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Gravy train for tax dodgers

Prem Sikka fears advice to the Chancellor on tackling tax avoidance will fall on deaf ears

CChancellor George Osborne claims to be shocked at tax dodging by millionaires. Perhaps, he has been living in deepest Westminster surrounded by Trappist monks. He only had to read newspapers or search for 'tax avoidance' on any internet search engine and he would have found enough evidence of rampant tax dodging. In his 2011 budget speech, The Chancellor told parliament that some millionaires pay a lower proportion of their income in taxes than their cleaners. As Osborne may be recovering from the self-induced shock, it is appropriate to remind him of what needs to be done.

Osborne had the opportunity to do something about tax avoidance in his 2012 budget speech but did little. The gesture politics went as far as increasing stamp duty of millionaire homes registered in the names of corporations, but accountants are already working to get round it. Tackling tax avoidance requires manpower and highly motivated and well-paid tax inspectors. The government has reduced HMRC staff by about 20,000 and public servants are facing wage freezes. The folly is that job cuts at HMRC will make tax dodgers bolder and do huge harm to the public purse.

After the negative fallout from the 'granny tax' and 'pasty tax' fiascos ministers are desperate to say populist things. So Osborne and Prime Minister David Cameron say that they have no objections to politicians publishing their tax returns. Tax transparency must, of course, not stop with politicians. The tax returns of all citizens with above average earnings should be made public. Let us see how these rich people are contributing to a good society. Many company directors, consultants and accountants benefit from public contracts. In return the taxpayer needs to be assured that these individuals have not abdicated their duty to pay democratically agreed taxes. The tax returns of rich people are already publicly available in countries, such as Finland and Norway, but Osborne's last two budget statements have offered no advance on public accountability.

Tax returns of all corporations should also be publicly available. Corporations in diverse fields, such as pharmaceuticals, aerospace, engineering, auto, telecommunications, banking, construction and other industries receive payments from taxpayers. A quid pro quo for that is that corporations must not erode the country's tax base. The public availability of their tax returns enables citizens to check that the powerful are not avoiding their obligations. The government should not grant any public contracts to corporations engaged in tax avoidance.

The government could mobilise the people's enthusiasm to curb organised tax avoidance but forcing corporations to publish meaningful information. For example, banks and other corporations operate in dozens of countries, but their annual accounts contain only one global figure for tax payment, profits, assets and liabilities. Therefore, it is difficult to know the amount of corporation tax they pay in each country. The remedy is very simple and it is called country-by-country (CbC) reporting. Under this, companies could be required to publish a table showing the assets, liabilities, tax, income, profits, etc. for each country of their operations. Upon seeing that a company has sales revenues and profits in the UK, but no taxes, people can ask suitable questions. CbC would show that companies are booking vast amounts of profits in tax haven corporations, often staffed by few employees. Upon seeing evidence of tax avoidance people may choose to discipline executives by boycotting their products and services. Under the weight of corporate lobbying the government is not keen on CbC.

The UK is the biggest sponsor of tax havens. It has a moral and legal obligation to ensure good governance of places, such as Jersey, Guernsey, Sark, Gibraltar, Bermuda, British Virgin Islands, Cayman Islands, Turks and Caicos and others. These places are known for secrecy, poor regulation and lack of accountability. It is virtually impossible to find the names of shareholder and directors of companies registered in these places. UK Crown Dependencies and Overseas Territories have close links with the City of London and are central to global tax avoidance. The European Union presses the UK to deliver reforms, but successive governments have done little to reform tax havens.

In the US, UBS and Deutsche Bank have been fined for facilitating tax evasion. The US authorities also levied a hefty fine on accountancy firm KPMG, and a number of its partners, now former partners, were sent to prison. Individuals from Ernst & Young were also put behind bars. An internal HMRC report has shown that KPMG. Deloitte & Touche, PriceWaterhouseCoopers and Ernst & Young account for over half of all UK tax avoidance schemes.

These firms produce tax avoidance schemes at an industrial scale, but no government has ever investigated them. Instead, partners from these firms are given lavish government consultancy contracts. The firms have made millions out of the Private Finance Initiative (PFI) schemes. They were also key advisers for privatisations, including the disastrous railway privatisation. Before the last general election they gave generous donations to the Conservative Party. Now, by a coincidence their partners are advising the Treasury. No government will ever be able to check tax avoidance without tackling the Big Four accountancy firms. Curbing tax avoidance should be a major government priority. Would George Osborne shock us by doing something about it?