As long as tax dodging goes unpunished, small businesses will have no chance
There are nearly 200,000 small businesses in the south east of England, the region I represent in the European Parliament. Between them, they employ 1.5 million people – that’s a third of all the jobs in the region.
I have met thousands of people who run or work for these small businesses, from high street cafes to record shops and app developers. They are the backbone of our economy, contributing not just jobs and services but also vital funds for public services when they pay their 20 per cent corporation tax.
These small business owners and workers must have been thoroughly annoyed to have discovered, via the ‘LuxLeaks‘ scandal, that many of their large competitors – international coffee chains and global online retailers – routinely used clever accounting tricks to bring their tax rates down to less than 1 per cent.
How can a start-up tech company in Guildford, or a family-run business in Dover, possibly expect to compete when the odds are stacked so spectacularly against them?
Action by one country alone cannot solve this problem. Currently, multinational companies can just nail a brass plate on an office building in the country with the lowest tax rate and claim this is their ‘headquarters’. So, to be effective, rules simply have to be agreed internationally.
That’s why I was encouraged by the European Commission’s announcement this week of five areas for action to make the European corporate tax system fairer.
The Commission’s proposals include introducing a single, compulsory set of rules for cross-border companies to use when assessing their tax base; ensuring companies pay their tax wherever they make their profits; and, perhaps most controversially, publishing a list of 30 countries and territories deemed to be ‘tax havens’.
This is a good start, but the Commission hasn’t gone far enough. It’s all very well having a public list of tax havens, but what are the repercussions for those countries who end up on the list? We should stop European taxpayers’ money passing through any of these tax havens, and prevent it from going to companies headquartered in these tax havens, too.
Unfortunately, the Commission has all but ignored one of the most effective ways to fight tax evasion, which is to make companies publish – country by country – the profits they make, the costs they incur and the taxes they pay.
Policymakers, NGOs, businesses and even accountancy firms have all said that ‘country by country reporting’ could make an enormous contribution to tackling tax dodging.
The Commission has chosen to kick it into the long grass by calling for a public consultation followed by a lengthy impact assessment. That simply isn’t good enough.
Above all, we need to make sure that national governments get on and implement these measures. The pressure now must move to the European Council, made up of David Cameron and the other national leaders.
So far, Cameron has shown himself to be a man of warm words but little action against tax dodging. Under his government, the amount of uncollected tax rose by £3 billion to a staggering £34 billion a year.
That’s the cost of the unlevel playing field, the tab being picked up by the hundreds of thousands of small businesses and millions of ordinary taxpayers across the country.
The price of inaction is unaffordably high. Both our national and European policy-makers have to take real action now, so small businesses can be put back on an even footing with those multinational companies that are making a mockery of our tax system.
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