Published on 23 Oct 2014 Sections , , ,

Have new government tax rules made any difference at all?

Introduced after the Google, Facebook and Starbucks tax scandals, new tax rules are doing very little to curb similar legal tax avoidance, it is claimed. Is public disquiet having more influence?

Margaret Hodge, the chair of Parliament’s Public Accounts Committee, told Channel 4 News the British government” has got worse at getting the money in, rather than better. All the indicators look worse.”

And leading tax expert Richard Murphy said he did not believe that the government’s rules – which allow Whitehall departments to exclude companies taking part in failed tax avoidance schemes from public sector contracts – have not been used to ban a single one.

However, Mr Murphy, the founder of the Tax Justice Network, said that some companies have begun to voluntarily refuse to join legal tax avoidance schemes.

Very few companies now want to find themselves in the position that Facebook and Starbucks etc did. Richard Murphy, tax expert

On Wednesday it emerged that Facebook paid no UK corporation tax for the second year in a row. The company’s latest accounts showed that it reported a pre-tax loss of £11.6m in the UK in the last year, despite its UK turnover increasing more than 66 per cent to £371m.

It also paid out millions in shares to its staff and its US parent company reported a net profit of £900m.

It follows similar scandals that hit Facebook, Google and Starbucks, which have all employed legal tax avoidance schemes in in recent years.

In 2012, the Public Accounts Committee said it “found it difficult to believe” Starbucks “was trading with apparent losses for nearly every year of its operation in the UK”, as it claimed.

Starbucks subsequently made two voluntary £5m payments to the Treasury in 2013 – its first corporation tax payment since 2009, despite £400m in sales in 2012.

‘Commercial advantage’

Speaking to Channel 4 News on Thursday, Mr Murphy said he believed the resultant public pressure has brought about a change. “Very few companies now want to find themselves in the position that Facebook and Starbucks, etc did.”

He said: “There is a clear indication that companies are using tax havens less because of the risk of exposure. The attitudes appear polarising.”

He said that some companies now wanted to keep a low profile to avoid the negative publicity. This month, power company SSE became first FTSE 100 company to be awarded the Fair Tax Mark, which holds firms to account over their tax affairs.

“We have got some companies seeing a commercial advantage in that. We have not seen that before,” Mr Murphy said.

“There are others who are still dedicated to tax minimisation – the US companies are mainly into aggressive tax avoidance. Some British companies see more of a commercial advantage, others do it to be able to show regulators.”

But both Mr Murphy and Ms Hodge agreed that public pressure, rather than a government crackdown, is behind the shift.

‘Weak’

“The government is following that trend but the rule is so weak. It hasn’t been used, as far as I know. They have the procurement rule, which has not stopped anyone getting a contract. The government’s rules are good PR but have not had very much impact,” said Mr Murphy.

And Ms Hodge said: “The government is trying to do what the worst tax havens do. It has introduced a new patent box, which is a tax relief. If you say ‘I have got a new patent and I am doing some business as a result’, you pay less corporation tax – and it is being exploited. Why do people like Pfizer want to come here?

“They have also played around with the controlled foreign company rules, which make it easier – if you are UK-based – to not pay as much tax on your profits.

“If we carry on this way, we will end up without any money to run public services. They think you can compete on tax to get business here but, the problem is, the companies moving HQs here are not creating many jobs. And someone will always outbid you.”

“It is true that public pressure is helping. A lot of people say the conversation in the boardroom has changed.”

Asked directly if it was true that no company has ever been barred from bidding on government contracts as a result of the Treasury’s anti-tax avoidance rules, a Cabinet Office spokesman did not give a specific figure.

The spokesman said: “The government has introduced robust rules to allow departments to enforce a no tolerance approach to suppliers who take part in failed tax avoidance schemes, which are totally unacceptable. Though these have been introduced recently so the impact is only beginning to be felt, the Government’s position is firm.”

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