What is a fair amount of tax?
Occupation of high street stores…heavy handed police tactics…prime time news coverage.
The UK Uncut protests have singled out some multinational companies who are alleged to have legally avoided tax. Whatever you think of their tactics, the message resonates: if these companies were paying the taxes they should, it could pay for the cuts in welfare, education and other public goods which are being axed by the current UK government.
Christian Aid has had no involvement in UK Uncut. But we have been campaigning on the issue of tax dodging for a long time, albeit with a very different approach. Our argument goes like this: if countries like the UK aren’t able to tax multinationals effectively, what hope is there for a country like Sierra Leone: a country with great wealth but which remains near the bottom of the Human Development Index while unscrupulous companies hide their taxable profits offshore.
It is laudable that there is cross party consensus on protecting the aid budget. But when we look at the figures, there is a growing consensus that money flowing out of developing countries due to tax dodging dwarfs global aid. Christian Aid puts the amount involved at around $160bn in lost revenue each year. This money, if available and used in an accountable way, would fund badly needed services such as schools and hospitals.
So, what is a fair amount of tax to pay - in the UK, and in the developing world? Is it sufficient to stay within the letter of the law, albeit by employing tax avoidance strategies that if in general use would render the entire system unworkable. Or is there a moral requirement to pay more than the bare minimum?
When pressed by Jeremy Paxman on Newsnight, Tony Smith, of UKUncut said was clear – the tax obligation was both moral and legal . Governments need to close the loopholes and treat big companies less leniently. Companies, meanwhile, should eschew complex legal structures that enable them to avoid all the taxes they can. In his view, obeying the letter of the law is not enough – its spirit should also be observed.
Christian Aid favours dialogue with companies to seek to persuade them to change their ways, rather than the more confrontational approach of UK Uncut. But we agree that companies need to be held to account for their tax affairs and that the principle of exploiting loopholes to minimise a company’s tax bill should be challenged.
One compelling reason for reform is that as the system stands at present, those companies that do attempt to obey the spirit of the law are at an unfair financial disadvantage compared to their less scrupulous competitors.
Nick Shaxon’s book Treasure Islands eloquently charts the history of offshore tax havens and the way in which the secrecy they offer has been used by individuals and multinationals to hide money from the tax man. This is not a new problem and it’s not a simple one.
Multi-national companies operate on a global basis while taxes are levied on a national basis. And under the current system companies have a lot of discretion as to where they declare profits and therefore pay income taxes. They can, for example, locate valuable intellectual property in tax havens and charging other parts of the company high rates to use it, meaning more of the profits show up in the tax haven.
It’s not for Christian Aid to say how much tax a company should pay – nor what tax rates a country should set – but we do argue that companies should be transparent about where they pay their taxes and how that relates to underlying economic activity – so it’s clear to both governments and citizens when companies are sailing close to the wind. Governments can therefore take the necessary action, and companies bear the reputational risk of being labelled a tax dodger.
Rather than accusing companies of dodging tax - we are pushing them to take a lead on tax transparency. Join us in our call for Vodaphone, Unilever, TUI Travel and Intercontinental Hotels to Trace the Tax.
We are also adding our voice to a global call on the G20 to End Tax Haven Secrecy which makes tax dodging much easier.
Join us in the fight to against financial secrecy and help developing countries to fund their own development.