A leading Yorkshire academic has called for an overhaul of the international tax system to crack down on aggressive tax avoidance, as she warns that current rules aimed at preventing abuse are decades out of date.
Speaking at a major international conference of tax experts, politicians and business leaders, Leeds university professor Rita de la Feria claimed that the “staggering” spread of anti-avoidance laws indicate something is “fundamentally” wrong with existing practices.
But she argued governments need to focus more efforts on tackling the incentives that give rise to avoidance in the first place – rather than punishing the act itself – in order to provide a long-term solution.
Prof. de la Feria’s comments came during a day-long summit in Westminster which saw politicians from across the world issue calls for greater transparency in the corporate tax system.
The event was hosted by Parliament’s Public Accounts select committee, and follows a year of tax avoidance and evasion scandals, from the Panama papers leak to Apple’s £11bn EU tax bill.
Opening the summit, committee chairman and Labour MP Meg Hillier stated that the latest OECD estimates put the overall global tax loss due to aggressive tax avoidance at between 86bn and 207bn euros a year.
She stated it was up to politicians across the world to keep up pressure on respective governments “to commit to more transparent reporting on multi national companies”.
“As parliamentarians we often see the problem in our countries for people at the lower end of the income spectrum... families struggling to make ends meet, struggling to navigate complex bureaucratic systems,” she said.
“It does strike me as deeply unfair that some of our wealthiest people and corporations spend so much time and money avoiding taxes.
“Here in the UK we have persuaded the Government to change the law to give it power which enables it to reintroduce public country by country reporting.
“We as a global community of Parliamentarians can continue to put pressure on our governments to work together to stop global tax avoidance.”
One of the controversial practices at the centre of the tax avoidance debate is a process called “transfer pricing”.
This is when businesses operating under the same multinational umbrella company transfer funds through an intermediary firm in a tax haven to minimise the tax bill at the other end.
This process is not in itself illegal, and speaking in a debate on the future of tax avoidance Prof de la Feria argued that simply creating new anti-avoidance rules is not enough to prevent it.
She proposed an overhaul the international tax system – focussing on the final destination of payments rather than the origin – to remove any incentive to use these methods in the first place.
“In the 1920s we developed the key principles to underpin the international tax system.... the problem is that the world has changed,” Prof de la Feria explained.
“Our response in the last couple of decades has been to approve tax anti-avoidance rules... [they] only address the symptoms, not the causes of international tax avoidance.
“Seen as a whole, the spread of anti avoidance laws around the globe is staggering, and [an] indication that something is fundamentally wrong.”