The problem with tax avoidance...

Tax avoidance dramatically reduces the amount of money available to the government to spend on public services like schools, hospitals and police officers. Despite avoidance being completely legal, to the ordinary tax paying citizen it seems completely unfair that major companies such as those listed on this database are allowed to use their big pockets to dodge their way out of paying as much tax as they should. HMRC estimate the tax gap to be somewhere around the £32 billion mark, with £5-10 billion of that caused directly by big business tax avoidance. Many disagree with HMRC's figures and gauge the tax gap to be even higher; at £120 billion, £95 billion of which is related to tax avoidance and evasion. To give you an idea of how significant these figures are, if that £120 billion were collected by HMRC it would completely wipe out the United Kingdom's national deficit and put the economy back on an even keel.

Why



Tax avoidance is certainly not a new phenomenon. Exploiting loopholes in tax laws to gain a competitive edge has always been part of big business strategy. But over the past few decades the situation has been amplified by various factors, most prominently globalisation and digitisation.

The opening up of world trade and the emergence of a 'global marketplace' has certainly brought us many benefits (strawberries in the winter!) but it has also let loose hordes of multinational companies and disreputable accountants seeking to cut themselves a bigger slice of the cake. It's difficult to blame corporations for using tax laws to gain an unfair advantage - corporations are driven to secure a better deal for their shareholders by beating the competition and increasing their profit margins. Using the differences between countries' tax laws is a completely legal way of achieving this goal.



So the onus lies with government, both our own and those across the world, to adjust tax laws to curtail the corporations and bring about a fairer distribution of wealth. The reason the current globo-economic culture - which generally promotes large-scale tax avoidance - is accepted is because governments are too fearful of scaring away investment from big companies. The risk of losing the mega trade of a multinational is, for most governments, too high and as a result the fair taxation of society suffers.

How



It's difficult to understand how not paying the amount of tax that you owe could possibly be legal. If an ordinary citizen attempted to avoid paying their fair share then we would expect them to be hunted down by the tax man and told to either pay up or pay a visit to the local prison. Yet it is standard practice for multinational companies to aggressively avoid paying the tax that they owe. And they pretty much always get away with it. According to a recent PAC report on tax avoidance the number of court cases that HMRC wins against corporate tax dodgers is "tiny" in comparison to the number of enquiries it makes.



It does not help that a whole business has sprung up around tax avoidance. Big accountancy firms and private tax specialists are constantly analysing the tax system, looking for loopholes that they can exploit in their corporate clients' favour. Unsurprisingly, these 'tax planners' are paid handsomely for their services whilst public finances suffer.  



The avoidance schemes that the private tax experts are creating and selling on to big companies are infuriatingly and purposefully complex. Every year, the government introduces new law to close tax loopholes and shut down avoidance schemes but the accountancy firms keep coming up with novel tactics that enable them to carry on dodging. It's been called a "game of cat and mouse" and a competition that corporate tax dodgers are comfortably "winning".

Consequences



The consequences of tax avoidance are profound. It's no secret that we're living in a time of austerity here in the UK; cuts are biting, the economy is flatlining and shops are closing down.

​

Yet as the figures above show, clamping down on corporate tax avoidance could put a significant dent in the UK's deficit, providing much needed funding for the country's public services. Instead of cutting these vital services, the government could instead use the higher tax revenues to improve them and consequently improve UK society.

Local businesses also suffer as a consequence of corporate tax avoidance. Whilst companies who operate in several countries are able to shift profits out of the UK and into lower tax regimes, purely domestic companies are denied this luxury. It is also often beyond small-scale businesses to be able to afford the hefty fees charged by accountancy firms for their tax planning services. This makes it very difficult for domestic companies to compete with their tax dodging multinational rivals. With their reduced tax bills, multinational companies are in a position to lower their prices on the high street, safe in the knowledge that they cannot be matched by their smaller competitors. This draws cash-strapped consumers away from the 'pricey' local businesses, pushing the small companies into a vicious cycle that further reduces their profitability, up until they are eventually forced to close down.

 

Corporate psychology