Nick Shaxson ■ New report from UK parliament: tax justice to the fore
Published:
4 August 2016Reading time:
3 min
The UK’s All Party Parliamentary Group on Tax has published a report entitled A more responsible global tax system or a ‘sticking plaster’? An examination of the OECD’s Base Erosion and Profit Shifting (BEPS) process and recommendations. They consulted us (among many others) and the result is a really strong document of tax justice, with significance for all countries, since Britain is such a central player in the global system of tax havens. The APPG’s summary, via email, says:
“We believe that these new rules [BEPS, the OECD’s Base Erosion and Profit Shifting project to tackle corporate tax cheating] simply provide a sticking plaster on an international tax system struggling to cope with the digitisation and globalisation of businesses.
It is time to sweep away tax secrecy. To restore public confidence in the integrity of the tax system we need to introduce much needed transparency into the international tax system. Nothing will work until everything is in the open.
We are fearful that the new rules will provide opportunities for businesses to exploit to avoid pay tax.
Finally, UK governments have been facing both ways on international tax rules, leading the way on tackling corporate tax avoidance in public whilst undermining some of the OECD’s efforts behind the scenes.”
We can live with all of that. There’s support for a whole swathe of tax justice positions: for example, for genuinely public country-by-country reporting. And here, they are quite positive:
“The UK Government should take the lead and legislate to introduce public country-by-country reporting for UK publicly quoted companies whilst pressing the case for public country-by-country reporting on a multilateral basis.”
There is also, they argue, the need for public registers of beneficial ownership of companies; for the UK – and also, thrillingly, this:
“the UK should use its statutory powers to compel the Overseas Territories and Crown Dependencies to adopt public registers of beneficial ownership.”
Our emphasis added. Until we started kicking up a fuss about this, everyone was pussy-footing around saying we have to ‘influence’ or ‘persuade’ the British Overseas Territories that are tax havens to curb their secrecy – as if these places were fully independent. No, Britain can compel them to strike down their secrecy, and it must.
The APPG hasn’t shied away from another controversial issue: while the OECD tends to bring out garlic and crucifixes at the mention of the word ‘unitary,’ the APPG has this to say:
“We held a seminar with academics and other stakeholders to look at taxing corporate profits in the long term. There was broad support for a unitary based tax system with formula apportionment overseen by a global body such as the OECD or the United Nations whereby each company would submit one report of consolidated accounts for the global group. The report would specify the group’s assets, the size of the workforce and sales. The overall profits would be then divided up among jurisdictions according to an agreed formula based on these factors. This would reflect the reality that subsidiaries of companies are not separate entities that trade with one another, but are actually all parts of one global company. Some commentators have argued that the introduction of country-by-country reporting, where companies now have to report on all of their group activities, could provide the data needed for a unitary taxation system. Assessing the most effective long-term alternative should be a priority and this proposal should be considered alongside other alternatives.”
That’s certainly progress: this issue is rising up the international agenda.
These APPG recommendations have no legal force: and this is not an official parliamentary body, it is an informal body containing members of both the House of Lords and the House of Commons. These are just recommendations. But this is, as the name suggests, a cross-party platform — see its members here — so it reflects a real change in the consensus they are signs of continually growing momentum behind our positions.
The author
Related articles
The Tax Justice Network’s most read pieces of 2024
Did we really end offshore tax evasion?
The State of Tax Justice 2024
Indicator deep dive: Public country by country reporting
How ‘greenlaundering’ conceals the full scale of fossil fuel financing
11 September 2024
10 Ans Après, Le Souhait Du Rapport Mbeki Pour Des Négociations Fiscales A L’ONU Est Exaucé !
Another EU court case is weaponising human rights against transparency and tax justice
Submission to Special Rapporteur on the independence of judges and lawyers on undue influence of economic actors on judicial systems
The IMF’s paper on opaque bank ownership is fully aligned with our beneficial ownership policies
I doubt if anyone here really knows of what a truly socially just tax comprises. The ethics of taking away part of a workers earnings as tax is only justified when there is no other way of adding to the public purse. Since there are other ways and since at least one of them is socially just, the taxing of incomes should be regarded as pure robbery–an immoral system introduced by those who wish to not have to return to the country the thing they are taking from it. I refer to the opportunity to work and reside that a holder of a site of land bestows. The following essay really does show the most socially just for of taxation.
Socially Just Taxation and Its Effects (17 listed)
Our present complicated system for taxation is unfair and has many faults. The biggest problem is to arrange it on a socially just basis. Many companies employ their workers in various ways and pay them diversely. Since these companies are registered in different countries for a number of categories, the determination the criterion for a just tax system becomes impossible, particularly if based on a fair measure of human work-activity. So why try when there is a better means available, which is really a true and socially just method?
Adam Smith (“Wealth of Nations”, 1776 REF. 1) says that land is one of the 3 factors of production (the other 2 being labor and durable capital goods). The usefulness of land is in the price that tenants pay as rent, for access rights to the particular site in question. Land is often considered as being a form of capital, since it is traded similarly to other durable capital goods items. However it is not actually man-made, so rightly it does not fall within this category. The land was originally a gift of nature (if not of God) for which all people should be free to share in its use. But its site-value greatly depends on location and is related to the community density in that region, as well as the natural resources such as rivers, minerals, animals or plants of specific use or beauty, when or after it is possible to reach them. Consequently, most of the land value is created by man within his society and therefore its advantage should logically and ethically be returned to the community for its general use, as explained by Martin Adams (in “LAND”, 2015, REF 2.).
However, due to our existing laws, land is owned and formally registered and its value is traded, even though it can’t be moved to another place, like other kinds of capital goods. This right of ownership gives the landlord a big advantage over the rest of the community because he determines how it may be used, or if it is to be held out of use, until the city grows and the site becomes more valuable. Thus speculation in land values is encouraged by the law, in treating a site of land as personal or private property—as if it were an item of capital goods, although it is not (Prof. Mason Gaffney and Fred Harrison: “The Corruption of Economics”, 2005 REF. 3).
Regarding taxation and local community spending, the municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable without the landlord doing anything—he/she will always benefit from our present tax regime. This also applies when the status of unused land is upgraded and it becomes fit for community development. Then when this news is leaked, after landlords and banks corruptly pay for this information, speculation in land values is rife. There are many advantages if the land values were taxed instead of the many different kinds of production-based activities such as earnings, purchases, capital gains, home and foreign company investments, etc., (with all their regulations, complications and loop-holes). The only people due to lose from this are those who exploit the growing values of the land over the past years, when “mere” land ownership confers a financial benefit, without the owner doing a scrap of work. Consequently, for a truly socially just kind of taxation to apply there can only be one method–Land-Value Taxation.
Consider how land becomes valuable. New settlers in a region begin to specialize and this improves their efficiency in producing specific goods. The central land is the most valuable due to easy availability and least transport needed. This distribution in land values is created by the community and (after an initial start), not by the natural resources. As the city expands, speculators in land values will deliberately hold potentially useful sites out of use, until planning and development have permitted their values to grow. Meanwhile there is fierce competition for access to the most suitable sites for housing, agriculture and manufacturing industries. The limited availability of useful land means that the high rents paid by tenants make their residence more costly and the provision of goods and services more expensive. It also creates unemployment, causing wages to be lowered by the monopolists, who control the big producing organizations, and whose land was already obtained when it was cheap. Consequently this basic structure of our current macroeconomics system, works to limit opportunity and to create poverty, see above reference.
The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the lack of opportunity of access to the land on which the work must be done. The useful land is monopolized by a landlord who either holds it out of use (for speculation in its rising value), or charges the tenant heavily for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the land and of the produce too, and can charge more for this access right than what an entrepreneur, who seeks greater opportunity, normally would be able to afford.
A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed 136 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts. (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty” 1879, REF. 4, Henry George proposed a single tax on land values without other kinds of tax on produce, services, capital gains etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and find that land dominance has its own reward.
17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics
Four Aspects for Government:
1. LVT, adds to the national income as do other taxation systems, but it should replace them.
2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all and who owns each is public knowledge.
3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below). The speculation in and withholding of unused land is eliminated, see item 7.
Six Aspects Affecting Land Owners:
5. LVT is progressive–owners of the most potentially productive sites pay the most tax. Urban sites provide the most usefulness and resulting tax. Big rural sites have less value and can be farmed appropriately to their ability to provide useful produce.
6. The land owner pays his LVT regardless of how his site is used. A large proportion of the present ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).
7. LVT stops speculation in land prices because the withholding of land from proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below, items 12 and 13).
Three Aspects Regarding Communities:
11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.
Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this national extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks– LVT is a natural system of national income-gathering.
15. previous bribery and corruption for gaining privileged information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
16. The improved use of the more central land of cities reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs because their production costs are reduced. Then untaxed earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly and fully introduced as a single tax, it will eliminate poverty and improve business ethics.
References:
1. Adam Smith: “The Wealth of Nations”, 1776.
2. Martin Adams: “LAND– A New Paradigm for a Thriving World”, North Atlantic Books, California, 2015.
3. Mason Gaffney and Fred Harrison: “The Corruption of Economics”, Shepheard-Walyn, London, 2005.
4. Henry George: “Progress and Poverty” 1897, reprinted by Schalkenbach Foundation, NY, 1978.
WE SHOULD TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!