New UK Tax Loophole Is Bad News For Developing Countries

flickr / UK Parliament

This post is cross-posted with permission from Action Aid’s Campaign Blog. ActionAid has been campaigning for the UK government to investigate and mitigate the impact on developing countries from the proposed relaxation of UK anti-tax haven rules for large multinationals. Changes to ‘Controlled Foreign Company’ rules, which move the UK towards a territorial tax system, will cost the UK £1 billion a year, but the loss to developing countries could be as much as £4 billion.

It was a busy Tuesday night for the tax justice campaign team. Many of us here at ActionAid were hearing from the fantastic campaigners that we had speaking at our event (more on that later). And a few more were glued to the Finance Bill debate in Parliament.

Unfortunately its bad news. After a long battle the government has finally pushed through its plans to open up a new tax loophole that we estimate will cost the poor countries £4 billion.

Here’s a little more on what was said in the debate on Tuesday night and you can read it all on the parliament website.

“Many of us will have been written to by a coalition of charities such as Christian Aid and ActionAid, with which I have been working closely on the effects of the clause. The reason for that concern is felt internationally. The OECD has estimated that developing countries lose three times the amount of aid that they receive from developed countries through tax avoidance in their own countries.” (Stephen Williams MP – Liberal Democrat)

“I support the Government’s efforts to ensure that all the tax that must be paid in the UK is paid in the UK, but, as he knows, concern has been expressed about the possibility that by introducing these rules the Government will inadvertently harm small developing countries which may lose tax revenue. I hope that they will ensure that there is no such side effect.” (Alan Reid MP – Liberal Democrat)

“We have raised a number of other concerns about the Bill, such as the controlled foreign companies changes and the impact that they will have on developing countries.” (Rachel Reeves MP – Labour).

All these interventions meant that Treasury Minister David Guake had to respond.

“The purpose of the CFC rules is to protect the UK tax base, as has always been the case, but the Government have a proud record of supporting developing countries, and we have a firm commitment to meeting our international obligations on that front. This country also has a proud record of building capacity in developing countries and improving their ability to collect taxes. In many developing countries, the UK has already made a substantial contribution, and we will continue to do so.”

Despite so many MPs raising questions in the debate, pushing for changes at every stage of the Finance Bill and asking questions in Prime Minister’s Questions, they didn’t force the crucial vote on the changes that we’ve been calling for.

We didn’t get the win that we were aiming for, but we’ve made real progress and fired up lots more MPs to tackle tax dodging in poor countries as a result.

We’ll be making sure that we build on this and hold the government to account for all its tough talk on tax dodging.