Corporate tax - Group of four confronts avoidance

Austin Mitchell’s calls for a government inquiry into the tax affairs of a group of leading British companies was a blow not just to the companies mentioned, but also the accountancy and tax professions.

While Mitchell is by no means a powerful politician – in his words the early day motion was an attempt to help Gordon Brown’s battle against tax avoidance in his own small way – pressure is mounting.

But do the companies listed on Mitchell’s early day motion really deserve to be there? The tax structures of multinational corporations, such as Shell, Barclays, and the other companies listed in the EDM (click here) are notoriously complex. Determining the exact nature of the amount of tax paid is difficult.

A spokesman for Barclays says it reports a reconciliation of actual tax against the standard tax rates, and goes into a great deal of ‘granularity’ on the amount of tax paid.

John Whiting, tax partner at PricewaterhouseCoopers, says there are two points that should be taken into account when considering the accusations of Mitchell.

First, that the tax system, by its very nature, drives the tax rate away from the standard 30% rate. ‘Take a large oil company. It will receive tax cuts from its research & development work,’ he says.

The second issue is that companies also pay ‘vast amounts of other taxes – such as national insurance, non-recoverable VAT and environment charges’.

According to Mitchell, this is exactly why more openness is needed. ‘How much (of the reduced amount of tax the companies pay) is due to tax avoidance, if any, and how much is legitimate?’ he says. ‘That’s why it has to come out.’

While true that the UK is clamping down on tax avoidance much more vehemently than ever, it could be worse. Compared to America, Gordon Brown’s approach seems to be something akin to a soft touch.

In the US, the Internal Revenue Service has taken a number of aggressive steps in an attempt to counter the flourishing avoidance industry. This has culminated in both KPMG and Ernst & Young facing criminal probes into the marketing of aggressive tax shelters.

The worry for British taxpayers comes with the fact that an international task force has already been created to try and identify those that sell abusive schemes. It includes tax officials from the UK, America, Canada and Australia, and a first meeting will take place in London this month.

Whether the aggressive American approach will be discussed in detail during the meeting is not yet clear, but you can guarantee that it will crop up in conversation at some point.

Announcing the taskforce, John Healey, economic secretary to the Treasury, makes it clear just how seriously the four countries involved are taking the matter.

‘Tax avoidance and the industry that drives it are increasingly an international phenomenon, and it is vital that we have effective international co-operation to tackle it, as we do for tackling terrorism, organised crime, money laundering and fraud,’ he says.

So it is official: tax avoidance is now in the same bracket as terrorism.

Government spokesman Lord McIntosh of Haringey indicated last week that the joint initiative will work in parallel with the avoidance disclosure rules, introduced on Budget day and currently in consultation stage. He says the task force will ‘build on’ the rules already in place ‘with emphasis on those that have an international dimension’.

The four-country initiative will be located in Washington for the next two years and Lord Haringey made it clear that the government may seek to expand it to other members of the G7 or the countries engaged in the Financial Action Task Force.

In another early day motion, Mitchell turns his attention to those involved in devising and selling the now notorious schemes.

He urges the government to ‘investigate the activities of banks and major accountancy firms in devising, marketing, promoting, implementing and concealing aggressive tax avoidance schemes.’

IN THE FIRING LINE

Some of the biggest names in UK business were listed in Austin Mitchell’s early day motion:

– Alliance and Leicester

– Allied Domecq

– Amersham

– Barclays

– BOC Group

– Compass Group

– Dixons

– GlaxoSmithKline

– Hanson

– Kelda Group

– Lloyds TSB

– Northern and Shell

– Portland Enterprises

– NewsCorp

– Prudential

– Rolls Royce

– Sage Group

– Severn Trent

– Shell

– Virgin Atlantic and Virgin Trains

– WPP.