to tackle tax dodging, or campaign for
the rich to pay more, it is important to do so within
the framework of tax justice.
 It is important to put it in the context of a fair and
progressive tax system that meets the needs of
society – otherwise we are just campaigning for
more money for government (which could be spent
on boosting the profits of big business, arms or
wars).
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Getting tough on tax?
Tax avoidance is:
“morally repugnant”…
“shocked to discover the
wealthiest people pay
virtually no income tax”…?
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The Scale of the Problem
 The UK coalition government has made it
easier for companies to pay less tax:
• The 2012 Budget got rid of the rules that penalised
companies bringing money into the UK from tax havens ‘Controlled Foreign Company’ rules.
• This single move is estimated to lose the UK £1bn and
developing countries £4bn.
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Secrets and Lies
£ Cuts to HMRC - The government has said since 2010
that it is investing up to £900m into tackling tax avoidance
within HMRC - but that is money being reinvested from a
total cut of £3bn over the same period.
£ Staffing at HMRC has already fallen by a third since 2005,
and another 10,000 jobs are set to go by 2015 under the
coalition government's plans
£ Secrecy deal with the Swiss – the government claimed a
landmark deal to bring in £3 billion from UK citizens’ Swiss
bank accounts. In fact it just allowed Swiss banks to
maintain secrecy, will only recover £800 million.
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The UK’s tax haven empire
The UK is at the heart of the
‘offshore system’ that allows
companies to dodge tax.
• Many of the world’s most
significant tax havens,
such as the Cayman Islands
and British Virgin Islands
are UK sovereign
jurisdictions
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The UK – the beating heart of
the offshore system
 Multinational companies are only able to dodge tax because
they are allowed to – it is the tax rules of countries like the
UK that allow them to dodge tax on such a massive scale.
The City of London itself acts as the nerve centre for these
tax havens and supports an army of lawyers and accountants
devoted to helping companies dodge tax.
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A Question of Political Will
 The lack of effective business regulation in the British Overseas
Territories allows them to be used by rich individuals and
multinational companies to avoid and evade tax; depriving the
UK and the world's poorer countries of vital revenues for
tackling poverty and providing universal public services.
 In July 2013, the government launched a consultation on new
rules to enhance corporate transparency in order to tackle
corporate tax evasion, including a rigorous public register of
companies' true beneficial owners.
 This would be a huge step forwards. However the government's
proposals completely leave out the under-regulated Overseas
Territories.
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…..Guess What?
• There is more Foreign Investment in the British Virgin Isles
than in Brazil and India combined.
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What should the Government do?
 The UK government should ensure that all the British
Overseas Territories have in place:
– Rigorous public registers of the beneficial owners of all
companies and trusts
– Regulation to end the use of abusive corporate or trust
entities
– Basic standards of business regulation, such as the
requirement to file public accounts
– Agreements with other countries – not just the UK or
other tax havens – to automatically share tax information
– Effective taxes applied to profits and wealth
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Should the Overseas Territories not introduce such
measures voluntarily, the UK government should do
so through legislation to ensure that UK jurisdictions
can no longer be used to dodge taxes around the
world.
 Even the Foreign Office acknowledged in its 2012
White Paper; "as a matter of constitutional law the UK
Parliament has unlimited power to legislate for the
[Overseas] Territories."
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What can we do?
 Take action now and demand the government abolishes the
UK's tax havens
 Fight the cuts to HMRC
 Spread the word in your branches, get involved with War on
Want and the tax justice movement - join in actions in your
area
 Put pressure on the Labour (and other) parties to tackle tax
dodging
 Join War on Want!
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