The Racket of Tax avoidance
As this current crisis of overproduction deepens and our government cuts benefits, jobs, public services and raises tuition fees etc, while telling us that “we are all in this together” (the loyal opposition agrees the principle of cuts but would carry out the details differently), we are treated to the view of the inequality of capitalist society bereft of a lot of the usual masks and covers that are thrown up to block the view of many. From the bottom of the pile this view has always been pretty obvious, even if those looking up were prepared to believe the lies they were told about this being the best possible system, and that they were only at the bottom because they were lazy or stupid. But now that the squeeze is also on for some of the labour elite and the middle classes, there are, for the moment, less people spreading these lies to workers and a few more pointing out the emperor’s nudity!
The huge rise in education fees is obviously a block on the children of poorer families going to university, but the truth is that most working class kids are looking for a shorter route to a job, for the equally obvious reason that they don’t have the financial backing to stay in education for too long. The very nature of capitalism is the biggest block on the children of the poorest going to university. The Education Maintenance Allowance (EMA), payments that kids get paid while in college, are more of a direct issue for the poorest kids and these payments also are under theat.
Those now feeling the pinch, perhaps for the first time, and staring at the very real chance of their children being pushed down to become part of the toiling masses, can, because of their better education, understand the system we live in quite well and can understand ‘high’ finance better than most workers. It is no surprise then that there are now some very lively campaigns against the tax avoidance of the extremely rich. The logic that these campaigns run on is that ‘if the system is in crisis and we all need to pull in a little to put it right then people, companies, etc, that operate their businesses here should pay taxes here because if they don’t the rest of us have to find more’. Although this view still accepts capitalism as a viable system, it is still an attack on one of its inevitable concomitants. Even though many in these campaigns only seek to make the worst ‘tax dodgers’ pay their share into the state coffers, it will not be beyond their wits to realise that tax avoidance is very much a part of the capitalist system and will in all likelihood be removed only with the removal of that system.
The information that has been unearthed by these campaigns is also very useful to us in showing living examples that we see everyday of the rottenness of imperialism.
The chemist chain, Boots, is visible on most high streets in Britain and has its headquarters in Nottingham, where it was started over 160 years ago. After a merger with Alliance UniChem in 2006, it became Alliance Boots and this parent company now has its home in Zug, Switzerland. The office at Zug is nothing more than a post box, but having a registered headquarters in Switzerland means paying 15% corporation tax there instead of 28% in Britain. Many other companies indulge in this financial sleight of hand, including such well known names as Cadbury, Vodafone, WPP, and Brit Insurance. No wonder, then, that Zug, a prim, rich city of 25,000, has the dubious reputation of being the registered headquarters of more international companies than the number of its inhabitants.
Successive British governments have cut corporation tax to make Britain investment friendly. While in 1984, the UK corporation tax stood at 52 per cent, by 1996 it had come down to 33 per cent; today it stands at 28 per cent and is to be shortly cut to 24 per cent. But, as other governments, too, indulge in this practice of placating the robber barons of monopoly capital, who are after the extraction of maximum profit, it is not surprising that the giants of finance and industrial capital locate themselves in countries with tax regimes most favourable to them.
The man who runs Topshop and BHS through a parent company called Arcadia, Sir Phillip Green, is an arch target of these campaigners who have staged protests inside and outside some of his shops all around the country. In London’s Oxford Street at a branch of Topshop they were forced to close on one of the busiest days of the year as protesters surged in blowing whistles and chanting, some even gluing their hands to the inside of the shop windows to prevent the police and security guards removing them. The reason Sir Phillip Green arouses so much ire is that his chains of shops are officially controlled by his wife from the tax haven of Monaco, thus saving them a fortune in tax. In an article in the Daily Mail (‘The Great Tax Heist’) on 16 December, it was revealed that the total tax saved by the Greens is somewhere in the region of £400 million!
Sir Philip Green’s retail empire of 2,300 shops, which includes Topshop, BHS, Dorothy Perkins and Evans, is Britain’s second-largest clothing retailer after Marks and Spencer.
While Green himself is a UK tax resident and runs it, the business is legally controlled by his family and headed by his wife Cristina, who has resided in the tax haven of Monaco for 12 years. By 2003, she had established her status as being a non-resident of the UK for tax purposes.
In 2005, the company which controls Arcadia notoriously paid £1.14 billion to a Jersey company, of which Cristina was the only director. Records of the company state that control was – and is – in the hands of “CS [Cristina] Green and her immediate family” (‘The Great Tax Heist’, Ben Laurence and Michael Gillard, Daily Mail, 16 December 2010). But no tax was accrued as Cristina was a Monaco resident. As a result the family ‘saved’ at least £285 million.
Between 2002 and 2004, BHS paid a total of £423 million in dividends, all of which went to offshore companies linked to Cristina. No tax was paid on these dividends. The tax bill would have been £100 million had Cristina been a legal UK resident.
These large dividends were partly facilitated through increased borrowing by the companies to fund the generous payouts. As a result, the companies incurred larger interest bills on their debts, which are tax deductible, and thus paid far smaller sums by way of corporation tax.
In 2001, BHS sold a number of its stores to Carmen for £105 million, with the latter thus becoming BHS’s landlord. Over the subsequent seven years, Carmen was paid £81 million in rents – thus providing a further little nest egg for the Green family. Incidentally, this transaction resulted in reduced profits for BHS and thus reduced the tax bill.
Since 2000, the offshore companies linked to Green and his wife have received £1.8 billion; there is a further £250 million to come by 2019. The tax ‘savings’ of Green (or his wife to be legally correct) amount to at least £400 million. Last year, Arcadia paid £70 million in UK corporation tax.
All this is perfectly legal, but still a racket. Even the Daily Mail, no friend of Marxian socialism, is so outraged by these practices as to say the following: “The strategies companies use to avoid tax are no doubt quite legal. But there is a widespread feeling that while most hard-working taxpayers have a considerable portion of their income removed by PAYE, there is something immoral about businesses that can employ expensive accountants to find increasingly complicated ways of paying less tax” (ibid).
We might add, what a contrast the government’s toleration of the Great Tax Heist, of the type exposed above, presents to the fulminations of the bourgeois ministers whenever there is an exposure of some poor unemployed victim of capitalism found fiddling some small benefit claim.
This month, the Treasury published what Chancellor Osborne characterised as “the most significant programme of corporate tax reform for a generation”. And yet, let alone the abolition of tax havens, it ruled out the idea of limiting any company’s ability to offset debt interest payments against taxable income. This was such a key concession to monopoly capital as to cause the head of tax policy at a leading accounting firm to observe that companies “will be breathing a collective sigh of relief” (ibid).
No cause for such a collective sigh of relief for tens of million of ordinary people, who are losing their jobs, or social benefits, or being forced to work many more years of their lives than hitherto.
When the big three bourgeois parties and their tame media are talking about scroungers on the dole, greedy workers asking for more or immigrants taking away jobs, housing etc, remember the real scoundrels who legally cream off the wealth of this and many other countries while their representatives in parliament protect them.
The bourgeois governments, which are but the executive committees for managing the affairs of the bourgeoisie, have neither the will nor the ability to put an end to this or similar other rackets. The bourgeois state, after all, is but an instrument in the hands of the ruling class for holding down the working class and, as and when necessary, crushing resistance on its part.
The whole racket can only be stopped through the overthrow of capitalism. This is the message that must be taken to the working class. This is the realisation that must permeate the working-class movement. Only socialism can bring joy to the working class and furnish it with a life worthy of human beings.