The pros and cons of tax havens

Is moving your business, or parts of your business, to a tax haven unethical? Farah Dib plays referee as AAT’s Tania Hayes and Aleem Islan go head-to-head on the subject

British businesses are relocating. James Dyson has been criticised for moving his factories to China to save on production and labour costs. John Lewis fears it will not be able to compete unless it does likewise.

And, amid all this, Amazon, Starbucks and Google are being confronted and forced to explain their suspicious tax affairs. But whose fault is it?

Nicholas Shaxson, former correspondent for the Financial Times and The Economist, and author of Treasure Islands, has exposed how the corporate world is manipulating the system to deepen the economic divide and escape its tax responsibilities.

Can tax havens be a force for good?

The result is lack of transparency and unfair tax burden on society, Shaxson argues. And it’s nurtured by a lack of legislation and general acceptance of tax havens. But the other side of the argument also has strong support. Can tax havens in fact be a force for good?

Tania Hayes, AAT’s head of conduct and compliance: Jimmy Carr’s attempt to avoid tax despite residing and working in the UK is a perfect example of why tax havens are unacceptable.

From a public interest point of view it is a question of fairness. We have to ensure that everyone pays the appropriate amount of tax and we can’t make exceptions for high-profile people, or those who are wealthy enough to employ an accountant, to help them find the loopholes.

Aleem Islan, AAT’s technical manager: The ethical argument is redundant here. Why is it okay for the government to give a foreign carmaker an arrangement that allows them to operate in a tax free factory for five years, giving them an unfair advantage over other carmakers, but not for companies to seek out the most favourable place to register their business?

Can you justify large companies playing the tax system?

So, in allowing the Treasury to strike such exceptions to attract business, they are making life harder for other companies who don’t get the tax breaks. Fair enough, but does this justify their not paying tax in the UK?

AI: When you see companies the size of Microsoft doing the same thing in the US, where it’s rather favourable to keep a business in comparison to the UK, it does suggest something is wrong with the system. The short life-cycle of businesses in the UK is an indication of how difficult it is to survive with the current taxes. Is it wrong to want to pay less tax or is the issue actually that businesses are being charged too much?

TH: It’s not acceptable. If there is no reason to take the business off UK soil – because there is no real commercial operation elsewhere – they have to pay tax here.

Not doing this will put additional pressure on the employed population who can’t escape tax in the same way because they can’t get an accountant to create a tax avoidance scheme.

Is collecting taxes just becoming an emotive witch-hunt of a chosen few?

Whether it is going offshore or using other innovative avoidance mechanisms, is the process of tax collection degenerating from dispassionate science to emotive witch-hunt?

AI: I don’t think Starbucks should have paid that £20m tax bill (the coffee chain recently decided to voluntarily pay extra taxes). What kind of government targets one company and embarrasses them into paying? It’s a circus – not a proper tax system.

A lack of tax transparency

Yet neither Hayes nor Islan believe the issue is clear-cut. Tax havens harbour banking secrecy laws that allow corrupt leaders in developing countries to hold on to their assets, and lack of transparency is undermining the credibility of businesses and contributing to a lack of insight into the state of the global economy.

But as long as there are legitimate ways to save on tax, available to those who can get an accountant to find them, it’s unlikely that tax havens will disappear – whether unethical or not.

What both Hayes and Islan agree upon is that that the levels of taxation on businesses are too high, contributing to an inherent unfairness in the system.

Time for a review of tax legislation?

While Islan would rather scrap corporation tax in favour of a new revenue tax, Hayes calls for the government to put more effort into making corporate tax less onerous, thus making investing in the UK more attractive.

Pointing out the failures of HMRC to discover the disingenuousness of large corporations such as Starbucks at an earlier stage, she calls for a review of tax legislation.

TH: When the system is so complex, there are always loopholes that will be exploited. Tax evasion is illegal, but tax avoidance isn’t. We need to look at the spirit of the legislation and enforce it, because it’s still unethical and not in the interest of the public, even if it’s not illegal.

Farah Dib is a former freelance writer for AAT.