Tuesday, 18 June 2013

Time for a tax on tax-avoiders: my article for Progress Magazine (online) and their Tackle Tax Avoidance campaign


Time for a tax on tax-avoiders

The Progress Tackle Tax Avoidance campaign is an important initiative that should prompt Labour to consider radical yet practical policies to reverse the cynical behaviour of a minority of companies that undermines fair competition in the marketplace and means that each ordinary taxpayer must make up the shortfall in the tax take.

My proposal – the tax-avoiding companies tax (TACT) – overcomes two of the chief reasons people identify for the current malaise in enforcement: that action must be international or transgressors will simply move their assets overseas; and that the sophisticated armoury of lawyers and accountants means HMRC simply cannot ever obtain the taxes due.

The incoming Labour government should establish an independent Tax Avoidance Commission staffed by forensic accountants, tax lawyers and economists to analyse the profit, tax paid, number of transactions, and international trading patterns of any company deemed likely to be avoiding tax. Its sole task would be to identify those companies that derive substantial profits in the UK but which pay disproportionately little or no UK corporation tax. These companies would then be warned that, unless they came into compliance within a short timeframe, a punitive transactions or sales tax, would be imposed at a set date upon all their UK activities, until the ‘lost’ corporation tax is recouped or until they comply.

The TACT would render useless tax-avoiding companies’ tactic of diverting profits arising in the UK to shell companies domiciled in low-tax jurisdictions. Every company operating and deriving profits in the UK keeps records of its UK transactions and sales. This ready-made data set can be used both to determine the level of a company’s UK activity, and also as a mechanism for the collection of the tax. Hence, the most potent feature of this proposal is that it is truly unavoidable. Transactions cannot be hidden offshore.

This policy would immediately place the tax avoiders at a huge disadvantage to their competitors, thereby reversing their current advantage over companies (and individuals) who do the right thing by paying. By targeting only avoiders’ trading, such companies would be incentivised to comply, given the likelihood that their customers would rapidly switch to competitors not subject to the tax. There can be no greater motivation to play by the rules than a threat to the bottom line. The cold light of transparency and the resulting bad PR seem to prompt defensive op-eds, and the offer to pay some tax, portrayed as if it were a gesture of generosity worthy of special praise, rather than merely doing the right thing. The TACT will help ensure that all companies abide by the spirit, not just the letter of the law.

This policy will make the tax system fairer: for individuals whose tax is artificially high due to the avoiders; for companies who play by the rules; and for wider society. The last of these is, in the long term, the most important, as it is vital that we strengthen the principle that companies must act as responsible corporate citizens, paying their fair share of the cost of building the public services and infrastructure that make Britain a prosperous, civilised country.

John Slinger is a Labour party member, chair of Pragmatic Radicalism, and a strategic communications consultant. He writes in a personal capacity. He blogs here and tweets @JohnSlinger
This policy has been submitted to the Labour party’s Your Britain policy portal here. It arose after the author discussed methods of increasing the UK tax take with a retired former senior HMRC civil servant.

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