Prem Sikka on Panama papers

Prem Sikka maps out the a parallel universe in CHARTIST #280

 

The leaked files of Panama law firm Mossack Fonseca have further confirmed the existence of a parallel universe where lawyers and accountants enable wealthy elites and corporations to avoid and evade taxes. Anonymous shell companies, trusts, secrecy and complex transactions are the tools of trade for funnelling wealth upwards to the global 0.01%. The lost tax revenues are a major cause of government debts. The neoliberal solution is not to crush tax avoidance, but to impose austerity on normal people, erode hard won social rights, destroy trade unions and create insecurity. Tax avoidance threatens the very core of democracy. Through the ballot-box, citizens may mandate a government to distribute wealth and improve social welfare, but public choices are vetoed by elites through tax avoidance/evasion strategies.

 

Little appetite

The Tories have shown little appetite for challenging the destructive tax games played by wealthy elites and major corporations. For example, in April 2013 the government trumpeted its rules on “Promoting Tax Compliance and Procurement” so that tax avoiders/evaders would be banned from securing central government contracts. So far, no one has been barred. The task of introducing effective reforms will fall on Labour. It needs to mobilise openness, public accountability and international co-operation to curb the excesses of elites. The following reforms could be considered. 1. The tax returns of large corporations and wealthy elites should be placed on the public record. The public availability of information can enable citizens to ask searching questions, expose cheats and alert tax authorities and media to unusual practices. 2. Organisations engaged in design, marketing and implementation of abusive tax avoidance schemes should be barred from securing public contracts. Those found guilty of tax evasion should be closed and their directors and shareholders made personally liable for the tax debts.

 

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Of course, they can avoid personal liability by ensuring that companies do not indulge in unlawful practices. 3. HMRC is not fit for purpose. It needs to be redesigned and properly resourced. Since 2005, its staff has been reduced by nearly 35,000 and its funding has been cut in real terms. It is too sympathetic to big business and brings too few prosecutions. Since 2010, only 11 prosecutions have been mounted in relation to offshore tax evasion. 4. The secrecy provided by tax havens is at the heart of the murky tax dodging business. They should face trade sanctions for facilitating tax evasion and avoidance. After all, their business is to prevent citizens in other states from enjoying their hard won social rights. Those undertaking reforms should receive grants from the UK, EU and elsewhere so that they can develop an alternative economy. The UK should force its Crown Dependencies and Overseas Territories to adopt the standards of openness and accountability applicable on the mainland. It should refuse to negotiate trade deals or represent these microstates in international forums, such as the EU and UN unless they reform.

 

Tax avoidance threatens the very core of democracy…public choices are vetoed by elites through tax avoidance/evasion strategies

 

Opaque destinations

5. The UK and the EU should develop a list of opaque destinations of capital. Banks should be required to report all movement of capital to these places. Monies going to these jurisdictions should be subjected to a withholding tax of 25%, which would be returned once the owners provide evidence that they have paid all the taxes due. 6. The UK should support the Common Consolidated Corporate Tax Base (CCCTB) proposed by the European Union. This can end much of profit shifting by companies. Under the current corporate tax system, a company with 100 different subsidiaries is assumed to have 100 independent taxpaying entities. This invites companies to shift profits through intragroup transactions, such as royalty payments, management fees and interest of loans. No cash ever leaves the group as a whole but the profit/loss of each subsidiary is affected. The reality is that subsidiaries are not independent. They do not compete against each other.

 

Integrated

Companies like Google and Starbucks are integrated and under common control. CCCTB calculates the worldwide profit of an integrated entity. It ignores intragroup transactions. The global profit is allocated to each country by an apportionment formula that takes account of how value-added is generated. This could be on the basis of sales, assets, number of employees and other key variables. The resulting profit can be taxed by the government at its preferred rate.

 

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Chartist 280 cover