Action needed to make sure everyone pays their fair share

Glenis No Tax HavenMEPs voted this week in support of tough measures to tackle tax dodging, which is estimated to cost the EU economy €1 trillion every year. 

According to HMRC figures, the UK economy loses £9 billion a year due to companies and individuals not paying their taxes; that’s enough to pay for 600 new schools or 50 new hospitals.  At a time when ordinary people are suffering under public spending cuts and rising unemployment, making sure companies who make billions in profit pay their fair share should be one of the first actions of government. 

Many companies devote considerable resources to ensure that they minimise their tax liability. There is a large market for advising companies on how to take advantage of international tax law, and UKIP MEP, Godfrey Bloom, boasted this week that he used to do just that.  The four largest accountancy firms (Deloitte, Ernst and Young, KPMG, and PwC) employ nearly 9,000 people and earn £2 billion from their tax work in the UK alone. 

Tax avoidance – where companies use legal loopholes to reduce the tax they pay – and tax evasion – operating outside the law – are global problems not just confined to Europe.  Every year developing countries lose more income to tax dodging than they receive in foreign aid.  This is money that could be used to eliminate hunger or ensure 72 million children have access to education. 

It’s the kind of behaviour that recently led the Chair of the UK’s Public Accounts Committee, Margaret Hodge, to accuse Google’s northern Europe boss of being part of a company that does “do evil”. 

However, it now looks as if European leaders are waking up to the problem.  German Chancellor, Angela Merkel, raised the question of tax havens with David Cameron when he visited Berlin last month, as the UK has responsibility for a number of territories throughout the world where banking rules are minimal and where taxes are low or even non-existent. 

At a summit of the European Council on 22 May, tax policy was top of the agenda.  EU leaders reportedly agreed on the need for tougher rules on banking transparency and action against the sort of aggressive tax planning that sees companies exploit legal loopholes in order to minimise their tax bill.  Cameron has also promised that he will make the issue a top priority when the G8 meet in Northern Ireland next month. 

But we’re not exactly ahead of the game on this; the US has already introduced the Foreign Account Tax Compliance Act forcing financial institutions to reveal savings of clients abroad, and there have been moves in Switzerland to force greater transparency in the banks. 

In the European Parliament on Tuesday, we voted on a report calling for strong action against tax fraud.  Measures in the report include establishing an EU-wide blacklist of tax havens, more resources for tax authorities to tackle tax fraud, and an obligation for companies to publish a single figure for the amount of tax paid in each EU country.  We’d also like to see companies that avoid tax barred from being awarded public contracts. 

But a number of Tory MEPs refused to support proposals for greater transparency in multinationals’ tax affairs, showing that while Cameron may talk big, his words aren’t always backed up by action. 

Meanwhile, Ed Miliband made it clear in a speech to Google this week that he sees cracking down on tax avoidance as a major priority for a future Labour government. 

It’s to be hoped that this week’s summit will be a real starting point for getting to grips with tax dodging across the EU.  MEPs have made it clear that, like the people we represent, we want to see tough rules that ensure companies pay their fair share in tax.  We’ll need to keep up the pressure to make sure our leaders follow their strong words with genuinely effective action.

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