By John Pickard
It is a pity that the on-line Financial Times shelters behind a pay wall. Because some of its articles contain real political dynamite, the sort of information that would never in a million years appear in the Sun or the Daily Mail, but which lifts the veil, ever so slightly, on the legalised corruption that is capitalism.
The vast scale of tax-dodging that takes place around the whole world is such an embarrassment even to journalists of this newspaper – a paper of capitalism, let us not forget – that today they have devoted a long article to its large-scale effects.
It gives a good example of tax-dodging here in London. “The Savoy Hotel”, itsays, “has been welcoming its well-heeled and connected clientele for 131 years. But for all the Art Deco design and the sublime personal service, the Savoy loses money.” The article then goes on to describe how the Hotel recorded a loss of over £20m in 2018 and over £80m the year before, and all because of a huge debt of £347m that it is carrying, and on which it is paying 15 per cent a year (well above the norm for debt interest, you will note).
Savoy has paid no taxes for 15 years
And how did the Savoy come to have such debt? By lending money, through a convoluted system of companies and subsidiaries and restructuring the debt every year or two, so that the net result is that the Savoy pays no corporation tax…and hasn’t done for 15 years. This no doubt makes the owners, Prince Alwaleed bin Talal of Saudi Arabia and the Qatar Investment Authority, very happy.
But as the Financial Times explains, “In the modern world of corporate taxation, the Savoy is far from an outlier”. The entire tax system of the capitalist world is rigged in such a way that the biggest corporations can get away – invariable in secret and away from public scrutiny – with the dodgiest of dodgy tax arrangements. Tax havens, shell companies, complex and unfathomable interlinking share-holdings, political lobbyists and armies of tax experts are all deployed to one degree or another.
According the Financial Times article, “over the past half century, corporate taxation accounts for roughly 8-10 per cent of revenues in OECD countries.” In this same period, “tax rates have more than halved, tax breaks have proliferated, and tax avoidance through offshore havens has blossomed”. The UK government is particularly culpable in this regard, with so many ‘Crown dependencies’ and ‘British Overseas Territories’ in the long list of tax havens. If the British government was serious about dealing with tax avoidance (and it isn’t), it could stop the tax-dodging through the Cayman Islands, the Channel Islands, the Isle of Man, the Virgin Islands, etc, etc, within a week. According to the IMF, the estimated total of lost revenues from tax-dodging amounts to as much as $650bn a year.
Tax-dodging is the standard business model
In Britain, “more than 50 per cent of the subsidiaries of foreign multinational companies currently report no taxable profits”. In the US, “91 companies on the Fortune 500 index, including Amazon, Chevron and IBM, paid an effective federal tax rate of zero in 2018”.
In the past decades of neo-liberalism, tax-dodging has become part of the standard business model for big corporations and they use a hug variety of methods and systems to make it work. The Financial Times gives the case of the US giant, General Electric. Between 1981 and 2001, it explained, “a tiny corporate tax team was transformed into a money-spinning entrepreneurial machine, with 1,200 tax lawyers spanning five continents. The fruits: between 2008 and 2015 the company not only paid no federal income tax in the US… it booked positive tax benefits worth more than $1.3bn over the seven-year period.”
This will become an even bigger issue in the next few years, because globally governments have spent lots of newly-printed money to manoeuvre their way around the problems of the coronavirus lockdown and the bills that have been accrued will need to be paid. The twenty largest economies have provided “fiscal support of $5tn, or 7 per cent of their combined national income”.
All of these governments, the UK and US governments included, will be trying over the coming months to recoup some of this by a further squeeze on living standards. It is in that scenario that workers and the labour movement will be demanding that businesses ‘pay their fair share’ and the same businesses will be ramping up their tax-dodging and lobbying politicians to back off.
Government coronavirus loans to tax-dodging companies
What is particularly galling is that so many governments are paying emergency coronavirus funds to prop up these companies who are laughing all the way to the bank. In the case of the Savoy, closed like other hotels, its 500 plus staff are furloughed and being subsidised by the taxpayers – who do not include the Savoy.
Incredibly, a subsidiary of General Electric, Baker Hughes, was given a £600m by the British government to tide it over the pandemic, even though its parent company is currently being sued by the government for unpaid taxes going back years. “Nearly a third of the companies that received coronavirus loans from the Bank of England are either based in, or substantially owned by, a tax haven resident, according to TaxWatch UK, a think-tank.”
The most prophetic words in this Financial Times article are these: “Changing the system, however, would truly need a revolution”, not that the authors mean the same thing as many of us do. The Financial Times correspondents, like other more astute representative of capitalism can see the political and economic dangers in allowing this rotten system to continue. What they will have in mind is some dabbling and tinkering with an utterly broken system, but what the labour movement must demand is that the system is tackled with a demolition ball.
The new leadership of the Labour Party, instead of polishing their pro-business credentials, should be banging a big drum and making a noise about the industrial-scale tax-dodging that starves the NHS and other public services of vitally-needed cash.
Labour should be demanding that all ‘British’ tax havens are brought into line with UK tax laws immediately. They should be demanding that tax-dodging companies should open the books to public scrutiny and that they should be taken over and run for social benefit. They should demand that all workers, from the CEOs to the lowest paid, should pay tax on all income (in kind or in cash) through PAYE.
They should be demanding the take-over of the top FTSE100 companies that dominate the economy, so that their enormous resources and wealth can be harnessed in a plan of production for the benefit of all. Tax-dodging is an inherent and an inevitable feature of the capitalist system. There is no ‘fair’ taxation system under capitalism: only possible realistic fight for a ‘fairer’ taxation system is a fight for the socialist transformation of society.
July 8, 2020
