More can be done, but the Chancellor has made a good start in tackling corporate tax evasion

 

“We’re all in it together” – once the Conservative slogan du jour – has had little airtime over the past two years. The concept was rather punctured by revelations about corporate tax avoidance at the likes of Google and Starbucks. In tax affairs, it became clear, big business and ordinary citizens were in no way involved in a shared enterprise. We weren’t even travelling in the same galaxy. Further grist to the mill of those who believe that the Conservatives look after the interests of the rich at the expense of the poor was offered by the decision to lower the top rate of income tax while pursuing benefit fraudsters with increased ferocity.

All of this, however, obscures some worthwhile attempts by George Osborne and HMRC to establish a fairer tax system, one less easily danced around by the wealthy and by the accountants they employ. This is both sound politics and sound economics. Estimates of the size of the UK’s tax gap – that is, the tax we fail to collect – start at the official figure of £35bn. Needless to say, this gargantuan void, like a financial black hole, distorts the orbit of government priorities. Why do we need more austerity, cry tax campaigners, when we could recoup so much more cash through HMRC? Mr Osborne is at least attempting to parry.

Parts of the recent campaign to present the tax authority as harder to bamboozle have been primarily of PR value. The bills for unpaid tax presented to Gary Barlow, Anne Robinson and other celebrities were more a statement of intent than a long-term fix. But today’s announcement of new measures to combat offshore evasion is less evidently aimed at headline-writers, and contains plenty to applaud: HMRC will no longer have to prove that those who have undeclared income in a foreign bank account deliberately intend to evade tax. It will simply be assumed. That should encourage more evaders to come forward voluntarily, and see a rise in the number of criminal prosecutions – the target for which in 2014-15 is more than 1,000, up from 165 in the first year of the Coalition. It has been argued that this could unfairly penalise those who do not mean to use their offshore account to skirt the taxman; put simply, this is insufficient reason to preserve a pernicious status quo.

Truly effective tax reform requires international co-operation, and Mr Osborne’s latest move fits into an encouraging pattern. Under the auspices of the OECD, a move is also under way to make it harder for individuals to keep money hidden from their country of residence. From 2017, a system of automatic information exchange between 65 countries will require banks to report on any foreigner who opens an account – letting their country of origin know exactly how much has been deposited. Switzerland, the capital of offshore banking, has rather begrudgingly signed up. A more powerful light could soon be shone into the murkiest depths of international tax evasion.

Much still needs to be done, however, and a beadier eye kept on loopholes. Mr Osborne’s expectation that a treaty with Switzerland would recoup £3.2bn was given the lie in 2013 when just a third of that total arrived. Though revenues from investigations into compliance by big business increased by £8bn last year, multinational tax avoidance is a problem that has hardly been addressed by the Chancellor. In fact, much of his tax policy has made it easier. Multinationals should be taxed according to where they use their capital and make their sales, not where they claim to base their headquarters.

A start has been made in tackling individual evasion. If there is to be any semblance of equality before the taxman, the same focus needs to be trained on big business.

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