Tax, Lies and Videotape Britain’S Shadow Tax System Revealed

1 TAX, LIES AND VIDEOTAPE BRITAIN’S SHADOW TAX SYSTEM REVEALED A Private Eye Special Report by RICHARD BROOKS THE coalition’s frequent claim to be clamping leading accountants, Private Eye and were in any case too far-ranging; that in cases down on corporate tax avoidance is a sham, an Panorama’s investigation has discovered that like Vodafone, it was other countries’ tax, undercover investigation by Private Eye and the this repeated assurance was entirely misleading. not the UK’s, that was being avoided so why BBC’s Panorama reveals. The coalition government has in fact created the should a British chancellor care? Osborne and The Treasury, HM Revenue & Customs and opportunity for the biggest companies to slash Gauke were easily persuaded and readily Britain’s biggest accountancy fi rms all connive billions of pounds from their UK tax bills. It approved plans from the business-dominated to allow the biggest companies and richest knew it was doing so; but it pretended otherwise committees under which profi ts supposedly individuals to deny the UK exchequer billions, to parliament and to the British public. made outside the UK could be diverted to British multinationals’ tax haven companies while undermining the global fi ght against tax Controlled explosion dodging too. with minimal tax charges. The main tax Our investigation reveals that Britain The tax avoidance con is being played out break would be a special rule for offshore through laws introduced in 1984 by the then “fi nance companies” like Vodafone’s in operates a shadow tax system thanks to chancellor Nigel Lawson, soon after the Luxembourg that would be taxed at somewhere a clique of ministers, offi cials, select relaxation of exchange controls eased the fl ow between nothing and one quarter of the main multinationals and accountancy fi rms – the of money across borders, to ensure that if corporation tax rate – which from 2015 means largest of whom, PwC, appeared to British multinationals simply moved profi ts a maximum of 5 percent – on interest earned misrepresent its own activities to parliament. into a tax haven subsidiary and thus out of the from overseas business. Only two groups are not supposed to know UK tax net at the time, the Inland Revenue about this – the public and their MPs. But now would still tax them. These were called the Opportunity knocks they can… “controlled foreign companies” (CFC) laws. This at least was the offi cial position, but for Moving profi ts this way was straightforward. those in the know – which excluded parliament “THE parties agree that tackling tax avoidance A UK-based multinational simply put money and public – the rules were not just about is essential for the new government, and that into a tax haven subsidiary company in return facilitating foreign tax dodging (considered all efforts will be made to do so.” So promised for share capital, and the subsidiary then harmless in a parochial Treasury but in fact the new government’s coalition agreement in invested it or lent it to other parts of the group’s highly damaging to other countries including May 2010, a crucial concession to the Lib Dem worldwide empire. This is more or less what some of the world’s poorest). They were a clear campaign against tax dodging led by Vince Vodafone did over a decade ago, on a chance to dodge British tax, too. Cable. Within weeks chancellor George monumental scale, through a Luxembourg Posing as an independent tax consultant, I Osborne announced an anti-tax avoidance fi nance company that lent the money to its telephoned a well-connected senior manager panacea known as a “general anti-avoidance German operation Mannesman, which in turn from KPMG, one of Britain’s “Big 4” rule” and the Lib Dems could congratulate paid billions of pounds of interest into the tax accountancy fi rms that simultaneously helps themselves on a much needed win inside the haven company. clients to avoid tax while earning millions of uneasy coalition. When the Inland Revenue initially pounds of taxpayers’ money giving the More signifi cantly, through his junior challenged the arrangement as falling foul of government consultancy advice on PFI minister David Gauke, Osborne was about to Lawson’s laws, Vodafone claimed that contracts and suchlike. launch a “corporate tax roadmap” on which European law overrode them, leading to a long Robert Edwards, who had been seconded to the unmentioned destination was a land of vast legal battle that HM Revenue & Customs was the Treasury to manage the process of making tax-dodging opportunity for the largest winning until top taxman Dave Hartnett the offshore tax changes from 2010 to 2012, companies. The clever bit was that, since the reached his infamous sweetheart deal with the was now back at his desk in the beancounters’ new tax breaks were to be found in the company (Eyes passim ad nauseam). London offi ce advising multinationals how to smallprint of legislation, there was no chance The tax industry argued that Lawson’s laws use the laws to cut their tax bills. that the tax schemes emerging would be caught He confi rmed a simple UK tax saving by any anti-tax avoidance law. technique: a British multinational could borrow Over the following two years, through a money here and then place it in a tax haven series of committees comprising notorious tax fi nance company that would lend it to businesses avoiders including Vodafone, Tesco and HSBC, elsewhere in the world. The borrowing costs the most important British corporate tax laws would reduce the company’s tax bill not just in – those governing how multinationals’ overseas the overseas location (as the government was profi ts are taxed – would be overhauled. The happy to admit) but also in the UK. ostensible purpose was to make the tax system I suggested to him that if his British corporate “more territorial”, limiting the scope of British client wanted to lend to, say, a German affi liate, taxation just to profi ts made in the UK, as it could use this structure and get a “[tax] opposed to the historically preferred alternative deduction in the UK and one in Germany” – in of a worldwide tax net with tax relief given for other words double tax relief on the same cost taxes paid overseas. But at the same time, tax – Edwards confi rmed: “Yes, exactly.” Not that minister Gauke stressed in parliament, the rules anybody outside the tax world would know would continue to “protect the UK tax base about this tax alchemy. “Whilst the policy won’t from the artifi cial diversion of profi ts”. specifi cally say it,” he explained, “but [sic] In a series of covert discussions with Britain’s borrowing in the UK to equity fund your fi nance SP RB BIG4 NONDOM PANEL 49 SP RB BIG4 BOX 49 2 SPECIAL REPORT company for it to on-lend, that is fine.” Asked if ‘We are not in the replied: “Currently there is no published this could generate a “significant UK tax guidance relating to the broad scenarios saving”, Edwards confirmed: “Potentially, yes, business of selling you identified. However, such issues are there’s that opportunity there.” being considered.” Only when it was put to And what an opportunity it is. By moving schemes’ HMRC that it was implausible that such money in this way, explained KPMG tax “gaping tax avoidance opportunities” had director Kashif Javed in another call, not only PwC head of tax Kevin Nicholson not been considered did HMRC just about would there be no UK tax bill, but “you’d plays a straight bat in front of the admit – at least a couple of years after it had actually be left with a net sort of minus 15 public accounts committee told the tax industry and more than a year [percent tax rate]”. Put to Javed that a British and spoke to its “UK international tax services after the laws made the statute book – that, yes, multinational could thus “probably eliminate leader” David Burn, he confirmed the minimal these “structures” do work. [its] UK tax profits”, the accountant agreed: requirements for a finance company. “It’s very David Gauke still refuses to acknowledge “That’s quite likely”. In return for no light… you don’t technically need any the true impact of the laws he enacted. In an investment at all in Britain, in other words, employees… I’m talking about go there, have uncomfortable interview with Panorama’s British companies can artificially wipe out their your board meetings twice a year and, well, Richard Bilton, the exchequer secretary UK tax bills. there’s not going to be a lot going on in this repeatedly refused to admit that the new rules It’s simple to set up the necessary offshore company.” could be used to wipe out tax on companies’ arrangements, too. A tax haven finance To discuss the details Burn referred me to UK profits, even when confronted with this company somewhere like Luxembourg or one of PwC’s Manchester-based directors, investigation’s findings. The rules are, he Ireland can be established through a company Simon Thirlwell, who soon confirmed that the claimed, “designed to ensure that UK activity is service administrator that will provide a couple new laws were indeed “a potentially generous taxed in the UK”, which was flatly contradicted of local rent-a-directors and a shared office that exemption” and that “we’ve used these [finance by the accountants with whom I discussed can be visited for the occasional board meeting. company] structures for example to fund some With fees for an adviser like his firm, explained significant acquisitions”.

Load more