Why these huge corporation tax losses could be just the tip of the iceberg

Click to follow
The Independent Online

When you avoid something you go round it. When companies avoid tax they go round our law. We have seen reports of a great many companies doing this in recent weeks. Google, Starbucks and Amazon have caught the headlines, but they're not alone. Nor is this a phenomenon reserved for US companies trading here in the UK.

My research, based on the accounts of major UK companies, was published by the TUC in both 2008 and 2010 (ind.pn/Y3j9BK). It estimated that the total loss to tax avoidance by such corporations might have been £12bn a year at that time. This did not include losses from tax avoidance by smaller companies, nor the losses resulting from the US-based companies currently in the news. There are, therefore, plenty of reasons to think that this estimate was low.

There are even better reasons to think that the estimate will be low now. H M Revenue & Customs has fewer resources to challenge these companies, while the relaxation since 2009 of the rules on remittances of profits from tax havens means the incentive to shift profits to them has increased. Coupled with the new awareness of massive US corporation based tax avoidance in the UK I think the UK's losses to corporate tax avoidance exceed £12bn today. That's about 20 per cent of total potential corporation tax receipts. H M Revenue & Customs does not agree. Its latest estimate is that tax avoidance does not exceed £5bn in total, with no more than £1bn by large companies. Recent reports from US companies would account for more than that on their own. I've long argued that this is because the Revenue ignores too many issues and candidly underestimates because its statistical methods are weak. What is clear is that tax avoidance costs this country a substantial sum that we can no longer afford to lose. While it remains untackled, pensions, schools, health budgets and other essential spending suffers. Companies' gain is your loss.

Richard Murphy is a chartered accountant and director of Tax Research UK