Treasury U-turns on commitment to tax transparency

By agency reporter
May 7, 2020

The UK has missed out on collecting £2.5 billion a year in corporate tax from multinational corporations due to the UK government failing to exercise a 2016 tax transparency law designed to prevent billions in corporate tax abuse, says the Tax Justice Network.

Asked whether Chancellor Rishi Sunak plans to exercise powers under the Finance Act 2016 to make multinational’s country by country reporting data public, the UK Treasury confirmed to parliament this week that is has reversed its 2016 commitment to publishing the data at a national level and is blocking the OECD from publishing the data at an international level. In response, the Tax Justice Network has raised the alarm on the UK’s “dangerous” regression into tax havenry.

Analysis by the Tax Justice Network reveals that had the UK government exercised the powers afforded to it by the Finance Act 2016 to publish corporations’ country by country reporting data, the UK could have prevented at least £10 billion in corporate tax from being lost to tax havens since 2016. By requiring multinational corporations to disclose how much profit they make, and how much cost they incur in each country they operate, country by country reporting exposes and deters multinationals shifting profit into tax havens for the purpose of underreporting profits elsewhere, and consequently paying less corporate tax. The reporting method was first proposed by the Tax Justice Network in 2003 and eventually backed by the G20 group of countries in 2013, with the OECD producing a standard for use from 2015.

Responding to Dan Carden MP’s written questions on whether the Treasury will publish the country by country reporting data it has collected from multinational corporations since 2016, the Financial Secretary to the Treasury Jesse Norman MP wrote last week that the data cannot be published at a national level because doing so would be in conflict with the 2015 OECD Base Erosion and Profit Shifting (BEPS) framework, which requires countries to only collect and not publish the data. This contradicts then-Chancellor George Osborne’s 2016 commitment and lobbying efforts at the EU to go beyond the framework and publish the data once there is international agreement among other leading countries to do the same – which there now is. In 2018, the OECD committed to publishing country by country reporting data collected by its members.

Dan Carden submitted a follow up question asking the Treasury to clarify its position on publishing its country by country reporting data, as part of the on-going OECD process the UK previously lobbied for and committed to. In response, the Treasury confirmed on Monday 4 May that it will not publish the data and will not consent to attempts by the OECD to do so. The Treasury said this is due to “consistency issues” with the data it has been collecting since 2016. The OECD has so far continued to delay the publication of members’ data, failing to meet a late 2019 deadline and a January 2020 deadline. The Treasury’s confirmed U-turn raises questions about the status of the OECD process on tax transparency.

The Treasury’s U-turn on tax transparency is a further move in a series of steps the UK government has taken towards openly positioning itself post-Brexit as an aggressive tax haven, dubbed 'Singapore on Thames'. A recent report by the Tax Justice Network identified the UK as part of an “axis of tax avoidance” consisting of the UK, Switzerland, Netherlands and Luxembourg that costs EU countries over £27 billion a year in lost corporate tax to profit shifting. The report analysed the US’s country by country reporting data which the US published unilaterally despite delays from the OECD. The report has prompted a number of EU states to consider requiring corporations to publish their country by country reporting as a condition for receiving COVID-19 bailout packages.9

The UK received harsh criticism in February for increasing its ranking to 12th place on the Financial Secrecy Index, a global ranking of countries most complicit in helping individuals to hide their finances from the rule of law. While countries on the Financial Secrecy Index on average decreased their secrecy scores on the index, the UK increased its secrecy score, for which it was criticised for “backsliding”. The UK is the only country to be identified as part of both the “axis of secrecy” – the countries most complicit in helping individuals to hide personal wealth from the rule of law - and the “axis of tax avoidance” – the countries most complicit in helping multinational corporations avoid tax.

In Fenbruary 2020, the EU added to its tax haven blacklist the Cayman Islands, the crown jewel of the UK’s corporate tax haven network of British Overseas Territories and Crown Dependencies. Together with its corporate tax haven network, dubbed the 'UK spider web', the UK is by far the world’s greatest enabler of corporate tax avoidance, accounting for over a third of the world’s corporate tax avoidance risks as measured by the Corporate Tax Haven Index 2019. The UK is four times more responsible for corporate tax avoidance risks around world than the next biggest contributor of corporate tax avoidance risks, the Netherlands, which accounts for less than seven per cent. The UK looks set to double down on its status as a corporate tax haven by setting up 10 freeports.

Alex Cobham, chief executive at the Tax Justice Network, said: “The coronavirus pandemic has exposed the grave costs of an international tax system programmed to prioritise the interest of corporate giants over the needs of people. For years, governments haven taken a scorched-earth approach to corporate tax, fuelling a race to the bottom between countries that hands over wealth to the biggest corporations and takes it away from the nurses and public service workers risking their lives today to protect ours.

“Now more than ever, governments must reprogramme their tax systems to prioritise people’s wellbeing over the interests of the wealthiest corporations. That starts with transparency, specifically with publishing corporations’ country by country reporting to expose the rotten apples using corporate tax havens to pay billions less in tax to the communities that host, staff and protect their operations.

“The UK showed the world true leadership in 2016 by being the first country to commit to publishing country by country reporting data and promoting the standard at a global level. The UK’s U-turn on tax transparency this week, as the world takes stock of the economic costs of COVID-19 and braces for economic recession, is baffling if not dangerous. By choosing not to hold corporate giants to account, the UK has not only missed out on billions of pounds in corporate tax that could have gone to NHS workers on the frontline of the pandemic, they’ve put other countries’ health services at risk by putting the brakes on years of international effort to tackle corporate tax abuse.

“The UK government seems to be claiming that they have just discovered, after four years of collecting this data, that their multinationals have been reporting inconsistently – and to such a degree that the government wants to block publication. It seems rather more likely that they’ve just realised how much anger there will be, from their own public and from neighbouring countries, when it becomes clear just how much profit shifting and tax abuse they’ve facilitated. This, of course, illustrates exactly why this data must be made public.

“The EU could reasonably interpret this U-turn on transparency as an indicator that the UK intends to double down on its role as a corporate tax haven – making it all the more urgent for the EU to move to a unitary tax approach that would nullify multinationals’ profit shifting, whether to the UK or to EU member states like Luxembourg and the Netherlands. By updating the law to tax corporations based on where they hire employees to work and generate profit instead of where corporations declare profit after rerouting into tax havens, governments can make profit shifting redundant and the world a fairer, safer place for it.”

* Read The axis of tax avoidance here

* Tax Justice Network


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