This is how to enforce tax transparency & prevent tax avoidance

Michael Meacher (Oldham West and Royton, Labour)

Tax avoidance and financial transparency, or perhaps I should say the lack of financial transparency, have of course been high on the Government agenda for the past two years. They even led Prime Minister to make tax transparency and trade his central international focus at the G8 at Lough Erne in June. However, having marched his troops up the hill, rather like the Grand Old Duke of York, the Prime Minister has since proceeded to march them down again. Rather little of significance—that is being generous—has happened on the tax and transparency front since then.

At the G8, the UK published an action plan on tackling some of the issues involved, but it is not unfair to say that it was decidedly modest in its ambition. The same can certainly be said of the scope of the subsequently announced consultation on disclosing the beneficial ownership of companies. The Government have, of course, published the general anti-abuse rule, but as has often been said, it will cover only the most egregious forms of tax abuse and is consequently in danger of appearing to legitimise lesser forms. The GAAR is

rather like the lobbying Bill that is currently before the House—the Government are extremely keen to be seen to be doing something, but they have no intention whatever of actually doing much. If we are really serious about tackling tax avoidance and the financial opacity of our tax system, a more robust approach is needed. That is what my Bill is intended to offer.

The Bill was drafted by Richard Murphy, who is the founder and director of Tax Research UK and, I think everyone will agree, one of this country’s foremost tax accountants. I am extremely grateful to him, as I believe the whole House should be.

There are two drivers behind the Bill. One is the demand for fairness and social justice. The country is in the middle of a deep economic recession caused by the bankers, yet the Government have imposed on the victims the liability for meeting the ensuing very high national debt and budget deficit. By and large, those victims are the poorer and poorest households, who bear no responsibility whatever for the crash five years ago.

According to the Sunday Times rich list, the wealthiest 1,000 persons in the UK—just 0.003% of the adult population—have increased their gains by a staggering £190 billion since the crash. Most of that has now been squirreled away in tax havens, hidden behind nominee shareholdings or secreted in opaque trusts. Frankly, that is utterly intolerable. It is high time that the very richest people in this country made a fair contribution to resolving the financial crisis. The Bill would help them to do so.

The second driver behind the Bill is sheer, plain, down-to-earth, honest-to-God common sense, if I can put it like that. My right hon. Friend Mr Darling, the last Labour Chancellor, reduced the budget deficit by about a third by the end of 2010 through his stimulatory measures, but it has now been stuck at about £120 billion after flatlining for most of the past three years.

The current Chancellor has, through his enormous expenditure and benefits cuts, persistently squeezed virtually every last drop of demand out of the economy. That is a counter-intuitive and self-destructive policy if ever there was one, because it has plainly not reduced the deficit, but extended austerity indefinitely. A policy that will reduce the deficit significantly is patently needed. The obvious way to do that is to take public sector-driven stimulatory measures to kick-start real growth, but as the Chancellor has a fetish for cutting and is adamantly opposed to giving the public sector any role in promoting growth, I submit that my Bill is the next best option.

First, following the revelations of which we have heard repeatedly in the past few months of colossal tax scams perpetrated by US multinationals Starbucks, Apple, Facebook and Amazon—I recognise that those scams are more or less exactly the same as those perpetrated by a great many UK multinationals—the Bill proposes that the tax details and implied tax liabilities of both the wealthiest individuals and the biggest corporations are made public, and that the beneficial owners of companies who hide behind nominee shareholdings are also made known. That has repeatedly been discussed but never done. My Bill proposes that it should now happen. The tax enforcement that will result from what is revealed will raise tens of billions of pounds for the Exchequer and significantly deplete the deficit and interest payments on the debt. Therefore, the Bill tackles the extreme opacity in the tax affairs of both the largest companies and the wealthiest individuals in the UK by requiring that the tax returns of the top 250 in each group are put on public record.

Four criteria are used to define the 250 largest companies, starting with the FTSE 100. The Bill will ensure that other companies with substantial sales, profits and numbers of employees are also required to disclose. As a result of my Bill, companies that seek to avoid UK corporation tax but that still have a significant undertaking in this country will, for the first time, be required to disclose the full range of their tax dispositions. On individuals of highest net worth—to use the commonly used phrase—the Bill will reveal how income is commonly shifted into capital gains, and in turn reduced by allowances and relief. In respect of both companies and individuals, the data will enable the tax abuse that, according to Her Majesty’s Revenue and Customs and Treasury data, costs this country at least £35 billion a year, to be effectively addressed for the first time.

Secondly, multinational corporations have, as hon. Members know, hidden their activities behind complex and often secret corporate networks that conceal their tax liability—the networks are set up to do that—especially if a subsidiary is incorporated in a tax haven. The Bill requires any multinational corporation to publish the accounts of all its subsidiaries on public record.

Thirdly, the Bill requires that companies identify their beneficial owners and pass the details toCompanies House. That is important because the registered legal owners can easily disguise who is behind a company, and thus present an entirely false view of its structure. For example, many quoted companies list only some of their shares on the stock exchange; the rest are in beneficial ownership. Limited liability partnerships are widely used for tax abuse, because members of an LLP are taxed, but not the partnership itself. If the details of ownership are known and put on the public record, the tax liabilities can be correctly assessed. Unlimited companies are almost routinely inserted into major corporation group structures in order to disguise ownership or control, often in ways that are designed to mislead about the true nature of transactions being undertaken. Obviously, foreign branches must be included if an enormous loophole is not to be created in the disclosure of beneficial ownership.

I would be the first to recognise that to presume that a company bent on tax avoidance or other dishonest purposes will necessarily comply with its obligation to disclose its beneficial owners is, frankly, naive. The Bill would therefore also place a new obligation on UK banks to report the information they collect on their limited company clients under money-laundering regulations, including the real trading address of a company, who its directors and beneficial owners really are, and where they are located. The banks would be required to submit that information to Companies House, which would then be required to publish it. The banks would also have to supply the information to HMRC, which would then be required to demand a tax return from any company with a bank account.

The sanctions—and sanctions are the only thing that will make the legislation work—for failing to supply any information demanded from the company by Companies House or HMRC would be either the removal of limited liability status or making directors and beneficial owners liable for the debts. Under the Bill’s provisions, HMRC would also be granted the power to access the company’s bank account data, so that estimated tax assessments could be raised if the company refused to supply accounts. Again, the directors and beneficial owners would be held responsible and would have to pay the consequential tax.

In order to avoid an obvious loophole, the requirement for a company to have information on its beneficial ownership and its accounts on public record—on its own website, or wherever—would be extended to the tax havens in Britain’s Crown dependencies and overseas territories, although of course only if the company in question had a beneficial owner outside that territory.

Finally, the Bill deals with the question of trusts and would require that they, too, declare the true identity of their settler, the trustees and beneficiaries to HMRC. If they do not, the sanction would be that the trust property would pass to the Crown. Trust data will also be placed on public record, but only in the case of those with significant assets or income, and those that control companies—I am not worried about trusts that are relatively trivial in their economic impact. Those measures are necessary to enforce the requirements. The information has always been available to the Government, but under both parties there has been an unwillingness to use the measures that are patently available to ensure that tax is paid in accordance with what Parliament has determined.

It is no exaggeration to say that the effect of these measures on the UK system’s capability would be nothing less than transformational. We have repeatedly been shocked by multinational corporations and their armies of City lawyers and accountants regularly running rings around the UK tax authorities—sometimes, one might think, with the apparent complicity of Government—but that is not inevitable or irreversible. My Bill will redress a massive injustice in tax burdens, put a stop to enormous tax abuse by large companies which has persisted for far too long and make a huge contribution to reducing the budget deficit. I commend it to the House.