Our government already hands sweetheart deals to globe-trotting business
Margaret Hodge, former chair of the Public Accounts Committee, is the latest politician to say that the government is recasting the UK as a tax haven.
This would mean that the UK would attract capital by offering low or no taxes, secrecy and lax enforcement of laws rather than investing in education, healthcare, transport and social infrastructure that produces sustainable economies.
In many ways, the UK is already on the road to becoming a tax haven and this has not produced economic stability or prosperity.
The corporation tax rate was 52 per cent in 1982 and declined to 20 per cent in 2016, well below the rate levied in high performing economies such as the US, China and the Scandinavian countries.
George Osborne, the previous chancellor, had announced plans to reduce the corporation tax rate to 15 per cent by 2020, bringing it closer to the rate in Albania, Andorra, Gibraltar, Cyprus, Iraq, Latvia, Lebanon and Moldova.
To compensate for lost tax revenues the government has inflicted never-ending austerity programmes and shifted taxes away from corporations to labour, savings and consumption. The rate of VAT was raised and too many people are hit by higher rates of income tax.
In its pursuit to make UK a tax haven, the government may wish to use taxes to subsidise corporations, but the recent case of Apple shows that unfair state-aid interferes in the capacity of other states to attract investment and they will retaliate.
Regardless of the kind of post-Brexit settlement, the UK will need to enter into trade agreements with other nations and none would tolerate special tax sweeteners.
More importantly, the UK economy is crying out for infrastructure investment and that can’t be delivered by foregoing more tax revenues. Despite the official claims, in common with tax havens, the UK facilitates secrecy and opacity. It is difficult to identify directors and beneficial shareholders of companies.
Under the Companies Act 2006 , shareholders can conceal their identity by using nominees such as lawyers, banks and accountants. Subject to the constitution of the company, Alternate Directors can be appointed to front for the real controllers.
Under the Act, public companies must have at least two directors, but only one of these needs to be natural person. The other can be a legal person, or another company, even though it is registered in a tax haven which guarantees complete anonymity to all the owners and controllers.
Many an investigation into corporate wrongdoing and illicit movement of money is thwarted because the beneficial owners and directors cannot be identified.
The UK provides a business-friendly law enforcement regime, which encourages excess because there is little chance of any effective retribution.
Despite critical parliamentary reports no test cases have been brought against Google, Amazon, Apple, Starbucks or any other multinational company for avoiding UK taxes by shifting profits to other jurisdictions.
To investigate corporate tax avoidance HMRC employs just 81 transfer pricing specialists, which is utterly inadequate. Even worse, tax avoiding corporations and accounting firms are allowed to write tax laws and have a significant presence at the upper echelons of HMRC .
The business-friendly UK regime turns a Nelsonian eye to corporate misdemeanours. The information provided by a former HSBC employee suggested that the bank’s Swiss operations enabled wealthy people and arms dealers to evade taxes.
Only one individual from the list of 3,600 potential UK tax evaders has been prosecuted. In January 2016, without any prior announcement, HMRC abandoned its criminal investigation into the role of HSBC in alleged illegal activities.
The government has urged other countries to go easy on misbehaving UK corporations. A 2016 report titled ‘Too Big to Jail’ by the US House of Representatives’ Committee on Financial Services noted Chancellor Osborne personally intervened and urged the US government to go easy on HSBC’s prosecution for its alleged role in money laundering. HSBC paid a fine of $1.9 billion and avoided prosecution.
Of course, none of this is new. The Bank of Credit and Commerce International (BCCI) was the subject of the biggest banking fraud of the twentieth century. It was closed-down in July 1991. Yet to this day, there has been no independent investigation.
So what did the UK learn about banking frauds and failures? The UK government has gone to considerable length to conceal the identities of the BCCI fraudsters. The above is only a small sample of evidence that shows that the policies and practices which UK shares with the most nefarious of tax havens.
None of this has brought economic stability or public confidence. The tax haven route is unlikely to bring sustained economic prosperity as that depends on investment in social infrastructure.
The failure to investigate and prosecute corporate crimes will only encourage corporations to indulge in even more anti-social practices and show that the government is neither responding to people’s anxieties nor building a successful economy.
Prem Sikka is Professor of Accounting at Essex Business School’s Centre for Global Accountability
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