Something big is happening today: A select committee of MPs are launching an inquiry into the UK’s corporate tax system in the wake of recent headlines about the agreement struck between the UK Government and Google – a deal which consequently saw Google paying a mere £130 million in back taxes.
Despite the UK main corporation tax rate being 20%, it has been estimated that this deal will mean that Google will have paid an effective tax rate of around 3% for the better part of the past decade. To put that in perspective, analysis from the Tax Justice Network suggests Google should in fact be paying £200 million a year in tax in the UK – a figure which means
they might be expected to owe as much as £1.8 billion in back taxes.
Explaining why Google paid the amount in corporation tax that it did, Matt Brittin, president of Google Europe, Middle East and Africa, responded “We’re paying the tax bill the tax man has told us to pay.”
Outrageous, isn’t it? But what’s even more outrageous is it’s all completely legal.
So while MPs are pointing the finger at Google today, it is the global tax system that should really be in the hot seat. As noted by MP Andrew Tyrie, “The complexity of tax law is turning what should be a straightforward principle – that everybody should pay the correct amount of tax – into a piece of elastic.”
He continues, “There is a lot the government could be doing. Tax policy must be made more practicable and the tax system more coherent. Tax needs to be fair.”
With thousands of corporations and individuals effortlessly jumping through tax loopholes each year, it’s of utmost importance that we heed his words and prioritise tackling the root of the problem by demanding the UK Government do all it can to help end the era of tax havens.
Because of the unique role the UK plays in the global network of tax havens, the UK Government must show real leadership on this issue. Back in 2013, David Cameron promised that both the UK and the UK’s Crown Dependencies and Overseas Territories – such as the Cayman Islands and Bermuda – would introduce public registers of companies’ owners in an effort to crack down on the use of shell companies to avoid tax. But now, three years later, we’ve yet to see any significant progress towards ending
the secrecy that allows super-rich individuals and multinational companies to dodge taxes and rob governments of vital revenue to tackle poverty and inequality.
It makes no moral or economic sense to allow the world’s richest people and biggest businesses to avoid paying their fair share. All countries suffer because of tax dodging, but developing countries are hit hardest by this broken system, losing at least $170 billion a year in tax revenues – money that’s desperately needed to fund infrastructure and programmes to help eradicate poverty.
For example, as much as 30% of all African individual wealth is estimated to be held offshore, costing an estimated $14 billion in lost tax revenues every year. That’s enough to pay for healthcare for mothers and children that could save 4 million children’s lives a year, and employ enough teachers to ensure every African child has access to schooling.
While the furore over Google’s taxes exemplifies this dysfunctional system, the onus must be on governments to fix the system. Ultimately it is their responsibility to show leadership and greater fortitude in protecting the public interest against large-scale tax abuse by creating fair and consistent tax rules. Ahead of May’s Anti-Corruption Summit, this is their chance to finally end the era of tax havens.
You can help fix this broken system by joining us to call on the UK Government to:
Force UK-based multinational companies to report how much money they make and how much tax they pay in all the countries where they do business, including tax havens;
Demand the Overseas Territories and Crown Dependencies publish details of who owns and controls all companies their territories; and
End the UK’s tax practices that are damaging to developing countries, and working with other governments to tackle harmful tax practices globally.