Top 12 Business Stories 2013: Tax Avoidance and Evasion Crackdown

We entered 2013 riding a wave of outrage over the dubious tax affairs of global corporate giants such as Amazon, Starbucks and Google that began the year before.

The public were angry and politicians had to do something about it.

In the case of parliament's vociferous Public Accounts Committee (PAC), led by Margaret Hodge MP, it meant lots of hearings and reports.

Its first report in February recommended that the government name and shame corporations, accountants and individuals who use legal loopholes in UK tax law to run rings around HM Revenue & Customs (HMRC) and avoid around £5bn (€6bn, $8.1bn) a year in taxation.

Then, in April, the PAC accused HMRC of having an "unhealthily cosy" relationship with the big accountancy firms. It said there is a revolving door between both poacher and gamekeeper in the form of staff secondments – a "ridiculous conflict of interest" that MPs said should be banned.

Goldman Sachs and the 'Sweetheart Deal'
HMRC faced a court battle in May when anti-austerity campaigners UK Uncut mounted legal action over a so-called "sweetheart deal" between the tax office and Goldman Sachs, which supposedly waived the bank's debt of £10m.

UK Uncut lawyers took HMRC to the high court over its decision to let Goldman Sachs off millions in interest on tax it owed, after a separate court ruled an offshore avoidance scheme used by the bank to dodge employer national insurance contributions was illegal.

However, judges ruled the deal lawful, though they noted that it was "was not a glorious episode in the history of the Revenue" in their judgment.

Google
In June the PAC had "brazen" Google, the internet firm, in its sights. Hodge and her committee demanded that HMRC launch an investigation into Google over its tax affairs, amid accusations it was logging sales made in the UK in Ireland to reduce its HMRC bill.

"Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK," said Hodge.

"This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK based staff are engaged in selling. The staff in Ireland simply process the bills."

Lough Erne and the OECD

At a G8 leaders love-in during June, held in Northern Ireland, the "Lough Erne Declaration" was agreed. It was a charter of principles on how to crack down on tax evasion, including the automatic sharing of tax information among countries and increased transparency on company ownership.

Come July, the Organisation for Economic Co-operation and Development (OECD) launched its action plan on how to tackle the abuse of double-taxation laws, there to prevent firms being taxed twice in different jurisdictions but used by some to avoid paying anything anywhere.

It looked at "base erosion and profit shifting" in particular, where firms "shift profits across borders to take advantage of tax rates that are lower than in the country where the profit is made".

The OECD called for greater information sharing between countries and for firms across all jurisdictions to declare where they pay tax and how much is handed over, to ensure money is paid to authorities where sales are generated.

Leaders of the G20 bloc of countries backed the OECD's proposals. However, one of the UK's leading tax experts said the plan "ducks the big issue" in tax avoidance.

"They've said that the problem is enormous, they say it threatens the credibility of the international taxation system, they say it could even threaten the balance of trade and competition, and the way in which economies are organised," said Richard Murphy of Tax Research UK.

"All they've said they'll do is take a flawed system and try to make it better. Well you can try and modify a flawed system as much as you like, but if it's got a fundamental design fault in it you never come up with a perfect system or anything even close to it."

He said what needs to be looked at - but has not - is the way companies operating under a parent are treated as separate entities. Instead the group's umbrella company should be taxed as a whole and have the revenues generated from that taxation allocated to specific countries.

"That is entirely possible, even within some aspects of the existing OECD framework," he said.

Chancellor George Osborne went about putting pen to paper on information sharing deals with some of the world's low-tax safe havens. In November, he signed such a deal with the Cayman Islands, a British Crown dependency where no income or capital gains tax is levied on money that flows through it.

UK Prime Minister David Cameron ordered the creation of a publicly available central register of companies' beneficial owners in a bid to remove the cloak of secrecy over some firms and bolster the fight against tax avoidance and evasion.

As it stands, beneficial owners of companies can be shielded from public view by UK rules that allow for complex ownership structures. The new transparency will allow people to see precisely whose money is going where.

'Lenient HMRC'
The year was rounded off where it started, with the PAC attacking HMRC. According to the committee's annual report on tax collection performance, HMRC is too lenient on big business and, as a result, the UK is losing billions of pounds in tax revenue.

"In pursuing unpaid tax, HMRC has not clearly demonstrated that it is on the side of the majority of taxpayers who pay their taxes in full," said the report.

"It does not use the full range of sanctions at its disposal to pursue vigorously all unpaid tax, and its measure of the tax gap does not capture all the avoided tax that it should be collecting."

As we enter 2014, there are no signs of the political pressure over tax avoidance letting up, with austerity set to continue in the UK and beyond.