The Treasury Dodges the Question on its New Tax Loophole for Multinationals

March 8th, 2012

A "fat-cat" / ActionAid

Cross-posted with permission from Left Foot Forward.

Yesterday ActionAid released a new report, detailing how tax changes being brought forward in the Budget could result in tax losses of £4 billion a year for poor countries and £1 billion for the UK. These changes will make it much easier for multinational companies to use tax havens to dodge their bills, particularly in the developing world.

Not only will this make it much harder for poor countries to become independent of international aid, these rule changes are totally contrary to the rhetoric from all parties on the importance of cracking down on tax avoidance.

Indeed, there’s strong support from voters of each of the main political parties for the government to take further action to stop large companies dodging their taxes.

YouGov polling (pdf) for ActionAid showed 74% of Conservative voters, 83% of Labour voters and a huge 87% of Lib Dem voters want the government to do more. Just 14% supported the proposal to water down UK anti-tax haven rules.

In a response to ActionAid, the Treasury’s main argument was “The Controlled Foreign Companies (CFC) rules are designed to protect the UK tax base from artificial diversion of profits.”

This dodges the key point we’ve been putting to them for the last two years. The current effect of the UK’s anti-tax haven rules protects both the UK and the developing world from tax avoidance by multinationals.

It’s true that protecting poor countries isn’t their main purpose, but it is a very positive side effect the government can’t ignore. Unless there’s a rethink developing countries risk becoming collateral damage as a result of these rule changes.

ActionAid is asking the government to do a full impact assessment, and then help developing countries to mitigate any effects.

In November last year, the IMF, OECD, UN and World Bank called on G20 countries to undertake exactly this type of “spillover analyses” when counties like the UK make changes to their tax laws like this.

Labour too has criticised the government’s plans. The shadow exchequer secretary, Owen Smith complained that: “In last year’s finance bill, Labour urged the government to provide a full impact assessment of the effect of the CFC changes on developing countries. In addition to repeating this call, we shall also be asking the government for assurances that the changes won’t cost jobs at home and won’t facilitate tax avoidance abroad.”

Before these rule changes make it into law, they’ll be debated and scrutinised as part of the Finance Bill.

For the sake a millions of hardworking people, who pay their taxes around the world, the government must urgently rethink its proposals.

Written by Chris Jordan

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