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Osborne’s delusion over Swiss deal on tax evasion

You have to give it to Osborne: he can dress up a pig’s bladder and make it look like a silk glove. He’s just announced today that “stashing the profits of tax evasion in Switzerland is over”. It’s nothing of the kind. Switzerland is making a one-off deduction from all UK accounts held in Swiss tax havens like Zug or Zurich, but at a much lower rate (34%) than is chargeable in the UK, only from 2013 onwards, and without proper exchange of information which would end the secrecy as the fertile terrain in which tax cheating can flourish.

Osborne also deludedly boasts: “We will be as tough on the richest who evade tax as on those who cheat on benefits”. Really? The £5bn benefit fraud is certainly being cracked down hard on (quite rightly, by all governments), but the government’s efforts to stop £70bn a year in tax evasion are like trying to hold water in a colander.

The Swiss deal is even more limp than it appears at first sight. Whilt the ostensible tax rate levied is 34%, the effective rate for most UK account holders in Swiss tax havens will be a feeble 20-25% of total assets. Because the deal will not be operative for 2 years, there’s plenty of time for bank clients to withdraw their savings to escape the tax and stash them elsewhere – rather like telling thieves the police will be after them in 2 years’ time.

What the Swiss bankers delicately refer to as the ‘financial privacy’ of their clients is being preserved, i.e. the UK will still not know who the transgressors are and thus still be unable to track down what other tax evasion they may be up to. And while the Germans managed to screw an upfront payment of nearly £1.5bn out of the Swiss as a ‘gesture of goodwill’, Osborne only managed to get £380. If this is a great deal, George, I hope you never make a poor one.

Tax evasion is a cancer which has ballooned under de-regulated neo-liberalism. According to careful estimates made by Richard Murphy, director of Tax Research UK, Britain loses each year some £25bn in tax avoidance, £70bn in tax evasion, and a further £25bn in taxes uncollected. This sum of about £120bn a year is very close to the total current UK budget deficit which is giving Osborne the excuse to shrink the welfare state and wither the entire public sector through massive expenditure cuts. Nobody seriously suggests that a government will be able to recover all of the tax due which is avoided, evaded or uncollected, but there is no doubt that if this government pursued the tax evaders with even half the ruthlessness with which they’re skinning benefit recipients and public service users, they could recover a very substantial part of it.

And here are two pieces of advice. Stop cutting the number of tax inspectors in HMRC, already reduced by a third from 99,179 in 2004-5 to just 68,037 in June 2010. And simply amend the Finance Acts to declare that all transactions with companies registered in countries or territories that do not meet minimum regulatory standards are illegal. That would eliminate, or at least severely weaken, the tax havens including the still flourishing Swiss one.

4 Comments

  1. Redshift says:

    Well really what do we mean by ‘clamping down on benefit fraud’?

    In my experience of being job seekers allowance, every time the government try and clamp down on this tiny proportion of benefit claimants, it makes job centres more bureaucratic and less relevant to what should be the central task of finding suitable work.

    I was sent off to a private company (so making a profit off unemployment) for several weeks apparently to help me get a job. The first thing they did was a literacy and numeracy test…despite the fact I have a masters degree.

    The benefit system is broken but its broken because every government tries to put more stringent rules on benefit claimants, despite that not helping the person back into work or a cost-effective approach.

  2. Albert M. Bankment says:

    We don’t ‘lose £25bn a year in tax avoidance’. Tax avoidance is legal, and is no more than the careful structuring of one’s affairs to minimise tax. It is nobody’s duty to maximise the State’s appropriation of one’s income or assets.

    “Over and over again, courts have said that there is nothing sinister in so arranging one’s affairs so as to make taxes as low as possible. Everybody does so, rich or poor, and do right, for nobody owes any public duty to pay more taxes than the law demands. Taxes are enforced exactions, not voluntary contributions.”
    (Justice Learned Hand, U.S. Supreme Court)

    Tax evasion is illegal. The bulk of the tax evasion is in respect of the proceeds of straightforward crime; for example, profits from the drugs trade.

    I would be proud of avoiding tax, but not of its evasion. It is foolish, misleading and obscurantist to persist in portraying them as one and the same thing.

    1. Jon Lansman says:

      Albert M. Bankment: On this subject, Richard Murphy says:

      The language of the tax gap and all issues relating to it is confusing for many lay observers of the tax world. This briefing seeks to tackle one major cause of confusion, which is the difference between tax evasion, tax avoidance, tax compliance and tax planning.

      Tax evasion

      Tax evasion is the illegal non payment or under-payment of taxes, usually resulting from the making of a false declaration or no declaration at all of taxes due to the relevant tax authorities, resulting in legal penalties (which may be civil or criminal) if the perpetrator of tax evasion is caught.

      Tax avoidance

      Tax avoidance is seeking to minimise a tax bill without deliberate deception (which would be tax evasion) but contrary to the spirit of the law. It therefore involves the exploitation of loopholes and gaps in tax and other legislation in ways not anticipated by the law. Those loopholes may be in domestic tax law alone, but they may also be between domestic tax law and company law or between domestic tax law and accounting regulations, for example. The process can also seek to exploit gaps that exist between domestic tax law and the law of other countries when undertaking international transactions.

      The tax avoider faces uncertainty when pursuing their activities. That uncertainty focuses mainly on their not really knowing the true meaning of the laws they seek to exploit and taking the chance that either a) they may not be discovered to be tax avoiding or b) that if they are the interpretation placed on the law that they seek to exploit is favourable to them. Their risk of penalties arising as a result of their actions depends upon what the outcome of these risky situations might be.

      Tax compliance

      Tax compliance is different from tax avoidance and tax evasion because it is defined as seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. The significant difference between tax avoidance and tax compliance is the intent of the taxpayer. A tax avoider seeks to pay less than the tax due as required by the spirit of the law. A tax compliant tax payer seeks to pay the tax due (but no more).

      Tax planning

      Tax planning is a part of tax compliant behaviour. It is not a part of tax avoidance. Tax law reflects the complexity of modern life and the multitude of choices and options available to all taxpayers when legitimately seeking to structure their affairs. This necessary offer of options within tax legislation creates the opportunity for choice on the part of the tax payer and means that determining the right amount of tax (but no more) that they seek to pay does necessarily requires the exercise of judgement on occasion.

      So long as the exercise of that judgement seeks to ensure that the taxpayer makes choices that exercise options clearly allowed by law and that they do not exploit unintended loopholes created between laws then that process of a taxpayer choosing how to structure their affairs is the process of tax planning, which is a legitimate, proper and socially acceptable act.

      As example, a taxpayer choosing to save in an ISA (Individual Savings Account) is exercising an option made available to them in law that is entirely tax compliant so long as all the published conditions for saving in that way are met. As a consequence no one can accuse a person using an ISA of tax avoidance. Those who say they are tax avoiding can safely be said to be wrong.

      By his definitions, which make good sense, these figures are absolutely right.

  3. Albert M. Bankment says:

    But Richard Murphy’s rigid stance on tax policy is well-known. It is possible that some might even describe his public persona as self-righteous, priggish, inflexible, intolerant, prickly, defiantly parti-pris, arrogant and/or bombastic; not I, of course. He may well be a pussy-cat in real life. To take his far-from-neutral definition of a tax-related term doesn’t really advance the debate. Very many aspects of life may be considered to be contrary to “the spirit of the law”, for strict adherence would make life intolerable. We have more than enough actual statute law in this country, without enshrining the ephemeral “spirit of the law” as a principle by which we are all obliged to live by looking continually over our shoulders.

    Since ‘tax avoidance’ is legal, the tax thus mitigated cannot be said to have been lost. To bracket the legal with the illegal in this slipshod manner unfairly stigmatises many unimpeachable citizens.

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