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Why Tax Matters. Tax Justice Speaker Tour 2013- 2014. Tax Matters. Tax has a bad reputation, or at least it has been given one over the last 40 years BUT….. Tax is everyone’s contribution to society

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why tax matters

Why Tax Matters

Tax Justice Speaker Tour 2013- 2014

tax matters
Tax Matters
  • Tax has a bad reputation, or at least it has been given one over the last 40 years

BUT…..

  • Tax is everyone’s contribution to society
  • Tax funds the NHS, education, childcare and the services that make our society what it is
  • Tax is not just government money – it’s about redistribution
misconceptions
Misconceptions
  • The public sector is wasteful. The private sector is incredibly efficient.

BUT…

  • The NHS is the 2nd most cost-effective health service of any developed country
misconceptions1
Misconceptions
  • Benefit fraud

The public believe that approximately 24p in every pound is lost to benefit fraud.

The truth is…

    • It is actually 0.7p in every pound
slide5

Whereas the private sector is incredibly inefficient

  • The cost of the ‘internal market’ in the NHS – i.e. competition between healthcare providers - is around £10bn
  • That is approximately 10% of the total budget for the NHS
why does tax matter now
Why does tax matter now?

In the UK, most of us are all too aware of why tax revenue is so important right now:

  • Austerity– the coalition government is pushing through the deepest cuts to welfare spending for nearly 100 years
  • This is totally re-shaping the welfare state and the whole way our economy and society is structured
  • It is a political choice to cut spending (and therefore support for the poorer and more marginalised) rather than raise money through taxation (on the wealthier and big business)
why does tax matter now1
Why does tax matter now?

Because there is still an enormous global challenge of poverty:

  • 1 in 10 people in the world still don’t have access to clean safe drinking water
  • The world’s poorer countries are still crippled by debt – collectively they owe £3 trillion – much more than the £81 billion of debt that has been cancelled
how are we losing out
How are we losing out?
  • Tax Dodging
  • Tax dodging describes the various ways that companies and rich individuals reduce their tax bills, whether through lobbying governments for tax breaks and lower corporate tax rates, exploiting obscure loopholes in tax laws, or shifting profits into tax havens. Some of these are legal and some of them are not, but all increase poverty and inequality.
how do they do it
How do they do it?

Tax Evasion

  • Tax evasion is an illegal act which aims to reduce a company or an individual’s tax bills. It often involves misleading tax authorities, not declaring income or hiding money from tax authorities in a tax haven.

Tax Avoidance

  • Tax avoidance refers to the artificial ways companies and individuals reduce their tax bills.
  • Not that different from tax evasion - it just hasn’t been made illegal yet!
tax avoidance is not
Tax Avoidance is NOT
  • about tax relief on pensions or ISAs
  • This is intended to incentivise certain behaviour, for example:
  • encouraging people to save for old age.
  • discouraging smoking by putting tax on cigarettes.
why does tax dodging matter
Why does tax dodging matter?
  • It creates one rule for the rich and big business – and one rule for everyone else
  • It matters because these people and companies are not contributing to society. They are not paying their share to the services we all use and rely on. They are not even paying for the services theyuse.
  • Companies rely on public services to provide education and healthcare for their staff. If they pay no tax, they are freeloading off the rest of society
  • Those that should be contributing the most, are also those most able to use complex schemes to avoid paying their fair share. The opportunities to dodge tax exist mainly for rich individuals and multinational corporations.
how much tax revenue is lost
How much tax revenue is lost?
  • In the UK:
  • £25 billion in tax revenue is avoided every year (this is a very conservative estimate);
    • 50% from big business, 50% from rich individuals
    • To put this in context, – social security and tax credit fraud combined equals £1.6bn per year – or just 6% of the total lost to tax avoidance
  • In poorer countries:
  • £360 billion a year is siphoned out of developing countries into tax havens
  • This is a rapidly growing problem in Sub-Saharan Africa and Asia
what on earth are tax havens
What on earth are Tax Havens?

Tax havens:

  • Are places where secrecy and low tax rates allow people and companies to dodge taxes
  • Have trusts & shell companies, fake directors, lack of beneficial ownership
  • Have limited requirements for residency for tax
  • Do not require even basic financial standards e.g. publishing accounts
  • Do not share information with other authorities – e.g. Swiss banking
  • Have low tax rates
tax havens
Tax Havens
  • In total £20 trillion is now held in tax havens - 13 times the GDP of the UK economy
  • If this money was taxed instead, it would generate £180bn a year (globally)
  • This is more than twice the amount that all rich countries give in overseas aid
so how do companies and people actually dodge tax
So how do companies and people actually dodge tax?

There arelots of different ways that companies can cut their tax bills, for example:

  • “persuading“ the government to cut the corporate tax rate to 20%
  • Secure massive tax breaks for new technology for example, fracking
how do they actually dodge tax
How do they actuallydodge tax? ….
  • The most important question about tax dodging is not about how much you pay – but whereyou pay tax
  • The goal for a tax dodging company is to get the profit or wealth from countries where they would pay taxes ‘onshore’, to countries where they can pay less ‘offshore’ i.e. tax havens
starbucks
Starbucks
  • Paid only £8.6m in corporation tax in the last 14 years; but
  • They sold £3 billion of coffee
  • They opened 735 coffee shops

How?

Because it made a loss for 13 of the last 14 years!

are you absolutely sure
Are you absolutely sure?
  • Starbucks brand
    • Starbucks UK pays 6% of the value of all UK sales to Starbucks in Amsterdam for the right to use the Starbucks brand
    • Starbucks Amsterdam has a secret low rate tax deal with the Dutch government
are you absolutely sure1
Are you absolutely sure?
  • Bank of Starbucks
    • In the UK, companies can reduce their tax bills by deducting the interest they pay on loans from their taxable income
    • Starbucks lend Starbucks UK money from another subsidiary in a tax haven (e.g. Starbucks Cayman Islands) where the interest payment received from the UK company is not taxed.
    • Starbucks’ entire UK operation is funded by very expensive debt – a very bad deal for the UK company, but a very good deal for the Starbucks Company lending the money.
starbucks in debt
Starbucks in debt?
  • Swiss Roles
    • All of Starbucks UK coffee comes from Switzerland – not known for its tropical growing conditions, but better known for its 4% tax rate on profits on commodities
transfer mispricing
Transfer Mispricing
  • Starbucks Kenya sells its coffee very cheaply – this means that Starbucks Kenya doesn’t make much profit – so Kenya doesn’t gain much corporation tax. The coffee is then sold on to:
  • Starbucks Switzerland – which then sells the very same coffee at a very high price to Starbucks UK. This means that it makes lots of profit where the company can pay a low rate of tax.
  • Starbucks UK pays a high price for the coffee, meaning it makes less profit and so pays less tax.
what happens next
What happens next?
  • Profit has been shifted out of the UK to the Netherlands, Switzerland and to whichever country is lending Starbucks UK money – e.g. Cayman Islands
  • All of these companies are treated – for tax purposes – as wholly separate companies – even though they all act and exist as part of one global Starbucks brand
  • Profit can’t be taxed twice. Double taxation is seen as very bad, so countries agree treaties to make sure profits aren’t taxed twice. Once your profit is taxed (even at very low rates) in Switzerland, Amsterdam etc. Starbucks can then take it back to the US tax free
what is the alternative
What is the alternative?
  • Tax justice - a principle guiding how taxes should be raised and spent:
    • A just tax system is one where money is raised and spent fairly and transparently, with real democratic oversight and control
    • Taxes should be raised progressively, based on ability to pay, and spent according to need
    • Tax is a means of redistributing wealth. Tax should be used to reduce inequality in society, and to fund universal public services – not spent on corporate welfare
will tax justice work
Will tax justice work?
  • If we want to tackle tax dodging, or campaign for the rich to pay more, it is important to do so within the framework of tax justice.
  • It is important to put it in the context of a fair and progressive tax system that meets the needs of society – otherwise we are just campaigning for more money for government (which could be spent on boosting the profits of big business, arms or wars).
getting tough on tax
Getting tough on tax?

Tax avoidance is:

“morally repugnant”…

“shocked to discover the wealthiest people pay virtually no income tax”…?

the scale of the problem
The Scale of the Problem
  • The UK coalition government has made it easier for companies to pay less tax:
    • The 2012 Budget got rid of the rules that penalised companies bringing money into the UK from tax havens - ‘Controlled Foreign Company’ rules.
    • This single move is estimated to lose the UK £1bn and developing countries £4bn.
secrets and lies
Secrets and Lies
  • Cuts to HMRC - The government has said since 2010 that it is investing up to £900m into tackling tax avoidance within HMRC - but that is money being reinvested from a total cut of £3bn over the same period.
  • Staffing at HMRC has already fallen by a third since 2005, and another 10,000 jobs are set to go by 2015 under the coalition government's plans
  • Secrecy deal with the Swiss – the government claimed a landmark deal to bring in £3 billion from UK citizens’ Swiss bank accounts. In fact it just allowed Swiss banks to maintain secrecy, will only recover £800 million.
the uk s tax haven empire
The UK’s tax haven empire

The UK is at the heart of the ‘offshore system’ that allows companies to dodge tax.

  • Many of the world’s most significant tax havens, such as the Cayman Islands and British Virgin Islands are UK sovereign jurisdictions
the uk the beating heart of the offshore system
The UK – the beating heart of the offshore system
  • Multinational companies are only able to dodge tax because they are allowed to – it is the tax rules of countries like the UK that allow them to dodge tax on such a massive scale.
  • The City of London itself acts as the nerve centre for these tax havens and supports an army of lawyers and accountants devoted to helping companies dodge tax.
a question of political will
A Question of Political Will
  • The lack of effective business regulation in the British Overseas Territories allows them to be used by rich individuals and multinational companies to avoid and evade tax; depriving the UK and the world's poorer countries of vital revenues for tackling poverty and providing universal public services.
  • In July 2013, the government launched a consultation on new rules to enhance corporate transparency in order to tackle corporate tax evasion, including a rigorous public register of companies' true beneficial owners.
  • This would be a huge step forwards. However the government's proposals completely leave out the under-regulated Overseas Territories.
guess what
…..Guess What?
  • There is more Foreign Investment in the British Virgin Isles than in Brazil and India combined.
what should the government do
What should the Government do?
  • The UK government should ensure that all the British Overseas Territories have in place:
    • Rigorous public registers of the beneficial owners of all companies and trusts
    • Regulation to end the use of abusive corporate or trust entities
    • Basic standards of business regulation, such as the requirement to file public accounts
    • Agreements with other countries – not just the UK or other tax havens – to automatically share tax information
    • Effective taxes applied to profits and wealth
slide33

Should the Overseas Territories not introduce such measures voluntarily, the UK government should do so through legislation to ensure that UK jurisdictions can no longer be used to dodge taxes around the world.

  • Even the Foreign Office acknowledged in its 2012 White Paper; "as a matter of constitutional law the UK Parliament has unlimited power to legislate for the [Overseas] Territories."
what can we do
What can we do?
  • Take action now and demand the government abolishes the UK's tax havens
  • Fight the cuts to HMRC
  • Spread the word in your branches, get involved with War on Want and the tax justice movement - join in actions in your area
  • Put pressure on the Labour (and other) parties to tackle tax dodging
  • Join War on Want!