UK legislators criticise “sticking plaster” OECD tax avoidance reforms

4 Aug 16

An all-party parliamentary group in the UK has claimed the international proposals to combat global tax evasion do not go far enough and may create new loopholes that could be used to avoid paying the correct amount.

In a report released today, the All Party Parliamentary Group on Responsible Tax also accused the UK government of essentially being two-faced in its commitments to reducing the level of corporate tax evasion, in particular, among its Overseas Territories and Crown Dependencies.  

Responding to the action plan drafted by the OECD to tackle profit shifting, known as BEPS, the group said these proposals merely “patched up” existing rules, and were “not sustainable for a tax system struggling to keep up with both digitisation and globalisation”.

The OECD recommendations would make the international tax system more complex and could in fact create new loopholes that would be exploited by corporations, lawyers and tax professionals, further undermining public trust in the tax system, according to the review.

Dame Margaret Hodge, an MP and chair of the group, credited the OECD for creating a consensus for action on the issue but said the proposals were likely to fail to meet the challenge of tackling global tax avoidance.

She said: “We need to open up the affairs of global companies to public account if we are to clean up the wise-spread abuse that pervades so many international businesses.

“Only when we know who owns what, where the assets are owned, where the money is earned and what tax has been paid, can we have confidence in the fairness and integrity of the tax system.” 

In relation to the UK authorities’ performance on the issue, she said the government was a “difficult friend” to the process of transparency and had “been facing both ways.” She accused it of publically proclaiming its support for reform, while refusing to enact change, including some OECD proposals, behind the scenes.

The unwillingness of the government to “get tough” on Overseas Territories and Crown Dependencies was also frustrating, she said, given that they housed a number of tax havens. Greater transparency could be achieved by forcing them to introduce public registers of beneficial ownership.

She called on the new prime minister Theresa May to end tax secrecy, by ensuring the UK government took a leading role in reform, and introducing country-by-country reporting. It should “use the law to end the secrecy that encompasses tax havens” and work internationally to create rules that are sustainable to ensure tax is properly paid.

Barry Johnston, director of policy at charity ActionAid, welcomed the APPG’s findings. He said: “This report reveals the total failure of global leaders to properly tackle the scourge of corporate tax avoidance. Having been the ‘difficult friend’, the UK now needs to reinvent itself as the torchbearer for a fairer tax system.”

He highlighted the cost to developing countries of global tax avoidance, which he said were paying the price of a failing system. He estimated the cost of corporate tax avoidance to developing countries as being in the region of $200bn every year, which hit women and children the hardest. 

He also cautioned against sharp decreases in corporate tax rates, something that has been mooted in the wake of the Brexit vote.

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