[yet another reason methodological nationalism has to go....]
Plastic bucket: $972.98 Big companies and rich individuals run rings round the Inland Revenue. The government should act Prem Sikka Monday June 30, 2003 The Guardian One thing has been missing from the fuss over Peter Hain's remarks on tax policy - an analysis of the impact of tax policy on social inequalities. Consider the plight of workers on a minimum wage of £4.50 per hour (from October 2003), working 40 hours per week for an annual salary of £9,360. This is barely enough for the necessities of life, but workers lose £809 on income tax and £520 on national insurance contributions, leaving just £8,031 for food, clothing, housing, travel to work, health, education, payment of council tax and pension contributions. Tax policies are exacerbating poverty and deepening social exclusion and inequalities. Any caring government should aim to ensure that workers on the minimum wage are exempt from income tax and national insurance contributions. The tax foregone could be spread over higher income earners. Attacking the highly organised tax-avoidance industry would also dramatically increase tax yields, but the government has shown little interest in tackling its business friends. Multinational companies avoid corporate taxes by deliberately overpricing imports and underpricing goods and services for export. The technique goes under the name of "transfer pricing" and the game is to allocate profits to various parts of a multinational group of companies. Here are some examples of the prices actually charged by US multinational companies, including those with operations in the UK, to shuffle profits and avoid taxes. Overpriced imports include plastic buckets from the Czech Republic at $972.98 each, fence posts from Canada at $1,853.50 each, a kilo of toilet paper from China for $4,121.81, a litre of apple juice from Israel for $2,052, a ballpoint pen from Trinidad for $8,500, and a pair of tweezers from Japan at $4,896 each. Underpriced exports include a toilet (with bowl and tank) to Hong Kong for $1.75, prefabricated buildings to Trinidad at $1.20 each, bulldozers to Venezuela at $387.83 each, and missile and rocket launchers to Israel for just $52.03 each. Such practices make a dramatic difference to tax yields. The UK subsidiary of a multinational company constructs a bulldozer at a cost of £27,000 but sells it for £300 to another subsidiary in the same group of companies based, say, in Venezuela, which then sells it on for its market price of £60,000. For tax purposes, the UK subsidiary could claim a loss of £26,700 and pay no corporation tax, even though the group made a global profit of £33,000. That profit is generated by using British infrastructure, but is recorded in another country with a more favourable fiscal regime. Transfer pricing policies should be based on open market prices, but multinational corporations use accountancy and legalistic arguments to justify almost any price. Big accountancy firms play a major role in developing transfer pricing policies for multinational companies and then audit their accounts, declaring them to be "true and fair" None has ever had its accounts qualified for tax avoidance. There are plenty of opportunities for shuffling profits and tax avoidance: the world's largest hundred corporations control 20% of global foreign assets and some 60% of world trade is internal to multinational corporations. Studies have estimated that as a result of transfer pricing policies, the US treasury alone has lost some $175bn of tax revenues during the last three years. The US evidence points the finger firmly at the UK companies as well. Transfer pricing policies are likely to be causing a huge hole in government revenues. But this is not the full extent of organised tax avoidance. Companies and rich individuals also use offshore tax havens to avoid taxes, estimated to be between £25bn and £85bn a year. On top of that some 100,000 rich foreign individuals (shipping millionaires, America n heirs) have (or had) special agreements with the Inland Revenue under which they either pay no taxes (for example Tetra Pak millionaire Hans Rausing) or their liability is capped to only a tiny fraction of their income (as it was for Mohamed Al Fayed). Altogether this amounts to a huge wealth transfer from ordinary people to corporate elites, bigger than the pensions, endowment mortgage and Equitable Life scandals put together. In its bleatings about the corporate tax burden, the Confederation of British Industry remains silent about organised tax avoidance. By attacking corporate tax avoidance the government can exempt the poor from taxes and also make investment in crumbling social infrastructure. But the government has shown little interest in tackling the problem. It has failed to publish any estimates of tax avoidance by wealthy individuals and companies even though the tax yield from corporation tax has declined from the 1999-2000 figure of £34.3bn to £29.2bn for 2002-03, representing a decrease in real terms of nearly £10bn. Yet the company law white paper does not require companies to reveal details of their transfer pricing policies, or explain the taxes avoided by sheltering in offshore tax havens. Prem Sikka is professor of accounting at the University of Essex [EMAIL PROTECTED]
