Time for an international approach to tax evasion

4 November 2014

Time for an international approach to tax evasion

On an invitation from the British Parliament, MPs, researchers and business people from different countries came together in London to discuss how tax evasion should be tackled. This was badly needed, because decision-making on the approach to tax evasion is often immune to the influence of national parliaments, despite the fact that the consequences of tax evasion for society are enormous.

By Arnold Merkies, MP for the SP


The international ‘race to the bottom’ with regard to tax policies has already been going on for some time. Countries compete with each other not only via ever lower tax rates but also with fiscal miracles to tempt international capital. When these are at the cost of tax revenues in other countries they are known as ‘harmful tax practices’. Often countries copy these from each other in the fight to win the favour of multinationals. The end result is that no national administration receives adequate tax revenues and that they compensate for this by increasing other taxes or cutting spending. Tax avoidance by big corporations means therefore that people most pay more in tax.

These harmful tax practices and international tax competition were discussed at the conference. Conference chair Margaret Hodge criticised the role of the British government, which takes full part in the ‘race to the bottom’, but also that of the American multinationals, which in the UK are so successful in evading taxes that the country loses tens of billions of pounds every year.

What struck me was that this subject is more current in the countries where tax evasion is practised, than in the countries which suffer most from it. In the UK the debate is bitterly conducted from both sides. With its Crown Colonies, which include numerous tax havens, and its fiscal climate, which makes it extremely easy for multinationals and the very rich to avoiding paying taxes, the country plays a dubious role in international circles. On the other hand, Britain is also the victim of tax evasion. So while the country is full of busy branches of Starbucks, Starbucks appeared on paper to make no profit and thus paid almost no tax. This led to a storm of protest, the highpoint of which was a public interrogation in the UK Parliament, at which Committee Chair Margaret Hodge gave Starbucks, Google and Amazon a really hard time. Well-known is her remark that ‘We’re not accusing you of being illegal, we are accusing you of being immoral.’

Corporations thought they would get away with it by pointing out that they had stuck to the law. The problem of tax avoidance is that it turns out that it is apparently possible to avoid paying taxes yet remain within legal limits. Tax evasion is illegal, tax avoidance is not. Where legal and fiscal experts at the conference drew a very clear distinction between tax avoidance and tax evasion, some critics from the press quoted former Chancellor of the Exchequer Dennis Healey’s famous remark that ‘the difference is the thickness of a prison wall.’

The difficulty with all these discussions is that there is often a lack of facts. Openness regarding how much tax firms pay in each country is therefore also of great importance. It’s inexplicable why multinationals are allowed to keep their tax contributions per country secret, while it’s clearly possible in annual reports to make all information of importance to shareholders available. Yet there is a strong lobby under way aimed at not making this information fully public.

This week it emerged from a report from the Dutch Central Planning Bureau that existing taxation agreements do offer the possibility to multinationals to avoid even more taxes by shopping around. We are still a long way from a solution. It’s true that at the level of the OECD discussions have been held on possible future measures, but as things stand the door to setting up international constructions enabling large-scale tax evasion remains wide open. The international ‘race to the bottom’ in tax policies continues undiminished, not only putting public services under pressure, but ensuring unfair competition between multinationals and smaller firms. How can you keep your own coffee bar on its feet when a corporation can use international constructions to avoid paying tax? Working on an international solution begins by recognising the damaging effects of tax competition. It means that governments must dare to look critically at their own role in this. On that, there is still a great deal of progress to be made.

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