Government plans to open up a new tax loophole will allow UK-based multinationals to avoid an estimated £4bn worth of taxes in developing countries, according to international development charity ActionAid.
The claims are contained in Actionaid's new report Collateral Damage. It says that until now, the UK’s anti-tax haven rules have provided a deterrent to companies seeking to avoid paying taxes in Britain and poor countries alike. But proposed changes, which ActionAid warns could be introduced in the coming Budget, will make it easier for UK companies to avoid paying tax in developing countries.
Thirty companies, with a combined total of more than 3,000 subsidiaries located in tax havens, lobbied for the changes through advisory groups set up by the Treasury, ActionAid claims.
The UK Treasury also stands to lose £1bn from the plans, the charity said, according to the government's own figures.
ActionAid campaign manager Martin Hearson said: “If the government waters down these rules in the March Budget it could inflict huge collateral damage on poor countries like Zambia, Ghana and Tanzania who desperately need that money to fund doctors, nurses and teachers and to ultimately help lift them out of poverty. And with a cost to the UK of £1bn - everyone loses out.”
Preventing developing countries from funding their own public services will also make them more reliant on overseas aid. The Organisation for Economic Co-operation and Development (OECD) estimates that companies using tax loopholes are actually costing these countries three times more than they receive in foreign assistance. Developing countries such as Zambia and Ghana make over 70 per cent of their government revenue through taxation.
ActionAid is now calling on the UK government to rethink the changes and make a full assessment of the impact before passing the new laws. A Treasury spokesman has even admitted that “tax avoidance in developing countries deprives governments of the vital income needed to build and maintain their public services”.
Last November the IMF, OECD, UN and World Bank called on G20 countries to undertake spillover analyses before making major changes to tax laws, advice the government has so far ignored.
Some 98 of the FTSE 100 companies use tax breaks with 82 of them working in the developing world. Marketing communications group WPP and HSBC have the most number of companies in tax havens.
Public opposition
A recent Yougov poll commissioned by ActionAid shows the public concern regarding such tax breaks, with 72 per cent of the 1,764 surveyed stating that companies that use legal loopholes to avoid their tax bills in the UK or developing countries were behaving irresponsibly. Only 14 per cent of those polled actively supported the proposed changes.
There are also concerns across the political spectrum, including those supporting the government. Some 74 per cent of Conservative voters, 83 per cent of Labour voters and 87 per cent of Liberal Democrat voters said the government should be doing more to tackle tax avoidance.
