The cost of tax avoidance to companies and wealthy individuals goes beyond the billions lost to government coffers
The cost of tax avoidance to companies and wealthy individuals goes beyond the billions lost to government coffersLarge companies and wealthy individuals in Britain have become the targets of an angry public campaign against alleged tax-dodging.
A campaign that started by targeting Vodafone in October 2010 has now engulfed Arcadia, which owns fashion retail brands including Topshop, BHS, Burtons and Dorothy Perkins.
Vodafone became the poster child of anti-tax-dodger campaigners after the company allegedly saved up to £6bn in taxes by reaching a settlement on a long-standing tax dispute with the UK tax authorities. Vodafone and the authorities deny the £6bn figure and Vodafone continues to state that it has not engaged in tax avoidance.
The campaign is loosely led by UK Uncut, a campaign group that opposes the proposed cuts in public spending by the current coalition government. UK Uncut volunteers have been staging aggressive public protests in several cities often targeting companies’ offices and stores.
Stories of how the rich have avoided paying billions of pounds in taxes have proven highly inflammatory with the UK public, particularly at a time of rising unemployment and the public spending cuts.
The Arcadia angle
The highest profile such story alleges that Sir Philip Green, the ninth richest man in Britain with an estimated fortune of £4.1bn and owner of the fashion empire Arcadia, avoided paying £285m in tax in 2005 when he made the largest single dividend payout in UK corporate history – £1.2bn – to his family.
UK Uncut alleges that he did this by using a tax avoidance method commonly employed by companies and wealthy individuals. They create holding companies registered in tax havens – countries that levy negligible tax.
Arcadia, campaigners point out, is officially owned by Taveta Investments, a holding company registered in the Island of Jersey, a tax haven. Green’s wife and family members are listed as the owners of Taveta Investments and live in Monaco, another tax haven famous for its zero rate of income tax.
Richard Murphy, director of Tax Research and a long-standing campaigner on the issue of tax avoidance, believes that £25bn a year is lost to the UK public purse by tax avoidance. Out of this, £13bn is from individuals and £12bn from large companies.
Murphy says tax avoidance results in substantial funds being locked away in tax havens – and those funds are not available to pay dividends. He says boards need to ask whether tax is driving investment decisions and if so whether those decisions are really maximising earnings. Tax avoidance requires complex tax planning and there is often risk attached to the arrangement that investors should consider.
“Investors need to consider the impact of short-term savings on valuations and whether these are sustainable as a result or are being manipulated by the board, for example to trigger bonus payments,” Murphy says.
He adds that boards may well be tempted to avoid tax as their horizons are often very short. “But for serious market players with an interest in long-term yields, tax avoidance may be very bad news.”
A great deal more information on tax paid by multinational companies through the introduction of country-by-country reporting is therefore necessary, he says.
But until such international rules are introduced and enforced, tax havens will remain too enticing for the super rich to ignore.