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Broken Britain 16: HMRC refuses to investigate money-laundering and tax fraud charges by largest Conservative donor

Three classes of British looting: which is the most culpable?

Professor Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex, draws attention to the case of the UK telecoms giant Lycamobile, the biggest donor to the Conservative Party, which has accepted £2.2m in donations since 2011.

Her Majesty’s Revenue and Customs (HMRC) has refused to assist the French authorities and raid Lycamobile’s UK premises in order to investigate suspected money laundering and tax fraud.

Economia, the publication for members of the Institute of Chartered Accountants in England and Wales (ICAEW) which covers news and analysis on the essential issues in business, finance and accountancy, reports:

Following an initial denial (left, Financial Times), Economia confirmed that in an official response to the French government dated 30 March 2017,  a HMRC official noted that Lycamobile is “a large multinational company” with “vast assets at their disposal” and would be “extremely unlikely to agree to having their premises searched”, said the report.

The letter from HMRC to the French government added, “It is of note that they are the biggest corporate donor to the Conservative party led by Prime Minister Theresa May and donated 1.25m Euros to the Prince Charles Trust in 2012”.

This is an ongoing saga: in 2016 Economia noted: “The Tories have come under fire for continuing to accept donations of more than £870,000 from Lycamobile since December, while it was being investigated for tax fraud and money laundering”.

In 2016 In May it emerged that KPMG’s audit of Lycamobile was limited due to the complex nature of the company’s accounts. Later, KPMG resigned saying it was unable to obtain “all the information and explanations from the company that we consider necessary for the purpose of our audit”.

HMRC: “has become a state within a state”.

Prem Sikka (right) continues, “The House of Commons Treasury Committee is demanding answers to the Lycamobile episode – but HMRC is unlikely to prove amenable”.

In recent years, the Public Accounts Committee has conducted hearings into tax avoidance by giant global corporations such as Microsoft, Amazon, Google, Starbucks, Shire and others. The hearings have not been followed by HMRC test cases.

The Public Accounts Committee has also held hearings into the role of the large accountancy firms in designing and marketing avoidance schemes and exposed their predatory culture. In a telling rebuke to PricewaterhouseCoopers, the Committee chair said: “You are offering schemes to your clients—knowingly marketing these schemes—where you have judged there is a 75% risk of it then being deemed unlawful. That is a shocking finding for me to be told by one of your tax officials.”

Despite the above and numerous court judgments declaring the tax avoidance schemes marketed by accountancy firms to be unlawful, not a single firm has been investigated, fined or prosecuted.

There are real concerns that HMRC is too sympathetic to large companies and wealthy elites.

A major reason for that is the ‘revolving door’, the colonisation of HMRC by big business and its discourses: its current board members include non-executive directors connected with British Airways, Mondi, Anglo American, Aviva, PricewaterhouseCoopers and Rolls Royce.

After a stint at HMRC many of the non-execs return to big business. Corporate sympathies are therefore not counterbalanced by the presence of ordinary taxpayers or individuals from SMEs and civil society.

Sikka ends: “In such an environment, it is all too easy to turn a Nelsonian eye on corporate abuses and shower concessions on companies and wealthy individuals”. Read more here.

 

Why should we care?

Because tax revenue pays for the services used by all except the richest, the education health, transport and social services, increasingly impoverished by funding cuts imposed by the last two British governments.

The Shadow Chancellor has twice called for more rigorous examination and tightening of processes at HMRC to ensure that corporations and wealthy individuals are free from political corruption and pay fair rates of taxes.

Will the next government elected be for the many, not the few?

 

 

 

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Broken Britain 15: “Cruel, rigid bureaucracy has replaced common sense in this country”

So writes Peter Hitchens, summarising the unease felt by many in his recent article. He was focussing on the events leading up to the anger felt about the treatment of the ‘Windrush generation’, regarded now ‘by most of us . . .  as something pretty close to family’.

He speaks of ‘the real lesson of the wretched treatment of longstanding British subjects who have been deprived of medical service, threatened with deportation and generally destroyed and trampled on by callous officials . . . deprived of the most basic freedoms and of entitlements they have earned by long years of working and taxpaying.’

After tracing the political trend from New Labour measures to Theresa May’s ‘Go Home’ lorries trundling around London’ he describes increasing ‘tough’ measures as a London liberal’s idea of what might please the despised voters.

Frankly it’s hard to see how the capital could function without foreign nannies, cleaners and gardeners

In a 2009 article, Andrew Neather reviewing the New Labour policies, ‘laced with scorn for working-class people worried about the immigration revolution’, said:

‘The results in London, and especially for middle-class Londoners, have been highly positive. It’s not simply a question of foreign nannies, cleaners and gardeners – although frankly it’s hard to see how the capital could function without them. Their place certainly wouldn’t be taken by unemployed BNP voters from Barking or Burnley.’

The post-Brexit plight of EU nationals

Last year there were reports about the post-Brexit plight of EU nationals who experienced the bureaucratic maladministration and occasional cruelty from which the country’s poorest have suffered for decades.

Universal Credit system

The most recent example, reported in The Financial Times, referred to the rollout of Britain’s “Universal Credit” benefits system, challenged by more than 120 MPs saying that delayed payments are leaving poor households exposed.

Food and heating

Recently Professor Prem Sikka tweeted about 21st century Britain: He linked to a BBC report about a separate survey for the Living Wage Foundation which says that a third of working parents on low incomes have regularly gone without meals, because of a lack of money. Around a half of those families have also fallen behind with household bills.

It also quoted Citizens Advice findings that as many as 140,000 households are going without power, as they cannot afford to top up their prepayment meters. The survey conducted by Citizens Advice found, “most households that cannot afford to put money in the meter contain either children or someone with a long-term health condition. Some people are left in cold houses, or without hot water”.

Sure Start

The Coalition and later Conservative governments’ cuts largely dismantled the Sure Start network, created by Labour to support families in the early years of their children’s development.

Youth Work

Unison has been working on this for some time – its 2016 report, A Future at Risk, found that £387m had been cut since the Tories took power. That’s over 600 youth centres and 140,000 places for young people.

People with disability

One of many austerity measures reported here is the cuts to school transport for disabled children. This, and many more examples of ‘cruel, rigid bureaucracy, may be seen on the website Disability United.

Sikka summarised: “Poorest families are going without food or power. Wealth is concentrated in relatively few hands and governments shower tax cuts on corporations and wealthy elites. Inequitable distribution of income/wealth is a recipe for social instability”.

 

 

 

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Pensions at risk: are the Pensions Regulator & Pension Protection Fund fit for purpose?

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As Toys R Us seeks shelter in the Pension Protection Fund (PPF) for its deficit, following the dumping of pension scheme liabilities by Bernard Matthews (now under investigation by the Pensions Regulator), BHS and Carillion, *Professor Prem Sikka comments that too many companies are using a procedure known as “pre-pack administration” to sell-off a company’s assets for the benefit of shareholders, banks and private equity concerns, abandoning pension scheme deficits in the process.

There is a general concern that the pre-pack administrator, in agreeing to the pre-pack in consultation with the company’s management team (and usually its secured creditors), favours the interests of the managers and secured creditors ahead of those of the unsecured creditors. The speed and secrecy of the transaction often lead to a deal being executed, about which the unsecured creditors know nothing and offers them little or no return.

Bad management can plan for a prepack months in advance, line up an administrator – and then be back running the business immediately. It means when retailers fail they are often being kept with the same directors when it would be much healthier if new management arrived and with fresh money to invest (Nottingham Law School Journal, Peter Walton).

 

Last year, the FT reported that some 148 pension schemes with £3.8bn of liabilities have been offloaded into the Pension Protection Fund (PPF, header above) through pre-pack administrations and that directors, shareholders and bankers extracted an extra £3.8bn from companies by dishonouring the contracts with employees. Another 20 schemes were being assessed and the numbers are growing.

Some companies use pre-packs to extract high executive remuneration, returns for shareholders and dump the pension scheme liabilities with the knowledge that 90% of the pension deficit may be made good by the PPF. The PPF was established by the Pensions Act 2004 to rescue distressed pension schemes, but the amount of compensation received is less than a member would have been entitled to under the rules of their original pension scheme.

Professor Sikka advises that all companies with a pension scheme deficit be required to submit an annual plan to the Pension Regulator explaining how they seek to eliminate it and there should be a binding commitment to reduce the deficit. To this end:

  • All share buybacks, dividends and other forms of returns should be conditional on a plan to eliminate the pension scheme deficit.
  • This plan needs to be approved by the Pensions Regulator.
  • Each year the company should explain whether the previous promises to reduce the deficit have been delivered.
  • Whenever a company with a pension scheme deficit engages in a merger or takeover it should be required to seek approval from the Pensions Regulator.

And is the pensions regulator to blame for the Universities Superannuation Scheme crisis?

David Bailey, professor of industry at the Aston Business School in Birmingham and John Clancy, pensions analyst and former Leader of Birmingham City Council argue that the Pensions Regulator, not universities, is the driving force behind proposed cuts due to its nonsensical approach to discount rates.

Read their article in the Times Higher Education, which describes itself as the data provider underpinning university excellence in every continent across the world.

* Professor Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex

 

 

 

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A ‘racket’? Government departments and regulators are protecting elites by covering up large corporations’ failures

The growing public awareness of this unholy alliance is leading to a rapidly increasing loss of confidence in our institutions of democracy, lower tax revenues, and cuts in healthcare, pensions, education and infrastructure spend.

Professor Prem Sikka’s latest article scathingly outlines the way in which regulatory bodies and government departments are protecting elites and corporations from retribution.

He cites seven examples, the latest being the refusal of the Financial Conduct Authority (FCA), the UK’s banking regulator, to publish its 361-page report on misconduct at the state-controlled Royal Bank of Scotland (RBS).

The 2013 Tomlinson Report showed that instead of rescuing struggling businesses, banks made money by asset-stripping and destroying them. This was followed-up an investigation by the FCA and in November 2016 it published what purported to be a summary of its full report. Subsequently, the BBC obtained a leaked version of the report. It referred to “inappropriate action” by RBS’s Global Restructuring Group (GRG).

The inappropriate action experienced by 92% of the businesses included complex loans, higher interest rates, and unnecessary fees. Businesses could not easily return to good health.

For the period 2013-2015, GRG handled 16,000 companies – and about 10% survived. Many ended up in administration and liquidation, with their assets were sold cheaply. RBS has set aside around £400 million to deal with possible claims.

The secret FCA report is not only an indictment of RBS, but also of other banks, accountants and lawyers. People are entitled to see the full scale of the scandal, and remedial legislation cannot be drafted without sight of the whole report. Yet the regulator’s impulse is to shield RBS and its accomplices.

Professor Sikka’s comment: “We can’t afford this racket” refers to the ‘knock-on effect’ as lower tax revenues (and a self-centred, heartless ideology?) lead to cuts in healthcare, pensions, education, public services and infrastructure spending.

 

 

 

 

https://leftfootforward.org/2017/10/six-ways-the-uks-regulatory-system-is-a-protection-racket-for-the-elite/

Fewer rights for trade unions: many more for accountants

Professor of Accountancy, Prem Sikka, writes about the UK government, rushing a trade union bill through parliament to curb the rights of workers. The Bill imposes:

  • a minimum turnout of 50% for all binding ballots
  • a higher threshold for withdrawal of labour in public services
  • no electronic balloting for trade unions
  • maintains existing requirements such as one-person-one-vote,
  • no delegated proxy voting system
  • and election of all officers.
  • Trade unions can be held liable for damage to employers

He compares the government’s approach to power exercised by another organised group

Professor Sikka says that accountancy trade associations wield enormous power. Accounting logics promoted by accountancy trade associations influence the assessment of wages, pensions, dividends, taxes, utility prices and much more. Unlike conventional trade unions they have secured monopolies and niches for their members and these are guaranteed by the state.

The power of accountancy trade associations affects the life chances of all citizens. How democratic and accountable are they? He considers the case of the Association of Chartered Certified Accountants (ACCA), the largest UK-based accountancy trade association with annual income of £164m:

  • Its president, deputy-president, and vice-president are not directly elected by members.
  • For its business at the 2015 annual general meeting (AGM) 6,310 votes (turnout of 3.54 per cent) were cast.
  • Unlike trade unions, electronic voting is permitted. Of the nine seats for council, the candidate with 2,520 (1.41 per cent of the eligible vote) votes topped the poll and an individual with just 1756 votes, less than 1 per cent of the eligible vote, was elected..
  • This includes 650 votes cast by the President under a delegated proxy voting system, a system forbidden for trade unions, general, local, and the European and Mayoral elections.
  • Early Day Motions tabled in the House of Commons have condemned the ACCA’s lack of democratic practices.
  • Such pressures resulted in the appointment of the Electoral Reform Services to count ballots. Prior to that votes were counted by the chief executive.
  • Trade unions are not permitted to insert such recommendations on ballot papers.

The practices of accountancy trade associations affect every citizen, yet there is virtually no accountability to their own members, far less the general public. Prem Sikka summarises by email:

“The UK government is engaged in draconian trade union reforms. The ministers claim that tougher laws are needed because trade union practices affect members of the public. The same arguments also apply to accountancy trade associations because their members are involved in tax, accounting, auditing and insolvency scandals. The practices sanctioned by accountancy trade associations affect assessment of wages, pensions, dividends, taxes, utility prices and much more. These affect the lives of millions of people. However, there is little democracy, far less any public accountability”.

 

Prem Sikka is professor of accounting at the University of Essex

Tax cheats (£34-120bn) cost far more than benefits cheats (£1+ bn) – yet far fewer are prosecuted

hmrcAnalysis of HMRC data shows that the political culture is sympathetic to tax avoiders

Summary of an article by Prem Sikka, professor of accounting at the University of Essex, which may be read in full here, adding official data confirming the thoughts of John Wight

Social security benefits come in many shapes, including the state pension, pension credits, income support, disability living allowance, employment and support allowance, jobseeker’s allowances and housing benefits.

  • The total cost of all benefits for 2013-14 is about £164 billion.
  • Around £1.2 billion or 0.7 per cent of the total is attributed to fraud. ‘
  • Benefit fraud has continued to average between 0.6 per cent and 0.8 per cent for the period 2005/06 to 20013/14.

The government has set up a benefit fraud hotline and people are encouraged the blow the whistle on their neighbours and anyone else suspected of fraud. The sanctions:

  • a £50 spot fine, without a court order, on individuals who mistakenly provide inaccurate information on their claims forms.
  • Those suspected of fraud may be able to pay fines of between £350 and £2,000 in lieu for prosecution. From April 2015, the upper limit of the fine will be £5,000.
  • Some may lose their benefits altogether for a fixed period.
  • Private debt collection firms, bailiffs and forced house sales are used to collect penalties.
  • Suspects can be charged under the Fraud Act 2006, which carries a maximum prison sentence of up to 10 years.

The data shows that most of the criminal convictions are for frauds of less than £10,000. In 2011, two-thirds of fines imposed were for £200 or less. The largest fine imposed was £5,000. For the period 2008-2012, some 1,306 offenders received a prison sentence.

Benefit fraud is officially estimated to cost £1.2 billion (2013-2014) but HMRC estimates an annual tax gap – that is tax avoidance, tax evasion and monies of £34 billion (2012-13).

HMRC’s model is challenged by others who put the tax gap at around £120 billion.

Even in 2004, a former World Bank adviser was saying that the UK is losing over £100 billion a year to tax avoidance and evasion. HMRC’s 2013-14 report states that during the year 421 individuals were detained after arrest by HMRC officers, but none were charged.

Preliminary conclusions

The amounts attributed by the government to tax avoidance and evasion are much larger than the amounts attributed to benefit fraud. But the number of prosecutions and convictions for benefit fraud are much greater.

The political culture is more sympathetic to tax avoiders. HMRC was made aware of the HSBC tax frauds in 2008, but so far only one person has been charged. An excuse offered by HMRC is that it likes to make financial recoveries and thus does not go for prosecutions.

The revolving door swings and tax avoiders go scot-free

Vodafone cio to HMRCWe add that in 2013, just as the Treasury was under pressure to review rules allowing Vodafone to avoid paying tax on its massive £84bn windfall from selling its stake in the American mobile phone giant Verizon, HMRC appointed Mark Dearnley, CIO at Vodafone, as its new Chief Digital and Information Officer.

Sikka points out that, on a number of occasions, the courts have declared some of the tax avoidance schemes to be unlawful. This has not been followed-up by any investigation or even recovery of the cost of fighting the schemes. Big accountancy firms are often the brains behind the schemes but no firm or partner has ever been fined even after the schemes have been declared unlawful.

  • The same firms are given taxpayer-funded contracts, such as those relating to privatisation and Private Finance Initiative (PFI).
  • Their partners advise HM Treasury and other government departments.
  • The firms fund political parties and also provide jobs for former and potential ministers.

In April 2013, the government introduced rules to ban companies and individuals who took part in failed tax avoidance schemes from being awarded government contracts. So far, no such business has been barred.

Big auditors have penetrated the state & organised their own accountability

prem sikka 4“The big auditors have not only penetrated the state but have become part of the state and have organised their own accountability off the political agenda”.

So writes Professor Prem Sikka director of the Centre for Global Accountability at the University of Essex (Accountancy) in a recent article.

Extracts

By colonising bodies such as the International Auditing and Assurance Standards Board and the UK’s Financial Reporting Council, big accounting firms control the production of auditing standards. Various international auditing standards, codes and related pronouncements, for instance, cover about 3,000 pages but remain silent on auditor accountability to the public.

The public bears the cost of audits and audit failures, but has no right to see audit files or to make an assessment of the quality of audit work. Legal cases show that, even despite an admission of negligence, auditing firms escape liability because under UK law they do not owe a “duty of care” to any individual shareholder, creditor, employee, pension scheme member, or any others affected by their negligence.

The silence of the auditors at distressed banks is well documented though this has resulted in little effective action. No auditing firm has returned the fees for dud audits. Earlier this year, nearly six years after the banking crash, the Wall Street Journal reported that a US auditing regulator found more than one in three audits inspected were considered to be deficient and did not provide enough evidence to enable auditors to reach a conclusion.

Who will audit the auditors?

What should we do with producers who routinely deliver faulty goods and services? Producers of cars, food, medicines, aeroplanes and even financial products are forced to compensate injured parties, recall their goods and face the possibility of being forced out of business. But such niceties do not apply to the auditing industry.

IFIAR logoA damning report was produced by the International Forum of Independent Audit Regulators (IFIAR), an organisation representing audit regulators of 49 jurisdictions, including Australia, France, Germany, Italy, Japan Spain, UK and the US. This IFIAR report was compiled from the audit inspections carried out by national regulators and focuses on audits of major listed companies. The audit market for these companies is dominated by the Big Four accountancy firms – Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers – and smaller rivals Grant Thornton and BDO. Their combined global revenue is around US$120 billion and the “too big to close” syndrome continues to prevent effective regulatory retribution.

Auditors will continue to audit the very transactions that they themselves have created

The post banking crash auditing reforms recently announced by the EU require that financial institutions and listed companies change their auditors every 10-24 years, something which will not prevent collusive relationships between companies and auditors. The EU will impose further restrictions on the auditor’s ability to sell consultancy services to their clients, rather than imposing a complete ban. So auditors will continue to audit the very transactions that they themselves have created.

Minimalist reforms are welcomed by the auditing industry, but do not address the problems identified above . . .

Auditors should owe a “duty of care” to all stakeholders who have reasonably relied on audit reports. The consumer rights revolution which applies to even mundane things like toffees and potato crisps also needs to apply to producers of audit opinions. All auditor files should be publicly available so that interested parties can make their own assessment by considering the composition of the teams, time spent, horse trading with company directors and conflicts of interests.

The above proposals can stimulate competition and hnf and thus create incentives for accounting firms to escape the cycle of institutionalised failures. No doubt, auditing firms would oppose any proposals that strengthen their public accountability, but the reforms can save them from their own follies.

Read the whole article here: https://theconversation.com/big-auditors-must-be-made-accountable-to-the-public-25766

Budget Day: Professor Sikka highlights the British state, a major guarantor of corporate profits

prem sikka 4Prem Sikka, professor of accounting and director of the Centre for Global Accountability at the University of Essex, points out that during his budget speech the Chancellor won’t talk about the amount spent on corporate welfare and how that is contributing to austerity, income and wealth inequalities, and deteriorating public finances. Read the full article here.

Extracts

In a society where corporations fund political parties and provide jobs for potential and former ministers, the state has become a major guarantor of corporate profits. There are cuts in investment in healthcare, education and social infrastructure, and hard won social rights. A kind of reverse socialism has been created where the state transfers wealth to the well-off and punishes ordinary people. The following examples provide some evidence for the above thesis.

A small sample of Britain’s escalating and unsustainable corporate welfare programme:

EDF

The price of gas and electricity has been rocketing and Energy companies are accused of making vast profits. But EDF and its partners are set to receive £17.6 billion subsidy for building a nuclear power plant even though this investment is projected to provide a return of up to 21%. Despite this exceptionally high rate of return, the company will be able to charge a price of £92.50 per Megawatt hour (MWh), roughly double the current wholesale price of electricity.

Consultants, including accountancy firms KPMG, picked-up £8million in fees. High profits are not accompanied with social responsibility. Energy company SSE declared record profits of £1.5billion, but wants taxpayers to bear the burden of cleaning-up the social and environmental mess.

Rail

In 1996, the railways were privatised and now over 100 companies are running them, but subsidies have increased. The industry has received over £60bn in subsidies, and more is on the way with the Crossrail and HS2 projects. The industry has paid vast amounts in dividends to its shareholders whilst the customer has ended up with the most expensive rail fares in the western world.

PFI

Rather than borrowing directly to finance investment in schools, hospitals, roads, bridge and social infrastructure, under the Private Finance Initiative (PFI) companies borrow money to build the project and then lease the assets to the government at exorbitant prices. In 2012, some 717 PFI contracts with a capital value of £54.7billion were running. The government is committed to repaying £301billion, a guaranteed profit of £247billion over the next 25-30 years.

The resulting profits do not necessarily get taxed in the UK either. For example, HICL Infrastructure is a fund established by HSBC and registered in Guernsey. Its portfolio of PFI projects includes Portsmouth Hospital and the John Radcliffe Hospital in Oxford. For 2011, it is estimated to have made a profit of £38million from 33 PFI schemes, but paid only £100,000 in UK tax.

The government should be clawing back billions from the PFI programme, as it has become evident that the interest rates have been rigged. Even a small adjustment could save taxpayers billions of pounds.

The financial sector

The financial sector preaches free markets and deregulation, but is almost entirely reliant on the state.

The deposit-taking licence is provided by the state without any quid pro quo and the state also provided insurance for deposits of up to £85,000 to promote confidence in the industry.

The sector has boosted its profits through indulgence in money laundering, insider trading, cartels, tax dodges, and the sale of abusive financial products, with virtually no prosecutions for ant-social practices.

In its boom years, between 2002 and 2007, the financial sector paid £203billion in UK corporation tax, national insurance, VAT, payroll taxes, stamp duty and insurance taxes, about half of that paid by the manufacturing sector. In return, the state has poured in billions.

The latest data shows that some £976 billion of loans, guarantees and other forms of support have been provided to banks. The Bank of England has helped out with another £375 billion under its quantitative easing programme. Rather than building their tattered finances, the banks continue to pay exorbitant executive salaries.

BT

BT has annual turnover of £18billion and profits of £2.5billion, but received a government subsidy of £1.2billion to install broadband for rural areas. BT will keep the assets and the revenues generated by the subsidy.

Lotus

With 13million people living below the poverty, many on low wages and lengthening queues at food banks, most Britons can only dream about buying a sporty car. Lotus, the sports car manufacturer, has received £10billion subsidy: the price of a £90,000 model is now reduced by £5,000, thanks to a government subsidy.

By any measure the role of the UK state has been restructured to guarantee corporate profits. This welfare programme needs to be rolled-back. If the government insists on supporting fledgling companies, then the amounts should be returned once the company is profitable.

Before the G20 summit – as always – corporate elites will be operating behind the scenes and colonising the political agenda

Professor Prem Sikka on the outcome of the recent G8 deliberations: 

“There is no intention to let the public know the details about ownership of companies. There is no mention of any timescale within which any reforms are to be implemented. Maybe this absence of detail is indicative of oppositions that some governments are likely to encounter from their local economic elites . . .

“The communiqué states that “Countries should change rules that let companies shift their profits across borders to avoid taxes”, but change to what? There is no commitment and no foundations have been laid for taking the matters forwards at the next G20 or the G8 meeting even though alternative models exist . . .

“The action will move to next year’s G20 summit. As always, corporate elites will be operating behind the scenes and colonising the political agenda. Any progress on eroding secrecy and tax avoidance is going to be slow, and that is a good reason for civil society to continue to campaign for change.”

Read the article here: https://theconversation.com/g8-summit-high-on-vague-promises-low-on-delivery-15351

 

Without curbing corporate power the G8 have no chance of combating tax avoidance

Prem Sikka is one of the academics from around the world attending the Belfast G8 Pre-Summit conference organised by the School of Politics, International Studies and Philosophy, Queen’s University Belfast and the G8 Research Group at the University of Toronto.
G8  venue

G8 venue

 

A day earlier he had written: “Corporate power is so deeply embedded in neoliberalism that politicians have failed to consider its corrosive effect. I will be highlighting that in my talk”.

The “capture” of the state by economic elites
Professor Sikka

Professor Sikka

In his Conversation article, “Without curbing corporate power the G8 have no chance of combating tax avoidance”, he reflects that one of the recurring themes in social sciences is the “capture” of the state by economic elites. This enables them to advance their economic interests, shape public policies and choices. He adds:

“This is nowhere more relevant than in debates about tax avoidance, a key item on the agenda for next week’s meeting of G8 nations in Ireland . . . one thing it won’t discuss is the colonisation of the state by economic elites, a key reason for the continuing failure to tackle organised tax avoidance.

“In recent months, multinational corporations, such as Google, Apple, Microsoft, eBay, Apple, Vodafone, HSBC and Amazon have been hitting the headlines for their tax avoidance and other anti-social practices.

“The Big Four accountancy firms – PricewaterhouseCoopers, Ernst & Young, Deloitte and Ernst & young – have been grilled by the UK parliamentary committees for devising and marketing tax avoidance schemes, many of which have been declared to be illegal by the courts. Yet the same economic interests play a key role in devising and enforcing UK tax laws”.

He gives two examples of damaging legislation

First a new piece of tax legislation known as the Patent Box which came into operation with effect from 1st April, drafted by a working party consisting entirely of representatives of major corporations, including GlaxoSmithKline, Rolls-Royce and Shell.

The controlled foreign companies (CFC) is another piece of legislation crafted by corporate interests. The working parties crafting the legislation included representatives from Diageo, Tesco, Vodafone, Shell, Rio Tinto, GlaxoSmithKline, Kraft, Cable and Wireless, HSBC, Prudential and Avia. All have a vital economic interest in securing compliant tax laws. There was no representation from any civil society organisation, trade unions or critics.

The combined effect of the CFC and the Patent Box legislation could reduce corporate tax bills by about £5 billion a year, at a time when ordinary people are facing massive hardships.

From 1st July 2013, a General Anti-Abuse Rule (GAAR) will come into effect. This requires HMRC to apply a ‘double reasonableness’ test. Sikka asks: “Who will decide whether the state of affairs is reasonable? The procedure is that HMRC will have to put its request to a panel of so-called independent experts . . .  most likely to consist of directors of companies and accountancy firms . . . A recent advertisement invites unpaid individuals to sit on the GAAR panel. Inevitably they will come from corporations who can continue to pay them whilst on secondment to HMRC . . .Thus the tax avoidance industry and companies implicated in tax avoidance will be in a position to shackle HMRC”.

In common with many others the UK state is too close to corporate interests

No fight against tax avoidance is ever going to be effective until there is some distance between big business and the tax authorities, but in common with many others the UK state is too close to corporate interests.

Curbing corporate power and realigning political institutions to the needs and concerns of ordinary people should be on the agenda of G8, but regrettably it will not be and tax avoidance is likely to remain rampant.

Prem Sikka is Professor of Accounting, Essex Business School at University of Essex – see the university website for an account of his message.

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