Tax dodging isn't just for Starbucks; there is plenty committed by other companies you may not have heard about.
Mike Lewis is head of Tax Justice Policy at ActionAid
Healthy revenues but a tiny tax bill. Huge royalty payments to the Netherlands. Fees to Swiss subsidiaries.
You might be forgiven for thinking this is a description of the tax affairs of Starbucks UK – described by former City minister Lord Myners as “leeching” money out of the UK public purse, and whose chief financial officer was char-grilled yesterday afternoon by the UK public accounts committee.
Like Starbucks UK, it too has been making large payments to subsidiaries in the Netherlands for the rights to use brands sold in downtown Accra. It has also been paying more than 4% of its revenue to a Swiss subsidiary for management fees.
Taken together, we estimate the payments made to tax haven companies by SABMiller’s breweries in Africa and South Asia have – perfectly legally – reduced the group’s tax bill by as much as £20 million a year – enough to put a quarter of a million children in school in those countries.
ActionAid’s research has shown up similar tax practices in companies from South Asia to southern Africa. Profit shifting into tax havens is a shared global problem, and developing countries are hardest-hit: losing more money to tax havens each year, the OECD estimates, than they receive in aid.
It has rightly provoked British public fury in an era of austerity. Outside the UK, the anger is just as palpable.
Indian finance minister (now president) Pranab Mukherjee has called on the international community to push “tax havens [to] cooperate with countries to unearth the ill-gotten resources which are being deposited there”; and South African finance minister Pravin Gordhan has called aggressive tax avoidance “a serious cancer eating into the fiscal base of many countries”.
Building and protecting developing countries’ tax revenues has been rocketing up the international agenda.
Earlier this year, Parliament’s international development select committee issued a bold call-to-arms to do better, arguing “tax is an issue of fundamental importance for development… if development countries are to escape from aid dependency, and from poverty more broadly”. The cross-party committee set out a path-breaking agenda for the government to do better.
Yet the government’s response, published today, has so far mostly been business as usual. The government has said for the first time “effective tax systems can help developing countries to fund service delivery and escape from aid dependency and they can help shape economic growth”. And they have promised more assistance for developing countries’ tax administrations. Done well, this is vital work.
But as the development select committee emphasised, all the well-trained tax inspectors in the world cannot tackle tax avoidance if their audits are thwarted by corporate opacity in tax havens and developed countries, and if loopholes in the UK’s own tax regime make it easier for companies to shift profits out of both the UK and developing countries alike.
Here the government have refused action on all fronts. They have rejected the committee’s calls to make UK companies publish clearer statements of their tax positions, or make such information better available to tax authorities. There will be no effort to tackle corporate secrecy in the UK’s own offshore territories, amongst the world’s busiest tax havens.
And there will be no reconsideration of this year’s changes to the UK’s anti-tax haven rules that will help multinationals to shift profits into tax havens from developing countries – despite these changes, by the Treasury’s own calculation, also depriving the UK public purse of nearly £1 billion annually.
Last month David Cameron called tax avoidance “an international problem that all countries are struggling with”. Next year he has two golden opportunities to get serious.
The March budget could expand upcoming changes to UK tax disclosure rules to shine a light on UK corporations avoiding tax abroad as well as at home. And the London G8 in June could be a platform to finally lead a global fight against tax haven abuse. It would help the cash-strapped UK public purse as well as delivering huge dividends for the poorest countries in the world.
All that’s needed is the political will.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.