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Tax Avoidance and Evasion

I agree, and Zambia would be a great example. Soon after I qualified—it was quite a few years ago—I was on the point of moving to one of the towns in the copper belt in Zambia to work as an accountant, but it did not happen. Evidence so far shows that TIEAs have produced only a trickle of information. For instance, the TIEA between the US and Jersey—two of the biggest players in the offshore system—was used only four times in 2008. States may also maintain or introduce other restrictions on the procedures for obtaining or supplying information. For example, some states consider that before any information is supplied, the person concerned must be notified of the request and given an opportunity to object. That, of course, gives tax evaders ample opportunity to cover their tracks, which highlights again the culture of secrecy and privilege that the activities of powerful multinationals are afforded by domestic and international authorities. The Government must recognise that automatic tax information exchange between all jurisdictions, including tax havens, is the only system that can deliver rightful tax flows to poor countries. The Minister's response to that specific point would be immensely helpful and much appreciated. Of course, some will argue for a bilateral agreement on tax information exchange. Indeed, the Government have argued against automatic TIEAs, saying that developing countries might not have the capacity to use the data that would be transferred and that the information transfer would thus be for nought. That argument is patently absurd and deeply patronising to developing countries. It suggests that they do not have, and could not quickly develop, the ability to deal with large quantities of data of the sort that automatic information exchange would generate. In fact, many developing countries already use international software and data sources to deal with vast quantities of data—most obviously, when one's passport is scanned at any customs point when entering an airport in almost any country at any income level. At present, no one can tell what profits are made by companies operating in developing countries, or what taxes they have paid there, because companies are obliged to provide only a total profit figure for the whole world. That is an open invitation to avoid or evade tax liabilities—an invitation that most companies take, given the $160 billion figure for tax evasion and avoidance that I cited earlier. It is critical that the Government actively try to secure an international accounting standard on country-by-country reporting. That would provide investors, regulators and tax authorities with a powerful indicative tool to assess risks and highlight abuses. An international accounting standard for all industries that would require companies operating internationally to disclose the profit that they make and the tax that they pay in each country in which they operate would equip developing countries with the information that they need to target corporate tax abuse. To secure an IAS on country-by-country reporting, the Government, acting in alliance with other leading economies, would need to ask the International Accounting Standards Board to create such a standard. It is important to note that the gang of four—the four big accountancy firms of Deloitte, Ernst and Young, PricewaterhouseCoopers and KPMG—are represented on the IASB, so they have a direct say in setting international accounting rules and standards. Interestingly, Christian Aid's proposals for the country-by-country reporting of corporate profits, which are supported by ActionAid, have been rejected by the big four, and no convincing argument has been posted to date to explain why, although we can draw our own conclusions. The IASB is little more than a trade association for international accounting firms that is funded largely by the gang of four and other corporate entities. It might be time to relieve it of responsibility for setting international accounting standards. Perhaps that should be passed to a supranational body such as UN so that appropriate mechanisms can be developed. I am not sure whether that idea was floated at the recent G20 summit—perhaps the Minister will tell us—but the current situation is untenable. It demonstrates, once again, that in spheres as important as global accounting, self-regulation does not work—it militates against the public interest and the public in the poorest countries. However, G20 Governments should commit themselves at least to approach the IASB in support of a country-by-country profit reporting system. I hope that we will receive an assurance that such an approach will be made today. If implemented, the measures would have the potential to deliver a sum that would have a big impact towards eliminating poverty on a scale never seen before and achieving and embedding the millennium development goals. The Minister, who is a highly regarded, efficient and conscientious member of the Administration, might be able to elaborate on the UK's interpretation of the G20 agreements on the regulation of capital flows to tax havens, and the way in which the impact on developing countries can be reduced. On 12 May 1789, William Wilberforce made his first major speech in the House of Commons on the abolition of slavery. He argued that slavery was morally reprehensible and a matter of natural justice. Tax evasion on the present massive scale has been described as the most harmful economic condition since slavery, as it contributes to the desperate global poverty endured by millions every day. The financial crisis has presented us with an opportunity to reform the economic system and to address global injustices, which are hugely damaging to the world's poorest people. Left untouched, the current system will for ever cast doubt on the legitimacy of profits derived from corporate activity in poor countries. I do not have time to deal with the role of the Commonwealth Development Corporation, which was rebranded as the CDC on privatisation. Why do we allow the corporate culture of "greed is good" to spread into international development policy to such an extent? The Minister will not have time to answer all my questions, but the Government must answer them at some stage, and be forced to do so if necessary. Finally I turn to the impact of tax avoidance in the United Kingdom, which is another area in which reform is overdue. We need to combat the advances made under such a highly dubious corporate culture. It is a tale of merciless profiteering that again features the infamous gang of four. Government borrowing is about to double, but we should not expect private householders alone to bear the brunt of the problems caused by the failure of regulators and the City. I strongly support and applaud President Obama's action to close tax loopholes, including offshore tax havens, that are exploited by US companies, which we read about in the press a day or two ago. The new Administration in Washington estimates that US companies paid an effective tax rate of 2.3 per cent. on the $700 billion that they earned in foreign profits in 2004, so action is long overdue. I hope that there is more to come. I urge the Government to display similar principles and conviction in dismantling the tax avoidance industry in the UK. As we know from a series of excellent articles by the tax gap team of The Guardian—I referred to it in an early-day motion at the time—the tax avoidance industry and its clients will go to exceedingly convoluted lengths to avoid their full liability. The evidence of Barclays bank's commitment to stretching Denis Healey's famous prison cell wall that exists between tax avoidance and evasion is not only astonishing, but significant for gaining an understanding of the relative ease with which existing tax laws may be manipulated. There is a compelling argument that complex tax avoidance strategies were a major factor in the collapse of our over-leveraged and indebted financial system. However, the bottom line is that HMRC annually loses a minimum of £25 billion in tax revenue as a result of the tax avoidance activities of the wealthiest individuals and 700 largest businesses. This places an unfair and intolerable burden on working families, small businesses and pensioners at the best of times, but during a recession, when general taxation is expected to increase to meet the Government's higher borrowing, that potentially toxic load that could fuel serious civil unrest. As an accountant myself, I have been studying the special purpose vehicles and other formulae used to channel funds offshore to avoid tax liabilities. We all need to be aware of the damage that such complex instruments wreak on the public purse. We do not let scientists develop chemicals that have a destructive environmental impact, so we should never exempt accountants from the social consequences of their actions, no matter how lucrative their proposals might be in the short term. The Public and Commercial Services Union's tax justice campaign, which builds on the work of its members and that of the Tax Justice Network, focuses on the loss of local tax offices and the consequent problems for HMRC when tackling tax avoidance. Given the Chancellor's Budget announcement just two weeks ago of more resources for HMRC to devote to closing tax loopholes and tackling tax avoidance, it is vital that the programme of so-called efficiency measures does not include the continued closure of local tax offices, as that is akin to tying one hand behind HMRC's back as it tries to deal with the serried ranks of accountants employed by private sector firms to avoid tax.