TAX AVOIDANCE

The relationship between the Government’ Revenue Service and how big corporations are being advised on how best to avoid paying tax is often uncomfortably close. Suspicions are such, that no sooner have civil servants finished writing a new addition to the corporate tax laws, is then quickly followed by a recruitment drive by top accountancy firms to provide ideas on how to get round it. Tax avoidance measures are costing the Exchequer billions in unpaid taxes.

The belief that HM Revenue and Customs (HMRC) has too cosy a relationship with the big multinationals has gained new credence when, just last week, a Commons select committee suggested in its report that the tax authority seems to ‘lose its nerve’ when it comes to pursuing the biggest names in business.

The chairman of the House of Commons public accounts committee, Margaret Hodge MP, said:

…In pursuing unpaid tax, HMRC has not clearly demonstrated that it is on the side of the majority of taxpayers who pay their taxes in full.

Noticeably, one of the key findings of the committee’s report was that last year the department collected less tax in real terms than it managed to collect in 2011-12, despite its stated aim of cracking down on tax avoidance. For the average man and woman in the street, who are desperately struggling through the age of austerity, this is an extraordinary state of affairs. With public services being cut at a faster rate than ever before, most people will surely find it astonishing that the corporate world is getting an easier ride than before.

There is, however, an indifferent logic behind the tendency of HMRC to strike deals that seem advantageous to the big firms. Multinational corporations hire very expensive lawyers, who invariably find a way round most of the complex tax rules. At some point, the HMRC calculation seems to be that it would rather cut its losses and do a deal than prolong the agony for an uncertain gain at some indeterminate point in the future.

That is the logic, but it is morally indefensible – especially when the tax authorities show no such leniency when it comes to wringing every last penny from the minnows of British business. Little compunction from HMRC often forces small firms to the wall, even if they are struggling to pay their VAT on time.  These small and medium sized firms (SMEs) put up less of a fight, which is why they are pursued so ruthlessly.

Taxation has to be seen to be fair. For that to be the case, the UK system needs to meet two standards. First, it is imperative we introduce new laws that massively reduce the scope for avoidance. There is a strong argument that the tax code is now too complex, and that this complexity has produced a multiplicity of loopholes that are being exploited. And secondly, HMRC needs to have the resources (and the will) to pursue multinationals as relentlessly as it pursues the country’s smaller firms.

Fairness demands that multinationals know their obligations and are obliged in meeting them.