Everything is not in its right place
If international tax evaders were a band, they would be Radiohead.
Bear with me.
In many ways, 2014’s ‘Lux Leaks’ – the scandal which broke when a whistleblower from PricewaterhouseCoopers published thousands of documents showing some pretty shady tax deals were to be had in the Grand Duchy of Luxembourg – was the super-rich equivalent of Pablo Honey.
It was a solid debut, no doubt. It contained some absolute gems – the hyper-complicated financial equivalent of ‘Creep’ or ‘Anyone Can Play Guitar’ – but you couldn’t help but feeling that we hadn’t really seen their full potential. It was big, but was it big enough? There was a real risk that everyone might nod approvingly, think about it for a while, and then forget.
And then, earlier this month, came ‘Panama Papers’ – the smash follow-up that not even the biggest fans of morally bankrupt tax fiddling could have foreseen. The scale! The ambition! Over 11 million documents stemming from one single law firm, and dragging in everyone from the Icelandic Prime Minister to our own David Cameron. Here, without doubt, was the fiscally dubious counterpart to The Bends.
It’s hard to classify the Panama Papers phenomenon. What word should you use to describe something breathtaking in its shock factor and yet heartbreakingly, crushingly predictable at the same time? How can you quantify something so enormous as tax avoidance on that scale? So brazen that it is able to hide in plain sight?
There is one statistic in particular that brings it home to me, and that’s the fact that 60% of all international trade is intragroup – that’s to say it is conducted between two branches of the same company, rather than between two independent companies.
That means that nearly two-thirds of all transactions that take place anywhere in the world basically have to be taken on trust. How can you know that MegaCorp Sweden is selling widgets to MegaCorp St Lucia at a fair price if the whole thing is taking place within one giant company and with no external competition?
The fact is that you can’t. And so companies take advantage of the fact that national governments have so far been really, really bad at working together on this stuff. MegaCorp Sweden will find out that the tax rate there is a lot higher than in St Lucia. They’ll get the St Lucia branch to lend millions of dollars to the Sweden branch, loading the Swedish branch with debt so that it looks like it doesn’t turn a profit. Voila! No more tax paid in Sweden.
This is happening all over the world, right now, and in much more complicated and egregious ways than that. And it would take a special kind of narrow-minded nationalist to think that one country – even one as influential as Britain – could act alone to stop it from happening.
Tax evasion and aggressive tax avoidance thrive when countries refuse to work together. This is something that the European Union understands and is trying – slowly at times for sure, but certainly – to fix.
The EU has introduced new rules to limit the kind of sweetheart deals that we saw in Lux Leaks. Last week, it announced new plans to make multinational companies report publicly exactly where they make their profits and where they pay their taxes. Hard to believe that anyone could object to a principle that simple, and yet some businesses do – but they then come up against the combined will of 28 countries representing 500 million consumers between them, and they start to back down.
The UK would be walking away from all of this if we were to leave the EU. Tax avoidance – and the outrageous, growing injustice it serves to embed in our societies – is one of the major issues the world faces today, alongside other cross-border challenges like climate change, terrorism and mass migration. None of these things can be solved by acting alone.
If the UK voluntarily left the world’s largest and longest-standing attempt for countries to work meaningfully together, the people celebrating will be those whose money is sitting in Panama when it should be paying for British schools and hospitals and easing the burden on the rest of us. Because there would now be that bit less cooperation in the world – meaning a few more opportunities to make some money in the cracks that would inevitably appear as a result.
Which is where, circuitously, I come back to Radiohead.
Panama Papers is where I want the comparison to end. Because two years after The Bends, Radiohead released OK Computer – arguably the greatest album of the 1990s. And that’s what, stretching my analogy to breaking point, will happen with tax avoidance if we don’t work together. If countries like the UK, as part of alliances like the EU, don’t step up to the plate then the next round of tax avoidance schemes will be on a scale and of an audacity we can’t even imagine. I’m not prepared to let that happen.
In summary? This is no time to start playing Brexit music.
What I did on my holidays
One of the hardest tasks faced by the ‘Remain’ campaign in the forthcoming European referendum is trying to communicate all those ways in which our membership of the EU makes things better and easier, but which have been part of our daily lives for such a long time that we risk taking them for granted.
I’m going to give this a go – in the manner of a primary school student coming back after a break – by telling you about what I got up to on my holidays.
Last week, my wife and I went to Scotland for a wonderful, relaxing Easter break. My Facebook friends can attest to the smugness of the photos that followed. What is less hard to spot or quantify is how much of our holiday was affected by the UK’s EU membership. Sounds a bit tenuous? Stay with me.
Let’s start with the fact that we are both British citizens working in Belgium. That alone is to do with our EU membership – as UK citizens, we have the right to work in any of the other 27 Member States.
We are then free to travel around the European Union on holiday, needing nothing more than our passports and tickets. It’s easy to forget that things aren’t always that simple. Travel somewhere outside the EU and you’ll often have to apply (and pay) for a visa several weeks in advance.
Then there’s the fact that, for the week that we were on holiday, both of us continued to get paid by our respective employers. You probably also get paid leave, and would expect to be entitled to it as part of your job’s terms and conditions. But you might not know that the right to that paid leave stems from the EU: it’s the Working Time Directive that guarantees 20 days of paid holiday a year, and that made millions of British workers’ lives better when it was introduced in 1993.
For our holiday, my wife and I were originally going to fly to Edinburgh. After all, the flights were pretty reasonably priced – no doubt in part thanks to the EU having put an end to the days where only certain airlines were allowed to fly to certain countries, meaning they could charge whatever they wanted.
In the end, our flights were cancelled, so we switched to travelling by train. We were entitled to a full refund of the cancelled flight. Again, this isn’t in UK law – it’s in an EU Regulation which guarantees compensation and assistance to people whose flights are cancelled or delayed for a long period of time.
We stayed in Edinburgh for two nights, before going up to the Highlands, where we stayed in the breathtakingly beautiful Glen Affric just west of Loch Ness. It’s hard to think of a better place to get away from everything – stunning, remote, untouched wilderness. And the reason that it’s untouched is because it is a ‘Special Protection Area’, as designated by – yep, you guessed it – the EU. Glen Affric looks as beautiful as it does because the Habitats Directive and the Birds Directive say it has to.
None of this may seem like much on its own, and most of it would pass you by if you didn’t know to look for it.
But now try to imagine a Europe in which my wife and I found it much harder to work overseas in the first place; where if we wanted to take off a week of holiday we had to do it without being paid; where we had to fork out money and time to get a visa to go to a neighbouring country; where we lost a load more money on an expensive flight which was then cancelled with no prospect of a refund; and where when we finally got to our beautiful rural retreat the whole thing had been so overdeveloped that all that lovely wildlife had long since departed.
That may all sound quite apocalyptic, but it’s EU membership that guarantees all of those things. In a country that’s been a member since 1975, there are many of us who have never known a life outside the EU. But just because that membership is sometimes invisible to us, don’t think that it isn’t there – making life a little better, and a little easier, in thousands of imperceptible ways.
the unfinished article 
Recent Comments