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Interview with Nicholas Shaxson: Part One

March 3rd, 2011 by

Nicholas Shaxson, tax expert and author of ‘Treasure Island’, a book described as the “most important of the year”, noticed 38 Degrees’ campaign against tax dodging. He asked if 38 Degrees would be interested in doing an interview with him.  The office team then asked 38 Degrees members wanted they wanted to know about tax-below he has answered some of the questions members have asked him:

Nicholas Shaxson

Photograph by 38 Degrees

Gerry Smith: Could you please explain the difference between tax avoidance and tax dodging? If the only difference is one is legal and one is illegal how do we pressurise our MP’s into changing the tax laws so both are illegal?

Nicholas Shaxson: Technically, the main distinction that is made is between tax evasion – which is by definition illegal – and tax avoidance, which is by definition legal, but also by definition involves getting around the spirit of the law: what our democratic representatives intend when they set up tax laws. Between the poles of evasion and avoidance there is a huge grey area, a spectrum between the legal and the illegal. Multinational corporations that use tax havens tend to inhabit this grey area.

Tax dodging is a popular term which to me means the whole lot: evasion, avoidance and the grey area in between. I prefer an alternative term, which is tax cheating.  I think that effectively puts the finger on exactly what is going on here.

Lauren Young: How much could we save if they just paid their tax?

NS: The so-called UK tax gap – taxes that are recognised but go unpaid, outright tax evasion, and tax avoidance – is estimated at 40 billion pounds per year by HMRC; and at 120 billion per year by Richard Murphy,who has done a lot of pioneering work on this. It would never be possible to collect all this, but many billions, and possibly tens of billions, is a reasonable estimate of what might be possible. This could not go all the way towards making up for the huge cuts now being instigated – but it could go a long way. It is a genuine and big alternative to cuts.

Avril Wooster: If someone resides in U K, has a business in UK, how can they not pay their due taxes in UK?
Robin Rowles: Is there any reason why our taxation laws can’t say “If you live in the UK, work in the UK, do business in the UK, or as an individual or as a corporate entity take any income from the UK, you pay UK taxation”?

NS: Generally, companies can’t cut their tax bills to zero, because the government puts in defences against offshore tax avoidance. Company lawyers put in place new schemes to get around those defences, though, and the government creates new defences against those. And so on. This game of cat and mouse is one reason why tax systems get so complex.

Take a business that is resident in the UK and which has its headquarters here, and which has subsidiaries all over the world. In theory, should pay taxes on all its worldwide income, with allowances made for taxes already paid to other countries. But it’s not as simple as that.

Imagine the company has a subsidiary in a tax haven, which earns $100 million but pays no local tax (because it’s in a tax haven.) In theory, the UK resident company should pay UK taxes on its tax haven profits. But there is a big fly in this ointment: if it structures its tax affairs in certain ways, it may only pay those taxes in practice once it has repatriated those profits back to the UK. Meanwhile the money that it keeps out there in the tax haven will sit there, untaxed. This is known as deferred tax – tax that should in theory be paid one day, once the income is repatriated to the UK – but in practice it often never gets paid at all. It has been called a ‘tax-free loan from the government, with no repayment date.’ One third of the UK’s largest companies pay no tax.

With respect to individuals, the big gift that the UK makes to wealthy people is the so-called “non-dom” rules, under which certain classes of people who are resident in the UK but not “domiciled” in the UK (this is a rather vague test that depends on where your heart lies) get to pay tax on their UK income only, but pay no tax on their worldwide income. So of course, vastly wealthy people come to London, make sure all their income is realised overseas, and get all the benefits from living in our country while making sure that other people pay for all the services they rely on. The non-dom rule should be simply scrapped.

You can follow Nicholas Shaxson on twitter at: http://twitter.com/nickshaxson

Nicholas Shaxson also recomends Richard Murphy’s Blog
and this Tax Justice Blog

Posted in 38 Degrees Blog Posts

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    [...] Nicholas Shaxson also recomends Richard Murphy’s Blog and this Tax Justice Blog via blog.38degrees.org.uk [...]

  • Alexis

    Where is part 2?

  • Stev_english

    good info, thanks. i agree the non dom is to attract wealthy people here as to use the uk as a tax haven. supposedly because there is a benefit to the uk, i dont believe there is at all. they don not benefit me at all and if i am an average person then all they do is push up the cost of housing, this of course is the primary reason for them being here because so many people feed off this house price ‘bubble’. this is a very sad way of running an economy, making stuff seems to be a better way to go, economies that still do amke stuff are better off and earn real income and even run surpluses. we have gone too far down this property inflation road to get off it…

  • Anonymous

    The answer is to tax land, in particular the unimproved value of land. It would have no effect on prices or rents as the owners of land are in a monopoly position, people are already paying as much as they can.
    Some of the advantages of taxing land are,
    1 you can’t put it in a tax haven
    2 you can’t hide it
    3 it is easy to trace and find out who owns it, and owes the tax
    4 if we tax land we can reduce or even abolish in time taxes on earnings.
    5 all major economists worth their salt, even Adam Smith recognise the benefits of taxing land.
    Tax land not earnings.

  • Bed Head

    I agree with the below and think that the only decent argument against taxing land is a terribly idealistic one. Would the answer (being idealistic myself) not be to eradicate tax havens? The very concept undermines capitalism when considered objectively. If i was a right winger I’d be shouting ‘get rid of the tax havens, they’re letting the commies in!’ (in an old posh voice)

  • Margeashley

    I think if 38o wants to change the UK they should form themselves into a political party, this is not right challenging a democratically voted party on things that 38o believes in and by email. Put yourself out to the people and let them hear and then, if they want to elect you.

  • Magapanthus

    What do you mean it is not right for us to group together and campaign and write to our MPs?? Has it been made illegal????? Democratically elected party??? PLeeeeeeeeeeeeeease. With our voting system, I seem to remember that no- one had a mandate to do anything as radical as they are doing.

  • Wendy

    I am an Accountant and on principal I do not take on Limited Companies as clients. I act only for sole traders and partnerships. Just about anyone can set up a limited company and just not pay their supplier bills and close that company and open another and another et al. Of course they dont keep books and Companies House do not poursue them for accounts and just remove them – even when alerted to this fiddle! (there usually is no paperwork to support a set of Accounts). This is the bottom of the Corporate Tax dodging. Moving right up the scale you get football clubs who do not pay over their PAYE Tax & Insurance and who get taken to High Court for £millions only to have to pay about 10% of the tax due. Footballers also set themselves up as Companies to avoid tax. Football Clubs also manage to avoid Corporation Tax most of the time and we all know that there is an enormous slush fund going around here. In the Health Service there is huge tax dodging through Locum Agencies some of whom take about one third of the Locum’s pay in charges plus the Employers side of NIC and Nursing Agencies set up their temporary staff as limited companies under some dodge or other and, of course, this cuts out most of the tax and NIC. If a question was asked in the NHS regarding agency staff people would be amazed how many of the nursing staff are actually supplied by temp agencies. The general public have no idea of these dodges – which are small in the grand scheme of things but an enormous tax loss to the public. The small man will be hounded for a few hundred pounds but all these people and organisations mentioned are ripping us of wholesale.

  • Patsy

    Wendy, thank you but Oh how depressing your information. Our tax system seems to reward the dishonourable but discourage integrity whilst hitting those on benefits as soon as they stray over the line. I reckon one should always have a constructive alternative and wonder how the land tax would work particularly for those who live in social housing provided by councils and housing associations?