Tax Avoidance or Evasion

Tax avoidance schemes are continuing to make the headlines, not only in the UK but all over the world.  EU leaders have now agreed to support the automatic exchange of information between the tax authorities of member states, in a bid to increase transparency within the tax system.  This exchange includes information about who owns and controls individual companies.  My concern is, with the media hype at the moment, are people sure they know the difference between tax avoidance and tax evasion.  One is legal, maybe not wholly ethically, but still legal, whilst the other is completely wrong.

In recent criticism by the Labour leader, Ed Miliband, he specifically noted the ‘extraordinary lengths’ taken by Google to avoid paying corporation tax in the UK.  His fellow Labour MP, Margaret Hodge, even accused Google of ‘doing evil’.  However, Eric Schmidt, executive chairman for Google, refuted that the responsibility for setting tax policy should rest with governments.  Ed Miliband answered this by saying that he will write new rules to tackle corporate tax avoidance if he wins the next election.

This latest development followed the news that overseas territories have signed an agreement to share their tax information with the UK. The British Virgin Islands, the Cayman Islands, Anguilla, Bermuda, Montserrat and the Turks and Caicos Islands have agreed to the automatic exchange of information with the UK authorities, together with France, Spain, Germany and Italy to try to tackle those who hold their assets abroad.

A month before the G8 summit, Prime Minister David Cameron urged overseas territories to ‘get their house in order’ and sign up to international tax treaties.  HM Revenue & Customs have a page on their Anti-Avoidance Strategy which discusses how they want to deal with the whole issue of tax avoidance.  This can be found at – http://www.hmrc.gov.uk/avoidance/vision-strategy.htm 

Tax avoidance is a subject that has received extensive media coverage in recent months, with the Public Accounts Committee accusing companies paying low rates of corporation tax as ‘immoral’.

The President of the CBI criticised politicians’ moral rhetoric when it came to tax avoidance, stating that ‘tax should not be viewed as a down payment of social acceptability. Tax should be calculated in keeping with the law of the land.’ He stated that while the CBI did not pardon abusive tax avoidance, a change in legislation was needed, to ‘fix the rules internationally, not unilaterally’.  To add to this, Britain’s manufacturers have warned the government that the current debate on tax avoidance could undermine the efforts to attract investment to the UK, which could ultimately hinder our economic growth.

The question is what we, as the public, should now do.  Should we boycott companies who don’t pay enough tax and what will this achieve in the long term?  I agree that governments need to be doing more to ensure the larger multi-national companies do not get away with avoiding paying their dues, but we must tread carefully to assure the continued growth of our economy.