Outlook: Tax avoidance and good citizenship

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The Independent Online
Here is an interesting proposition for the Chancellor from Ernst & Young, one of Britain's keenest practitioners of tax planning: abolish corporation tax. Since corporate tax is only a small fraction of the Government's total tax revenues, it's hardly worth the bother; the extra direct investment in the economy generated by abolishing it altogether would pay back the exchequer in spades. And, like Pitt's disastrous tax on windows, it just encourages silly behaviour. People bricked up their windows so as not to pay it; companies engage in equivalent, wasteful, forms of tax avoidance.

Next week's Budget is exciting even more attention than usual from the accountancy profession because it is expected to crack down massively on avoidance. Using loopholes in the law to reduce liability to tax may be legal, but Gordon Brown, like all Chancellors, thinks it is wrong. The more those with resources at their disposal, whether companies or rich individuals, reduce their tax bills, the more the rest of us have to pay to fund the services provided by the government. What's more, it is not fair, and fairness in tax is a central political concern for Labour.

There are, of course, practical considerations that might limit ability to block clever avoidance schemes. Some measures might be too expensive to administer, or might clamp down on completely normal transactions along the way. It is fair to say that the Inland Revenue assumes the worst of everybody, and they are sometimes wrong.

If there is to be a clampdown on avoidance then the Chancellor should be concentrating primarily on companies rather than individuals. We might resent the filthy rich getting away with clever schemes to pay less tax, but even if they all save a million or two, the amount foregone pales into insignificance compared to the sums by which some big companies manage to reduce their payments.

In an age when transparency has become a mantra for good governance, multinationals are getting away with murder, aided and abetted by the accountancy profession. As governments and institutions progressively open themselves up to public scrutiny and accountability, the modern day corporation remains one of the last great bastions of secrecy and obfuscation. No team of tax inspectors has a hope of getting to the bottom of what's going on in the affairs of those determined to practise rinky-dink tax avoidance.

Finance directors tend to defend tax avoidance by citing a fiduciary duty on behalf of shareholders to minimise tax. Such arguments only encourage governments into anti business policies. Solutions are hard to find but no government should give up the effort to enforce responsible corporate citizenship.