Sir David Davis writes about tax avoidance in The Sunday Times


David Davis writes in The Sunday Times;

“People have morals, not firms like Starbucks. HMRC must get its house in order before individuals suffer.

As one of the earliest campaigners for corporate tax transparency, to ensure that large corporations pay their fair share of taxation, I welcome the fact that Starbucks is now going to pay more tax. But I find myself feeling more than a little uncomfortable about the way we are resolving what is a real problem.

In recent days the anti-tax-avoidance rhetoric has reached a crescendo. The House of Commons public accounts committee accused Google, Starbucks and Amazon of behaving “immorally” by avoiding tax. In his autumn statement George Osborne condemned those who do not pay their “fair share”, promising 2,500 new tax inspectors to “tackle tax avoidance by multinational companies”.

Starbucks, no doubt eager to avoid more bad publicity, subsequently announced that it would hand £20m to the Treasury over the next two years.

Populist politics masquerading as morality is always hazardous and here it risks leading us in a dangerous direction.

The committee’s findings were certainly shocking. Amazon paid just £1.8m tax on UK sales of £3.35bn — a rate of less than 0.05%. Starbucks has not paid UK corporation tax in 14 of the past 15 years. The chancellor called it “unacceptable”. Margaret Hodge, who chairs the committee, wants to “name and shame” businesses that avoid tax.

Their anger is understandable but misdirected. Despite all the criticism, despite the fact they have paid less tax than most small businesses, there is no suggestion that Amazon, Starbucks and Google have broken the law. They are accused only of legal tax avoidance, not criminal tax evasion.

Can the government really “name and shame” people who have not committed a crime? This would damage a law-abiding taxpayer’s reputation without any recourse to the court for protection. Instead the decision would be made by a civil servant acting under a statutory power. At best this is an empty gesture; at worst it threatens reputational vigilantism.

Every finance director has a duty to his shareholders to maximise their earnings per share and minimise their risks. Most will try to cut their company’s tax bill as far as the law allows. Some call this immoral; others call it good management. Either way, vague notions of morality are no basis for a tax system. People have morals, not organisations.

All that matters is what tax is legally owed and what is not. If companies are using a loophole to avoid tax against parliament’s wishes, then the tax code must be amended to make that practice illegal.

It is hardly surprising there are loopholes — at more than 11,000 pages, our tax code is longer than India’s. This is largely caused by chancellors and prime ministers trying to buy the support of influential groups (such as the film industry) by awarding special allowances. Indeed, most so-called aggressive tax avoidance schemes fall into one of two categories: extreme exploitation of these politically crafted allowances or evasion masquerading as avoidance.

These ruses are not difficult to spot. Starbucks used a crude transfer pricing scheme to move its profits, which it classified as royalties, to low-tax countries. Google did something similar. It is the oldest trick in the book for multinational companies and it is little short of criminal incompetence that HM Revenue & Customs has allowed this artificial depression of profits to go unnoticed or unchallenged.

The same is true of the sort of device high earners such as Jimmy Carr have used. This transfers income to a low-tax (or no-tax) regime and then lends the money back with no real prospect of repayment. Genuine loans have repayment schedules, commercial interest rates and collateral. The “loans” granted under Carr’s offshore scheme had none of these. It was obvious what was going on.

Next year the chancellor will introduce a “general anti-abuse rule” to “deter and counter tax avoidance” and has signalled that more retrospective legislation could be on the way. But we do not need grand, sweeping new laws to deal with obviously artificial tax avoidance schemes, just the closure of gaping loopholes and the proper application of existing laws.

The current situation is also incredibly dangerous. Tax law is the only part of British law where you are in effect presumed guilty until you prove your innocence. You pay up whether you or the tax authorities made the mistake.

What concerns me is that these new laws will give tax inspectors a chance to have a second look: not at multimillionaires and global corporations but at ordinary taxpayers who have a right to feel that once tax affairs are settled, the rules will not be changed under their feet.

Rather than turning its fire on law-abiding citizens, HMRC should focus on doing its job properly in the first place. If it does, we need not fear scores of multinationals fleeing Britain for more secretive jurisdictions with lower tax. Starbucks can hardly relocate all its 700 UK stores to Luxembourg; Amazon will not be finding all its customers in Liechtenstein.

We need less hot air about the “morality” of companies’ tax bills and more plans for simpler taxes, lower taxes and fewer loopholes. That is how Britain can attract new investment, jobs and growth and ensure that the multinationals that make a profit here share some of their success with British taxpayers.”