Almost 60% of adults in the UK don’t believe politicians’ promises to tackle corporate tax avoidance, according to a damning poll published ahead of this week’s autumn statement in which George Osborne is expected to set out measures to tackle the issue.
According to a ComRes poll commissioned by Christian Aid and ActionAid, scepticism about Westminster promises of action on tax avoidance by big companies was strong across the political spectrum, with 63% of Labour voters, and 68% of Ukip voters, disbelieving such pledges. Among Conservative and Lib Dem supporters the sceptics were also in the majority, with 53% and 63% respectively expressing doubt.
Measures announced by the chancellor this week are expected to fall far short of a new “Google tax” that attracted speculation after the chancellor’s conference speech in Birmingham.
“Some technology companies go to extraordinary lengths to pay little or no tax here,” he had told conference. “If you abuse our tax system, you abuse the trust of the British people – my message to those companies is clear: We will put a stop to it.”
Osborne is expected to offer little more than the publication of a consultation paper on how the UK might integrate one of the international reform proposals announced by OECD as part of the G20-led global overhaul of multinational taxation.
Jonathan Hare, a tax partner at PricewaterhouseCoopers, has said integration of the proposal to tackle “hybrid mismatches” were unlikely to involve significant change for companies in the UK as they were “relatively similar to our existing arbitrage rules”.
Hybrid mismatches occur when a multinational business exploits differing interpretations of complex tax structures in two or more countries. Last month, the Guardian revealed details of hybrid mismatch structures used by FTSE 350 companies Shire and ICAP involving hundreds of millions of dollars in intra-group lending. The mismatch was between the tax rules of the UK and Ireland, and those of Luxembourg. ICAP has begun to unwind its structure as part of a wider reorganisation.
Many international tax reformers believe the best hope for curbing multinationals’ use of internal loans and complex structures to avoid tax is contained in measures still being worked upon by OECD experts, and due to be published next year.
Meanwhile, the chancellor is also expected to spell out in his autumn statement details of a humiliating climb-down on his controversial “patent box” tax break, which has drawn intense criticism domestically and from abroad – despite having strong support from sections of UK industry, including GSK and Dyson.
In September, the UK’s policy – which has been successfully attracting investment to the UK since it was introduced in April last year – emerged as the most conspicuous sticking point for negotiators in the OECD tax reform programme. Britain found itself almost isolated in defence of the incentive, with the majority of those involved in the OECD process judging the scheme to be so poorly targeted, and damaging to foreign treasury coffers, as to be classed as “harmful tax competition”.
Concerns about the patent box tax breaks have been taken to the European Union’s code of conduct committee, and the UK’s policy has been criticised by Britain’s Institute for Fiscal Studies.
International leaders have pressured Osborne into accepting that he must demand companies shift a greater part of their research and development activity to the UK – beyond narrow patent holding and functions – if they are to qualify for lower tax rates. That would make the measure considerably less attractive to international business, but would be considered “fair” tax competition by international standards.
In recent years, the chancellor has positioned himself alongside French and German counterparts in calling for a G20-led crackdown on multinationals and their complex tax avoidance structures.
But other nations have increasingly questioned his credibility as a tax reformer, pointing to aggressive tax breaks he has introduced to attract investment to the UK. Osborne is not the only finance minster to bow to international pressure and water down, or retract, controversial tax incentives. Counterparts in Ireland and Switzerland have announced measures designed to appease reformers determined to crack down on what are seen as their most internationally harmful tax policies.
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