The question whether business pays its ‘fair share’ of tax is a perfectly legitimate one that deserves a good answer, John Cridland said at the launch of a CBI campaign to bring ‘an informed voice’ to the UK business tax debate.
The question whether business pays its ‘fair share’ of tax is a perfectly legitimate one that deserves a good answer, John Cridland said at the launch of a CBI campaign to bring ‘an informed voice’ to the UK business tax debate.
The question was a difficult one because what was ‘fair’ lay in the eye of the beholder, the CBI Director-General said in a speech at the Policy Exchange in Westminster. ‘I am, though, confident that the large majority of business pays the right amount of tax, and that for the small minority which does not, times are getting tougher, not easier – and rightly so.’
For too long, business had been slow or even reluctant to enter the public debate on tax policy. ‘That needs to change,’ Cridland said. ‘We want to defend robustly our record – and advocate pro-growth tax policies which are in everybody’s interests. We need to distinguish between legitimate, necessary tax management and abusive arrangements to avoid tax – remembering that the majority of abusive schemes involve attempts by high-net-worth individuals to minimise their tax burden.’
The CBI report ‘Tax and British business: Making the case’ did not mention the campaign, supported by many international NGOs, for multinationals to be required to report profits and taxes paid on a country by country basis. But the CBI opposed the reform in its response last year to an EC consultation.
‘Level-headed analysis’
Businesses, like individuals, needed to pay their taxes, Cridland said. ‘But we also need a tax system that’s fair, and which can be an asset to our country, not a liability.’
The CBI’s ‘long-term ambition’ of an 18% headline corporation tax rate was not special pleading: ‘It’s a level-headed analysis of what the economic multiplier effect would be – in other words, the impact taxes actually have on the ground and on people’s lives.’
But companies ‘completely accept that paying taxes is part of doing business’, he said. ‘It gives them their broader license to operate, and enables them to play a full role in society – and be recognised for doing so. Yet to read the comments and claims of some, you would think that business spends its time doing everything it can to dodge all and every tax it owes. The facts show how far from the truth this is.’
The total taxes borne by businesses operating in the UK in 2010/11 were around £163bn – about a quarter of total government revenue – according to the CBI report. In addition, collection of PAYE duties and VAT represented a significant administrative cost to business, Cridland said.
It was time that the ‘simple truth’ came out, he concluded. ‘Business does and always will pay its way.’
Many multinationals pay a lower rate of tax on their profits than most people pay on their income or when buying items subject to VAT, the TUC said in a press release on the day of the CBI’s announcement. The TUC urged the government to launch ‘a comprehensive review of the tax system to ensure that everyone pays their fair share’.
Tax competition
Cridland argued that UK businesses needed to be competitive on the world stage and were ‘perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes’.
The complexity of some issues could ‘breed confusion and distrust’. A distinction should be drawn between low tax and secrecy jurisdictions – he did not consider a low tax regime with transparency to be a tax haven, and he was a strong believer in the ‘tax sovereignty of nations’.
‘Many countries have fully transparent tax systems and also have low headline tax rates: the Netherlands and Ireland are two prime examples. These jurisdictions, just like our own, are competing for mobile capital and for intellectual property,’ he said.
‘Such competition is a good thing. The argument that tax competition is a zero-sum game in the short term is not borne out by the facts. Similarly, the argument that tax competition is a race to the bottom in the long term is not supported.’
Tax justice campaigners have argued for many years that tax competition between countries is generally harmful because it undermines the process by which democratic governments set their tax policies.
The Tax Justice Network says on its website: ‘[Tax competition] results in the tax burden within countries being shifted away from corporate taxation in particular and towards other forms of tax whose burden falls disproportionately on the poor and the middle classes.
‘Weaker states such as in Africa are far less able to cope with the external pressures of tax competition, resulting in a lower revenue base, greater inequality, greater dependence on foreign aid, and weaker accountability of government as a result of the shifting tax burden.’
Country by country reporting
During a question and answer session at the Policy Exchange event, Salman Shaheen, Indirect Tax Editor at International Tax Review, noted that ‘everyone on the panel seems to be backing the idea that business should be making its case more strongly’. Surely the best way to do that would be to back country by country reporting, he suggested. ‘If you have nothing to hide, why hide?’
David Gauke, the Exchequer Secretary to the Treasury, said the jury was ‘still out’ on how effective country by country reporting would be, the level of detail needed to hold companies to account and whether the administrative burden would be disproportionate. ‘The OECD is looking at that, and we’re interested to see where that goes,’ he said.
In its submission last year to the EC’s consultation on new accounting standards to require country by country reporting, the CBI argued that the reform would impose ‘significant’ additional costs and workload. ‘The purpose of improving tax governance at a global level through disclosure in financial reports is outside the scope of all-purpose financial statements,’ it said.
Financial statements should focus on ‘being an effective communications tool with shareholders, and not a general repository of miscellaneous and unhelpful or irrelevant information’.
The question whether business pays its ‘fair share’ of tax is a perfectly legitimate one that deserves a good answer, John Cridland said at the launch of a CBI campaign to bring ‘an informed voice’ to the UK business tax debate.
The question whether business pays its ‘fair share’ of tax is a perfectly legitimate one that deserves a good answer, John Cridland said at the launch of a CBI campaign to bring ‘an informed voice’ to the UK business tax debate.
The question was a difficult one because what was ‘fair’ lay in the eye of the beholder, the CBI Director-General said in a speech at the Policy Exchange in Westminster. ‘I am, though, confident that the large majority of business pays the right amount of tax, and that for the small minority which does not, times are getting tougher, not easier – and rightly so.’
For too long, business had been slow or even reluctant to enter the public debate on tax policy. ‘That needs to change,’ Cridland said. ‘We want to defend robustly our record – and advocate pro-growth tax policies which are in everybody’s interests. We need to distinguish between legitimate, necessary tax management and abusive arrangements to avoid tax – remembering that the majority of abusive schemes involve attempts by high-net-worth individuals to minimise their tax burden.’
The CBI report ‘Tax and British business: Making the case’ did not mention the campaign, supported by many international NGOs, for multinationals to be required to report profits and taxes paid on a country by country basis. But the CBI opposed the reform in its response last year to an EC consultation.
‘Level-headed analysis’
Businesses, like individuals, needed to pay their taxes, Cridland said. ‘But we also need a tax system that’s fair, and which can be an asset to our country, not a liability.’
The CBI’s ‘long-term ambition’ of an 18% headline corporation tax rate was not special pleading: ‘It’s a level-headed analysis of what the economic multiplier effect would be – in other words, the impact taxes actually have on the ground and on people’s lives.’
But companies ‘completely accept that paying taxes is part of doing business’, he said. ‘It gives them their broader license to operate, and enables them to play a full role in society – and be recognised for doing so. Yet to read the comments and claims of some, you would think that business spends its time doing everything it can to dodge all and every tax it owes. The facts show how far from the truth this is.’
The total taxes borne by businesses operating in the UK in 2010/11 were around £163bn – about a quarter of total government revenue – according to the CBI report. In addition, collection of PAYE duties and VAT represented a significant administrative cost to business, Cridland said.
It was time that the ‘simple truth’ came out, he concluded. ‘Business does and always will pay its way.’
Many multinationals pay a lower rate of tax on their profits than most people pay on their income or when buying items subject to VAT, the TUC said in a press release on the day of the CBI’s announcement. The TUC urged the government to launch ‘a comprehensive review of the tax system to ensure that everyone pays their fair share’.
Tax competition
Cridland argued that UK businesses needed to be competitive on the world stage and were ‘perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes’.
The complexity of some issues could ‘breed confusion and distrust’. A distinction should be drawn between low tax and secrecy jurisdictions – he did not consider a low tax regime with transparency to be a tax haven, and he was a strong believer in the ‘tax sovereignty of nations’.
‘Many countries have fully transparent tax systems and also have low headline tax rates: the Netherlands and Ireland are two prime examples. These jurisdictions, just like our own, are competing for mobile capital and for intellectual property,’ he said.
‘Such competition is a good thing. The argument that tax competition is a zero-sum game in the short term is not borne out by the facts. Similarly, the argument that tax competition is a race to the bottom in the long term is not supported.’
Tax justice campaigners have argued for many years that tax competition between countries is generally harmful because it undermines the process by which democratic governments set their tax policies.
The Tax Justice Network says on its website: ‘[Tax competition] results in the tax burden within countries being shifted away from corporate taxation in particular and towards other forms of tax whose burden falls disproportionately on the poor and the middle classes.
‘Weaker states such as in Africa are far less able to cope with the external pressures of tax competition, resulting in a lower revenue base, greater inequality, greater dependence on foreign aid, and weaker accountability of government as a result of the shifting tax burden.’
Country by country reporting
During a question and answer session at the Policy Exchange event, Salman Shaheen, Indirect Tax Editor at International Tax Review, noted that ‘everyone on the panel seems to be backing the idea that business should be making its case more strongly’. Surely the best way to do that would be to back country by country reporting, he suggested. ‘If you have nothing to hide, why hide?’
David Gauke, the Exchequer Secretary to the Treasury, said the jury was ‘still out’ on how effective country by country reporting would be, the level of detail needed to hold companies to account and whether the administrative burden would be disproportionate. ‘The OECD is looking at that, and we’re interested to see where that goes,’ he said.
In its submission last year to the EC’s consultation on new accounting standards to require country by country reporting, the CBI argued that the reform would impose ‘significant’ additional costs and workload. ‘The purpose of improving tax governance at a global level through disclosure in financial reports is outside the scope of all-purpose financial statements,’ it said.
Financial statements should focus on ‘being an effective communications tool with shareholders, and not a general repository of miscellaneous and unhelpful or irrelevant information’.
