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Richard Murphy on tax and economics

The strange case of Lidl’s accounts

11 hours 50 min ago

I was interviewed by Joe Lynam for the Today programme at 6.49 am this morning (a link is available here for the next few days) on the strange case of Lidl’s accounts.

What’s strange about Lidl’s accounts is that there are none on public record in the UK. Despite its now economically significant presence in the UK it has not filed accounts with Companies House since 1996.

Now I stress that Lidl is not breaking any law in not filing accounts. It operates in the UK as a branch of a private German company and because that company is legally obliged to file accounts in Germany nothing is required to be filed here under UK law.

And I stress, this does not mean Lidl is not paying UK tax: I have seen the letter of comfort HMRC has (rather unusually, I suspect) supplied to Lidl saying that as far as it is aware Lidl is up to date with its obligations.

That does not, however, prevent me feeling distinctly unhappy about this whole arrangement. Firstly, nothing in the German accounts gives an indication of the scale of Lidl’s UK activities.

Secondly, those accounts are not, in any event, easily available in Germany.

Thirdly, we are left with the situation as a result of this loophole in our company law where a company with a significant UK presence is simply not accountable under UK law for its trade in this country to its UK stakeholders.

Who are those stakeholders? You are. It staff are. Its suppliers are. Its customers are. Many government authorities are. Its competitors are.

That is why accounts are required on public record. When a company trades with limited liability the obligation to file accounts was created to ensure the trust placed in the company was not abused with all of us having to pick up the pieces if things go wrong. And in this case we have no clue what that risk is. That’s why this matters.

A year ago David Cameron told the G8 that trade, tax and transparency were at the core of his agenda. If he was serious then he would change the law so that Lidl and any company with a trading presence in the UK would have to file accounts for its UK operation as well as its operations as a whole with Companies House. Without that requirement companies like Lidl will continue to make a mockery of the disclosure requirements in UK company law.

And as result all other UK supermarkets will trade at a competitive disadvantage to Lidl because they simply do not know what it’s up to, which is another very good reason for this change in the law. A level playing field is an essential pre-requisite of fair markets. It’s time for ministers to commit to supplying it.

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Do you have to put your head in the sand to want to be Chancellor?

12 hours 55 sec ago

Our economy is in a mess. I think that should be obvious to anyone, and yet you don’t hear that message too often on the BBC news, ITV, Newsnight and much of the print media.

Ken Clarke had to leave the government before he could say the UK’s economic recovery is not ‘firm;y rooted’. Even so he was being mighty generous to George Osborne. Too many are; Ed Balls in particular.

Some realise how wrong this view is. Paul Mason is one of them. He was right to argue, as I think he did, in a Guardian article on Sunday that the most important theme in much of the UK economy is alienation.

That alienation is dangerous. As Phillip Inman has argued, debt and ageing pose massive problems in our economy. Those problems exist in the short term – when rising interest rates are going to push millions over the edge with regard to household solvency. They face the risk of real alienation, for that is what bankruptcy and all that goes with it is. By 2018, at the latest, I suspect this to be a crisis engulfing the next government of what ever complexion it may be, and yet neither Ed Balls or George Osborne want to talk about it. If Danny Alexander does, well no one is listening.

And Alex Andreou, also arguing in the Guardian, has in a sense pulled these themes together, albeit inadvertently (it’s me doing so, explicitly). As he points out, unless we have a vibrant population of young people then they can’t sustain the elderly – which is what the crisis of ageing is really all about.

What all three have in common is a concern that no one is addressing these issues. As Paul Mason says:

The moment a party says: “We stand for the low-paid worker against the loan shark, the rip-off landlord and the profiteering boss,” young people in places such as Bow Arts might show some glimmer of interest in politics – instead of the utter cynicism and detachment that is routine.

And as he also said:

Strangely enough, we once had a political party whose entire brand, and even name, was centred around improving the wages and conditions of people who work. 

His implication is all too obvious. Phillip Inman is not too subtle either:

Britain has become expert at putting off decisions and hoping for something to turn up. Without a return to ultra-cheap commodities, another technological/productivity revolution, or a return to more modest living and delayed gratification, it’s a plan that is running out of time.

It is Alex Andreou though who goes to the core of these issues though, when looking at them from a European Union perspective, when he says:

It is up to us to reclaim Euroscepticism – the critical assessment of how we want Europe to work for us and make it work.

In this sense Alex adds the most to debate even if I am sure Paul Mason was probably more read. That’s because Alex Andreou makes clear that there are issues that need not be mere matters of concern, and even anxiety, in the current situation, but about which action is possible. Paul Mason and Phillip Inman offer counsels of despair. So too does Alex Andreou, in part, when he says:

It is telling that the Europhobe alternative narrative always ends at a referendum endorsing exit. I have yet to hear a coherent narrative of precisely how the eggs are to be unscrambled.

But  it is his  twist on that argument is pivotal. He argues that whilst the right have a narrative it is one that does not work. It is a similarly incoherent narrative from the right that Osborne, Balls and Alexander will all offer at the next election.  Even if the spin on the EU will differ what Alex Andreou is saying is that all that these politicians will offer are tales of despair and resignation: that ,after all, is what the narrative of the balanced budget and the withdrawal from the responsibility of the politician to put forward an alternative (including on the EU) is all about. What that narrative, quite literally, represents is an argument that there is no choice.

Paul Mason and Phillip Inman do not move much beyond that despair. Alex Andreou does. As he says:

There is no doubt that the EU has lost its way. It has been captured by vested political, financial and corporate interests. It is up to us to reclaim it and reform it.

What he is saying is that of course there are faults in the economic and power structures that we have; it would be absurd to think otherwise. But this does not mean we withdraw from discussion or resort to the discredited solutions of bygone ages (like balancing budgets).  What we should instead seek to embrace is an active recognition of these failings as the start point of an alternative narrative.

That is the foundation for a radical politics of change that is intended to deliver empowerment. When all we’re being offered is a tale of despair and powerlessness by all the major political parties you can see why I think Alex Andreou’s argument pursues his concern to the necessary next step on the way to progress in a way that few will currently do.

I wish others would have Alex’s courage. We certainly have candidates for Chancellor who do not and who instead appear to wish to put their heads in the sand. Paul Mason and Phillip Inman are right to note the poverty of those candidate’s thinking and the alienation it induces. But Alex Andreou is also right to say the time for noting it has passed. The time to deliver on alternatives has arrived. It’s unlikely to happen in 2015. But we still have to work for it, nonetheless. I hope I am.

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OECD move against tax dodging will not benefit poor countries

Mon, 07/21/2014 - 16:44

The following press release was issue by Chritian Aid today. I think it sound comment:

The Organisation for Economic Co-operation and Development (OECD) which is supposed to provide guidelines for good practice among its member states have missed another opportunity to show they are committed to ensuring developing countries benefit from changes in international tax practices, says Christian Aid.

Today the OECD announced comprehensive details of a new global standard on Automatic Exchange of Information, the process by which jurisdictions can share details of offshore accounts and account holders – vital for tackling tax evasion.

This could be done either through a bilateral tax agreement between countries, or via the OECD’s preferred option Multilateral Compent Authority Agreement (MCAA), in which all countries signing up have to share information with all other signatories, making it much easier, in theory, to spread the reach of automatic information exchange.

Welcome as such an agreement might be, the details are rather less positive as it appears it could be open to abuse by tax havens unwilling to divulge details of those taking advantage of the secrecy they offer.

For any party to the MCAA can arbitrarily prevent any other country to which it takes a dislike from signing up. Those most likely to be barred will be poorer countries with which tax havens have been reluctant to sign bilateral tax treaties in recent years.

Joseph Stead, Christian Aid senior economic adviser, said today: “There is an estimated US$9trillion of developing country taxpayers assets held offshore, revenues from which should be a significant source of financing for development. But thanks to the decisions of the OECD many developing countries are likely to have to wait much longer to be able to enforce their own tax systems.

“While there are some things to welcome in today’s announcement, it will be too easy for developing countries to be excluded. As well as the fact that admission to the multilateral process can be vetoed without reason by any country, there is no mechanism for allowing developing countries to opt out of the requirement to provide information temporarily until they have the capacity to do so.

“This would be a simple way to show the process was actively encouraging developing country participation and to enable them to benefit as quickly as possible.”

There has been no official explanation as to why developing countries have not been offered a staggered approach to automatic information exchange, but there is a suggestion that some countries are opposed, especially offshore centres.

“Since the move to automatic information exchange began we have heard rumours that some offshore centres are focusing their attentions on developing countries, knowing that they will be/can be excluded from such developments, and so provide a source of continued business profiting from tax evasion,” added Mr Stead.

“It must be made clear that this cannot happen. We need to see all financial centres commit to multilateral automatic information exchange with all countries requesting information as quickly as possible. This includes not just the likes of Switzerland which has talked of only agreeing to automatic information exchange with countries with close economic and political ties, but also places like the USA and Australia which are yet to commit to early adoption.”

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Customers think fair tax the most important ethical issue for big business

Mon, 07/21/2014 - 08:31

According to the FT this morning:

Boards must take control of setting a company’s ethical values and be prepared to dismiss chief executives whose values are not compatible with the culture they seek, says the Institute of Business Ethics.

As they note:

The study comes as trust issues continue to dog corporations, seven years after the start of the financial crisis.

Those boards may be wise to take note of a survey by KPMG reported in The Grocer, which says:

Company tax arrangements are more important to consumers than Fairtrade and the environment, new research has found.

Noting Tax Research UK’s role in changing public opinion, The Grocer notes that KPMG’s report found that unsurprisingly fair pricing and quality issues were vital to brand perception but that paying fair tax was more important to consumers than treating suppliers fairly, employees fairly, minimising environmental impact and charity support.

Two thirds of consumers felt large companies were doing the bare minimum to engage with ethical issues. KPMG urged companies to communicate better.

They might want to apply for the Fair Tax Mark. And yes, of course I declare an interest in saying so. I am one of its directors.

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Venn diagrams for our times: economic objectivity

Mon, 07/21/2014 - 08:15

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Venn diagrams for our times: politics and economics

Sun, 07/20/2014 - 07:16

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We really do not need a budget surplus

Sun, 07/20/2014 - 06:36

Ed Miliband has made a promise to deliver a budget surplus during the course of the next parliament.

I have explained time and again why this is not possible. A recent version is here. A prime minister may wish to balance a budget but doing so is a matter very largely beyond their control.

Then there is the often overlooked fact that we do not need a balanced budget, for reasons I explain here.

Finally, I do not think a left of centre government should be trying to balance a budget now because to do so will inevitably shrink the economy in the current economic environment. I explain why here, slightly wonkishly, but this is the one to read if you don't do the other two.

I am sure there will be those who support Labour who will not like me pointing these matters out, but it is not the job of this blog to be party political. I think Labour's commitment to a balanced budget – even if only a balanced current budget – is a serious error of judgement at this time and it's important to say so now. This commitment will cost jobs, deliver cuts, reduce growth and cause stress for many who did not in any way create to the post 2008 financial crisis. That does not seem like a left of centre strategy to me.

And before those from the right think about commenting, may I just remind them of the comments policy of this blog?


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George has got his dream: the UK’s now a tax haven

Fri, 07/18/2014 - 14:02

In February 2006  George Osborne  went to Ireland and gave a speech  that would reward study by those interested in recent political history.  What I recall from a conversation very soon afterwards with a breathless member of his entourage in London ( who has, I think,  recently been promoted in the ministerial reshuffle)  was the overall enthusiasm for the Irish tax system that the Conservatives then displayed.  The message was, in effect, a very simple one: ” Ireland’s got Google because of low tax rates, and we need to do that here”  was the message I was given at a time when it should also be recalled that George Osborne was a fan of flat taxation and many other eccentric ideas.

George  forgot flat taxes but he did not forget Google, or Ireland.  In fact, just as he said he would back then,  he has reformed a great deal of UK corporate taxation to not just mimic Ireland, but  to actually seek to outdo it in the tax haven offering that the UK has to make.

So, he  has cut tax rates, enormously. He has revelled in the  creation of what is, effectively, a territorial tax system for groups of companies  and has overseen the effective dismembering of the U.K.’s controlled foreign company regime which was designed to prevent tax haven abuse by UK-based multinational companies.  Coupled with the patent box regime (a Labour legacy) and  his own special regime for group treasury operations based outside the UK, you would think that George’s aim was to make sure that no large company should pay tax in this country,  even if they might elsewhere. It has worked:  just look at Barclay’s recent announcements on its global taxes with not a penny paid here but rather  more elsewhere.

The aim was summarised in that 2006 speech. This is what he said then in praise of Ireland:

So the low business tax rates generate strong revenues for the Irish exchequer, from the added prosperity and higher income tax paid on the more and better jobs. That in turn encourages the formation of ‘clusters’ of industrial expertise which stimulate progress and innovation in those industries, leading to more economic growth.  And in a world that is increasingly knowledge-driven, that kind of growth is absolutely fundamental to long-term prosperity.

It so obviously worked for Ireland, didn’t it? It’s as if George  never noticed the subsequent crash and continued, helter-skelter, to import the idea wholesale into the UK nonetheless.

And so let’s move to 2o14. Today the FT has reported:

[US pharmaceutical company] AbbVie has sealed its proposed £32bn takeover of Shire, the UK-listed speciality pharmaceuticals company, in one of the biggest deals so far to involve a US company shifting its tax residence overseas.

As they continue:

AbbVie’s successful bid also continues the trend of US companies using foreign acquisitions to put their offshore cash beyond the reach of the US taxman – a practice known as “inversion” that is facing increasing political scrutiny in Washington.

AbbVie said that, while its administrative headquarters would remain in Chicago and its listing in New York, the merged entity would be incorporated in the Channel Island of Jersey and have its tax residence in the UK.

Now this is curious. In 2008 Shire left the UK for tax purposes.  I reported on the move at the time. Then the  object was to  avoid any chance of UK tax arising under the then proposed changes to controlled foreign company laws that the Labour government was suggesting that  might have hit companies with substantial intellectual property, like Shire, hard.  With the power of retrospect, what a shame that Labour did not have the courage to put through those changes which are still so obviously needed to tackle international tax abuse, as the OECD is now saying,  but they did not. Shire left anyway, going to Ireland where I gather it has not paid a penny in tax in the intervening years.

And now it’s on its way back for tax purposes. Jersey’s there to save stamp duty, of course. And tax haven UK does very nicely for all other purposes. Territorial tax is now firmly in place. All those tax haven located funds within the new group can flow tax free back to the shareholders. New profits can be earned from intellectual property rights located either here via the patent box or in low tax jurisdictions without ever having to worry that the UK might ever question the arrangements and the US has lost out on all the tax on unremitted profits denied to it for years.

Welcome to tax haven UK, the place that turns a blind eye to profits made anywhere in the world, and to the simultaneous fact that none ever seem to arise here either. We’re happy with the odd dollop of PAYE every now and again; that does us nicely, apparently, just as George said back in 2006. Not that this deal, taking over a company really based in Basingstoke, will actually deliver any more of that either, I am sure.

No, this is just the wondrous world of tax believe that George set out to create to emulate Ireland. You have to say, he’s succeeded, but at cost to us all, to and many other nations on earth as well. His cup will flow over the day he leaves parliament, I am sure.

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Changing the balance of risk in tax

Fri, 07/18/2014 - 08:25

I have not commented in any depth on the newly contentious issues of follower notices and accelerated payment notices that have, as a result of legislation now becoming law, become the subject of much comment in the tax profession.

Details of these related issues can be found here and here. In essence, follower notices give power to HMRC to demand that a taxpayer amends their self assessment tax return in the event that HMRC think that they have won a ruling against a taxpayer in a case relating to a tax scheme similar to that which they think the taxpayer has used. The follower notice requires the taxpayer to either settle their dispute or face a large penalty if their dispute with HMRC is ultimately unsuccessful. The aim is fairly easy to identify: it is to prevent HMRC having to litigate each case of nearly identical tax avoidance separately when schemes have been mass marketed – as many have been. The contention issue is that there is effectively no appeal available against the notices when they are issued.

Accelerated payment notices allow HMRC to advise a taxpayer that they must pay tax that they have not settled as part of their self assessment tax arrangements because they have purchased an identified tax avoidance scheme. 1,200 schemes have now been identified where accelerated payment – or settlement before the status of the scheme has been resolved and therefore liability has  been proven – might be required by HMRC and the first demands are to be issued very soon. Again, no appeals are to be allowed, and the motive for that is very obvious: when these arrangements are necessary because litigation delays have meant tax has been withheld form HMRC for quite a number of years by tens of thousands of taxpayers (at least 40,000 are involved, and maybe more) permitting appeals would simply add another mechanism that would delay payment yet again.

The question to be asked is whether or not this is a reasonable course of action. In the view of many tax practitioners it is not, with claims circulating of the hardship such demands will cause as people without the means to make the payment are faced with demands for settlement for which they are not prepared. I have remarkably little sympathy with such claims: all involved know they were partaking in marketed tax avoidance schemes and all should have been aware of the risks involved when they entered the arrangements (and if not, they need to sue their advisers, which I am sure will happen in many cases). In addition, if they were not aware of the risks at the time they bought the schemes it is hard to know how they have not become aware of it over the last two or three years; surely no one has missed the crack down on tax avoidance? In that case the hardship issue can, candidly, be laid aside. These schemes were designed to unjustly enrich and if they have failed to do so I think there are many better causes where sympathy might be extended.

So what of the greater significance if these new provisions? What are these?

First, I think it fair to say that these arrangements are likely to be a temporary phenomenon. The sale of marked tax avoidance does appear to be be declining. The risks are now better known and the mood has changed. The arrangements have been introduced to tackle a back log situation where tax amounting to, it is suggested, £7 billion, might be at risk. It may have been appropriate to have put a sunset clause in the legislation as a result, only permitting use for a limited period without review. The power is appropriate I think in the current situation, but the risk of extension beyond the original intended clause has always to be considered. A sunset clause could close down that risk, and an annual opportunity to extend does exist in any event: a renewal clause could be included in a future Finance Act but would then require review and debate. I think there is merit in such clauses because they force that review.

Second, more broadly, it would be worrying if an absence of a right to appeal become general in tax. There may be reasons in these cases, but more broadly it undermines any principle of justice. This is why review of these provisions will, in my opinion, be required.

More generally though there is another issue to consider. This new legislation sets out to change the balance of risk in tax. That is appropriate. Self assessment has, since the 1990s, been the basis on which UK taxpayers declare their tax liabilities i.e. it has been up to the taxpayer to declare all their income and to both calculate and settle the tax they owe and it is for HMRC to, by and large, check that process. This may not feel to be the case for those on PAYE, but nonetheless that is the essence of the system and as a matter of fact if a taxpayer submits a claim for a tax repayment on their tax return most are given the money they say they are owed without question being asked in the first instance. This is not just with regard to income tax; the same is also true for corporation tax and VAT.

Now before some shout I am well aware that there are mechanisms to delay repayment and that they can be put into operation, and are on occasion. My point is not that such mechanisms do not exist, but that there are now insufficient resources to make sure that they are used effectively. HMRC staff tell me that they think that too many repayments are being made where they think there should be intervention but there are not enough people with sufficient experience working at HMRC to make such decisions and so repayment is made inappropriately on more occasions then they think proper. I stress, this is anecdote, but I have no reason no reason to doubt its validity.

In that case is is, I think, unsurprising that the National Audit Office has highlighted the fact that the amount of debt HMRC has to write off as a result of its own mistakes has doubled in the last year, a matter I referred to here, whilst write offs of remaining irrecoverable debt remain significant at more than £5 billion a year.

The move on follower notices and accelerated payments are an attempt to recover £7 billion of debt, and that is welcome, but there is, I suspect, a bigger and ongoing issue out there of HMRC simply not having the resources to check repayments where there may be risk. If the balance of risk in tax is to change – and I think it is right that it should – then dedicating resources to checking repayment claims more thoroughly is a necessary next step. But right now HMRC is dispensing with too many of the staff engaged in the process. There is no sense in that.

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The budget deficit will not be cleared by 2019

Thu, 07/17/2014 - 09:34

The current Office for Budget Responsibility forecast is that the budget deficit will be cleared by 2019. The basis on which they make this rash assumption is growing tax receipts. I have offered this table analysing those receipts before, but it remains relevant and is based on the March 2014 forecasts:

It is, of course, good news that employment is rising now.

It is bad news that almost half of employment growth is in marginal self employed activity. I do not have the confidence of some that self employed earnings rise faster than wages in a recovery: that may have once held true but the underlying trend of self employed earnings is now inexorably down just as the trend in real earnings for most is down.

In that case I cannot see how tax revenue growth is going to significantly exceed the growth rate of the economy. It is obviously good news that more people are paying tax, but the danger is that the long term Treasury forecast has been built on long term trend data where overall income growth (largely fuelled by financial services) exceeded economic growth. That’s no longer true – especially as financial services employment is now falling.

And if my suspicion is right then there is no way tax revenue will balance the government’s books by 2019 even if it could deliver the cuts it is promising. It just won’t happen.

Someone needs to say it, and more than just me.

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The Spirt Level: the film is on its way

Thu, 07/17/2014 - 09:26
We need to fight inequality. Please watch this powerful film based around award-winning book The Spirit Level. And if you can please pre-buy your copy now and help them finish the film.

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Suppose no one really reads this at all?

Thu, 07/17/2014 - 06:26

Izabella Kaminska of the FT drew attention on Twitter to a blog on the apparent ability of GCHQ to manipulate the internet, as revealed by Edward Snowden. It is reported that they have a number of programs available:

  • Underpass is used to “change outcome of online polls.”

  • Slipstream and Gateway can be used to manipulate traffic to a website, inflating its page views and raising its search rank to alter perception of its popularity.

  • Gestator can be used for “amplification of a given message, normally video, on popular multimedia websites (Youtube).”

  • Clean Sweep allows GCHQ to “masquerade Facebook Wall Posts for individuals or entire countries.”

So, suppose no one reads this blog at all. Suppose this blog ranking for this site was fake?

But I seriously doubt that GCHQ would choose to rank this blog at number 1, so that seems pretty unlikely.

The point, though, is a serious one.  Google is no longer reliable with regard to the past and GCHQ can apparently fake internet traffic. How long is it before we lose faith in something we have come to rely on? I do wonder.

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Transparent company ownership: how does the UK government’s proposed action live up to its rhetoric?

Wed, 07/16/2014 - 15:18

This has been reposted from the Global Witness blog, with permission and is the work of Robert Palmer and  Rosie Sharpe:

For too long a small minority have hidden their business dealings behind a complicated web of shell companies, and this cloak of secrecy has fuelled all manners of questionable practice and downright illegality.” David Cameron, 1 November 2013

Late last year, David Cameron announced that the UK would put the names of the people who own and control British companies into the public domain – something that we at Global Witness have long been campaigning for, alongside other NGOs such as ONE and Christian Aid. Such transparency is important because it’s well known that people who want to hide dirty money use the anonymity provided by companies to do so. There are plenty of examples of British companies being abused in this way. For example:

  • The palace compound of Ukraine’s ex-president, Viktor Yanukovych, was until recently part-owned by an anonymous UK shell company.[1] The Yanukovich Info website claims that other assets belonging to the ex-Ukraine president, such as the presidential plane, hunting forests and villas in Crimea, were owned by anonymous UK companies.[2]
  • According to the UN, Ukrainian arms licences have been given to UK shell companies involved in supplying helicopter parts to Syria, military kit to Gaddafi’s Libya and nuclear technology to Lithuania.[4]
  • A Global Witness investigation found multiple UK-registered companies appear to have helped facilitate a major money laundering scandal centred on a bank in Central Asia.[3]
  • The British arms firm BAE Systems paid $400m to settle charges that it bribed Saudi officials responsible for approving a massive arms purchase, including by using UK shell companies.[5]

Tomorrow will be the first chance that UK MPs get to debate the government’s plans on how to implement this promise: the Small Business, Enterprise and Employment Bill will go for its second reading in parliament.

So how has the government done? Does the detail of what they propose live up to the promise that was made? Does it go far enough to counter the ‘questionable practices and downright illegality’ that the Prime Minister pointed to when announcing the register?

The new legislation is very welcome. In particular, we have repeatedly applauded the UK government for showing the leadership required to be the first in the world to propose putting the names of the people behind companies out into the open. Doing so will be a big step forward in preventing people hiding criminal activities such as tax evasion behind anonymous companies. It is also strongly supported by the public: in polling only 9% of the British public said that company ownership should be allowed to be secret.[6]

However, there are ways that the legislation could be improved. In particular, the following things need tightening up, and we call upon MPs tomorrow to raise these points in the debate:

  • Verification. We need to ensure that people who lie about who owns and controls companies stand a reasonable chance of being caught. To do this, there needs to be some degree of verification of the information collected. The government should present a clear plan on how verification will be undertaken, especially in the case of high risk companies.
  • Updating. We need to ensure the data is not too old. In the proposed legislation there is only a requirement to update the central register once a year; this provides the potential for the information to become significantly out of date. There should be a requirement to ensure that the register is updated within 14 days of beneficial ownership changing, as is the case for changes in directors.
  • Sanctions. The amount of money that can be made through tax evasion or other forms of money laundering is potentially high and therefore any sanctions need to be correspondingly high. At present, the proposed sanctions for not providing information on who owns a company to the public register are too low (a maximum of £250 a day).
  • Exemptions. Who is to be allowed to keep information on the ownership of a company out of view of the public? Any exemptions granted should be only made in exceptional circumstances; the reasons for the exemption should be given on the register, and should be able to be challenged by others.

Without these improvements, it’s not too difficult to imagine a wannabe tax evader or corrupt government official finding loopholes that still enable them to misuse UK companies to hide their dirty money. For example, they could lie about who owns their company, safe in the knowledge that there’s not a big chance of them being found out, and if worst comes to worst, not too big a penalty to pay. Let’s tighten up these loopholes and show the world how the UK is leading the way in being open for good, well-regulated business (and closed to the dodgy, money-laundering, criminal sort). And then let’s make sure the UK’s Crown Dependencies, like Jersey and Guernsey, and its Overseas Territories, like the British Virgin Islands, do the same thing.

[1] Rosie Sharpe, Anonymous UK company owned Viktor Yanukovych’s presidential palace compound, 1 March 2014,

[2] The website is produced by Ukrainian journalists investigating the wealth of the former regime.

[3] Global Witness, Grave Secrecy, June 2012.

[4] Business News Europe, ‘Ukraine defence exporters under fire for UN arms embargo breach’, 18 July 2012, quoting a list provided by Ukrainian diplomats to the UK’s arms export licenses parliamentary committee.

[5] Jason Sharman, The Money Laundry: Regulating Criminal Finance in the Global Economy, 2011, p. 76.


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The process of change

Wed, 07/16/2014 - 06:03

I wrote a blog in about 7 minutes yesterday which included a minor error inconsequential to the argument I presented ( although you would not think that from the reaction of those who had clearly never actually read or understood what I was saying) and over 100 comments followed, most dismissive of my position, if I put the kindest spin on what was said.

I found it all rather bemusing. For one reason, I certainly never expect such reactions. But more intriguingly because those reactions show just how little most commentators here understand the process of change.

My argument, if I précis it, is that most patents and trademarks serve no real pupose in protecting property law. That, I suggested was the case with regard to the Apple trademark to which the blog referred. Instead I suggested that those intellectual property rights are created for at least three quite different reasons.

The first is to create an artificial ‘asset’ whose ownership is then very often located in a low tax jurisdiction for the use of which a charge is then made and a deduction claimed in a high tax jurisdiction. I would have thought I hardly need have presented evidence in support of this claim since it is one of the key issues of concern in the OECD BEPS process and the EU Competition Commission enquiry into IT and other companies, but apparently such common knowledge was a complete revelation to many commentators who claimed considerable expertise for themselves.

The second is that this intellectual property can be used to prevent powerful barriers to entry to new competitors into a market and so preserve monopoly profits. This is hardly a radical suggestion, it being a widely shared concern (I thought) but again it was apparently shocking news to many commentators.

And third, this intellectual property can be used to warn off innovation. Because of the imbalance in many markets IP once granted to a company commanding significant resources (and I think there is agreement that this might describe Apple) can be used to threaten legal action that purely pragmatically a smaller company could not challenge, and so will not take risk upon. Now, as a matter of fact it is obvious that Apple does pursue IP litigation, as is its legal right, but which I think could result in real risk that developments on its thinking ( which is how all innovation happens) can only occur within its metaphorical four walls. Since large companies have generally poor records of major innovation, usually relying instead on incremental change or government subsidy (in which case their claim to ownership of the resulting IP should be questionable) this is likely, in my opinion, to be harmful to the overall rate of innovation, although others clearly disagree.

Now I offered these three, connected, ideas in a deliberately disruptive way, I admit; setting them in the economic environment of what I think can fairly be called rentier capitalism, whose risks I described in an audio blog. The reason for the disruptive presentation – by which I mean a deliberately provocative whilst nonetheless wholly genuine approach is used – was that without disruption change does not occur and so the status quo – which almost every commentator on the issue clearly sought to uphold – is preserved.

Change is then predicated on the existence of disruptive thinking and, as Schopenhauer suggested, it usually provokes a three or four fold response. At first it can be ignored. That clearly did not happen in this case. Second it is ridiculed, which most certainly occurred. Then it is violently opposed. It may be fair to say that happened, although I mean in terms of the argument, and no more. Last it is accepted as being glaringly obviously appropriate and the right thing to do, with the idea then being adopted by those who usually have no idea how it might have emerged.

So, the blog I wrote demonstrated how a process of change might begin. I would like to see a change in IP law. I do think much of it deeply abusive of society at large. And predictably that suggestion was rejected out of hand by most who responded.

But so have other changes i have proposed been rejected in that way and yet change has happened or is underway as a result of them. So, I can assure you, I am not deterred. Indeed, the immediate vehemence of the reaction suggests how important change in this area might be. It was a worthwhile day.

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Comments today

Wed, 07/16/2014 - 06:03

There were well over 100 comments on this blog yesterday, every one of which I read before posting (or not, in a few cases). That took a little time. Between doing that I also had to do some work, have meetings and so on. Despite appearances, this blog is very far from being my full time job, which is why blogs sometimes get written at railway stations over a coffee and the odd mistake creeps in. It's also why most get written very early in the day.

Some complained yesterday that I was not moderating their comments quickly enough. I'm sorry for the dissatisfaction. I do my best.

Today my best will not be good enough for many. I am having hospital tests and will be sedated. This may mean I may be out of blogging action for a few hours and I'm sorry, but that may mean your comment will just have to wait. I apologise in advance, but I am also confident that the world won't end as a result.

It may also mean comments requiring a response will take even longer to post. Again, that's just the way it's going to have to be. Please accept my apology now. Or wait for another day.

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Wed, 07/16/2014 - 05:22

I am fallible.

I just thought I should mention it as it seemed to come as a terrible shock to some right wing commentators yesterday, who appeared inclined to think before this shocking revelation that I shared a status otherwise only ascribed to the Pope.

I assure you, that, whether he agrees or not, he and I can and do make mistakes. And as I proved yesterday, I acknowledge them when I do.

But I also do not agree I have erred just because someone else claims that to be the case. I may be fallible, but I require evidence before agreeing. There is good reason for that. According to some everything I do and say is wrong. That’s an interesting idea, but there is no evidence to support it. What is more, its repetition wastes a great deal if time and effort.


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Apple’s trademarks are part of rentier capitalism

Tue, 07/15/2014 - 08:07

Apple has trademrked the layout of its stores. So now, if you want to open a shop with tables in it where people like at IT products I suspect you can't.

Why does this matter? First, because that seems, at the very least to be absurd. How can you trademark where you put a table?

Second, because you can apparently trademark where you put a table you do as a result create an entirely artificial property right that means that Apple can now extract a rent from ownership of that right.

And if you want to know where that leads, listen to this. This is the direction in which capitalism is moving by seeking to control all aspects of our lives, and in the process are seeking to control all we do.

Please do not think we live in a world of benevolent corporations. We most definitely do not.


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Fossil fuels: the next sub-prime crisis in the making

Tue, 07/15/2014 - 07:25

The Telegraph (of all papers) ran an article recently headlined as follows:

Fossil industry is the subprime danger of this cycle

The cumulative blitz on energy exploration and production over the past six years has been $5.4 trillion, yet little has come of it

The nub of the article was that this investment was wasted money. If there was oil to be found it could not be extracted anyway without burning the planet. In other words, this is money being wasted in an investment boom that is bound to crash. I think that is right.

The FT has not noticed, saying this morning:

Those tasked with overhauling Britain’s fiendishly complicated North Sea tax regime could do far worse than look at Norway.

About a decade ago, it was facing a similar problem to the UK – a worrying slowdown in oil exploration.

For a country so reliant on oil and gas revenues, that had troubling implications for its state finances.

So with attention focussed on the minutiae and not the big picture the wrong policy is pursued without any apparent understanding that that hope that underpins it is forlorn.

When will the world realise we cannot burn our way out of global warming? The future is renewable energy and the investment in it, and not oil, is what is needed now, especially when state money is involved.

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The Quick Take: the dangers of Luxembourg’s rentier capitalism

Tue, 07/15/2014 - 06:12

Luxembourg promotes a particularly abusive form of capitalism that is a threat to us all. This isn’t the quickest Quick Take but the issue is massive and at the heart of tax justice so I hope you’ll listen.

Listen to ‘The Quick Take: The danger of Luxembourg’s capitalism’ on Audioboo


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If in doubt Tim Worstall resorts to misrepresenting the truth

Mon, 07/14/2014 - 20:33

I posted an audio blog this morning explaining why and how Amazon, amongst other companies, avoid tax, making quite clear what the processes involved are and that despite avoiding they might still on occasion pay tax, which is blatantly obviously true.

In response Tim Worstall has published a blog on Forbes under the title

Britain’s Leading Tax Expert Insists That Amazon Is Not Avoiding UK Tax

In it he says:

After many years of insisting exactly the opposite Britain’s leading tax expert, Richard Murphy, today announced that Amazon does not in fact avoid (and most certainly does not evade) UK corporation tax. He now actually agrees with me, that in the most recent year we have the numbers for Amazon overpaid UK corporation tax.

Now I have never said Amazon has evaded tax, so that is not news. As for the rest, it’s just straightforwardly untrue and a total misrepresentation of anything I have said both today and previously, all of which I stand by. Forbes really should take care when publishing blatant misrepresentations of the truth, including (but not limited to) the suggestion that I am the UK’s leading tax expert, which I simply do not and never would remotely agree with.

I can assure you that Tim Worstall will never appear anywhere on this blog again. Not only is he a lousy economist he simply cannot tell the truth. In combination that is enough to resolve the issue for good.

Addition at 7am on 15 July:

The following exchange in the comments section may elaborate this issue:

Andrew Jackson:

In your audio blog, you did indeed say that they are paying the right amount of tax at the moment – indeed, more than one might expect. The issue you mentioned there was that you consider that they have set up structures such that they will pay too little in the future.

I can see how you get to that conclusion, but to say that a company is a tax avoider when it is not actually avoiding tax as yet – in essence, conflating “in my view there will be” with “there is now” – does seem to be a little bit premature.

My response:

Oh come on – that is a comment taken wholly out of context.

I suggested that because of what might be considered the fixed margin tax planning arrangement they are using for the long run they might, because of their current decision to reduce profit in a race for global domination in which tax avoidance plays a key part, have temporarily paid more pro rata tax in the UK than might be expected but that this did not in any way mean that they were not a tax avoider.

They have underpaid in the past.

It is likely they will again.

Saying they’re not now is as absurd as claiming that a person engaged in another form of abuse is not guilty of it because by chance they did not do it today.

For heaven’s sake; if your analytical abilities are as weak as this then you really are in trouble, desperate or just hopelessly inept.

The comment does not just apply to Andrew but all others who have apparently made similar comments elsewhere on the net.

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