Any sentence with the word tax in it usually has the effect of making people instantly switch off or quickly lose interest. However, if you haven’t already stopped reading perhaps you should bare with me because this tax debate is different.
There is one topic under the umbrella of taxation that is so symptomatic of greed, corruption, and power relations at the business end of our economy that it never fails to grab my attention: Corporate tax avoidance in the ‘developing world’.
Tax avoidance is the practice of exploiting loopholes in the law in order to prevent governments claiming the appropriate amounts of tax on profits made within their borders. This is accomplished through a clever use of geographical and legal maneuvering. Most large transnational companies are capable of pulling off this trick, and many probably do. All that is required is a high quantity of money and an international or global presence. With these assets, taxation on huge profits need not be paid, not even in countries suffering with high levels of malnutrition or water stress.
When I think of tax avoidance, names like Silver Spoon and Coca Cola instantly spring to mind, as well as Google, Facebook, Amazon, Starbucks, Apple and many others. It matters where the avoidance is done, it dictates who is denied capital that has the ability to save lives and dramatically increase standards of living. In the ‘developing world’, where resources are short, the loss of this money because of tax evasion is inexcusable.
As a result of this avoidance, every year the ‘developing world’ is effectively deprived of a sum of money equivalent to three times that given through global aid donations. This includes aid donated from wealthy governments like those of US and Europe and NGO’s such as Oxfam, equivalent to billions of dollars.
To put things in perspective Action Aid considers tax havens to be one of the main obstacles in the fight against global poverty. Banks and CEO’s of large companies are unlikely to see these problems first hand, so what do they care? What does this matter to a company like Apple when there are always bigger profit margins to squeeze? Company executives are employed to make money and satisfy shareholders, not hold the hand of struggling ‘Global South’ populations, but we must change this notion.
Earlier in the year ‘Bollocks to Poverty’, The University of Manchester society and charity led by Camilla Gordon, presented one of the earliest screenings of a new film on tax avoidance in the UK; called ‘UK Gold’.
‘UK Gold’ brings tax avoidance back into focus and dealt with some very interesting issues.
It seems that our beloved home, the UK, sits at the beating heart of global tax haven culture. Through connected territories such as the Cayman Islands and Virgin islands, trillions of dollars are syphoned out of the tax system both from our home economy and from those abroad in the ‘developing world’. In fact, the UK’s involvement in this activity is so extensive that the Tax Justice Network (TJN), a leading tax justice research group said that, “The UK is the most important player in the financial secrecy world.”
What can be done about this? Well, the British government has the power to change the laws of these affiliated islands, which could remove their functions as tax havens immediately and close the many loopholes that are still endorsed by the legislature and the City of London. This would fix some of the cracks in the global economy and might set the pace for others to follow suit.
However a very strong political force would have to mobilize to generate this change. Tax avoidance is written into the DNA of our current economy. The City of London and it’s financial services are the jewel in the crown of the economy and they benefit heavily from tax havens in order to maintain competitive advantages.
As a result they have been protected by successive governments and David Cameron has misled the public about efforts to clamp down on havens while in reality the measures taken where negotiable and changed nothing significant.
But all is not lost. The Obama administration is currently trying to tackle a number of tax loopholes in the US and perhaps the UK will follow that example. This topic is also increasingly on the public agenda and pressure is mounting as awareness becomes greater.
A stronger public voice on this subject can only be a positive force in attempting to close tax loopholes and in doing so create a fairer and more equitable global tax system.