Andrew Goodall

Most tax gap estimates are flawed, academics claim

Oxford researchers highlight 'shortcomings' but civil society groups were forced to produce estimates in the absence of research by international institutions, say campaigners

Information regarding revenue losses in developing countries caused by tax evasion and avoidance is very limited, partly due to a lack of data and partly due to "methodological shortcomings of existing studies," according to new research.

Clemens Fuest and Nadine Riedel of the Oxford University Centre for Business Taxation prepared the report – entitled Tax evasion, tax avoidance and tax expenditures in developing countries: A review of the existing literature – for the UK's Department for International Development (DFID).

The report's publication came as the UK Treasury was reported to be preparing to voice support for country-by-country reporting. Christian Aid has been lobbying the big four accounting firms to use their influence at the International Accounting Standards Board to argue for the reform. The charity has estimated that tax revenue lost by developing countries due to "trade mispricing" by multinationals amounts to US $160bn a year.

Fuest and Riedel concluded that some of the existing estimates of revenue losses due to tax avoidance and evasion by firms – in particular, some studies on corporate profit shifting – "systematically overestimate the losses".

They added: "Other studies are based on assumptions which are so restrictive that the results are difficult to interpret. Overall, it is fair to conclude that most existing estimates of tax revenue losses in developing countries due to evasion and avoidance are not based on reliable methods and data.

The report recommended a number of possible directions for further research to "improve our understanding of tax avoidance and evasion and the implications of these activities for revenue mobilisation in developing countries".

The Tax Justice Network's research was among the papers reviewed in the Oxford report. Responding to the report, the TJN pointed out on its blog that "in the absence of any useful research emanating from the IMF, World Bank, and indeed academic bodies far better funded than we are, almost all of the literature under review here originates from civil society organisations".The TJN had been “forced” to produce estimates based on whatever datasets become available “in order to challenge those institutions which should be taking these issues seriously to produce estimates of their own,” it said.

The current issue of Tolley's Practical Tax newsletter (3 July) has more on this and other very recent developments including:

• Private residence relief claimants under fire – but HMRC guidance spells out how longstanding exemption written into tax law saves capital gains tax
• Finance Bill progress
• HMRC has 'serious problems' with online trust returns
• 'Vodcast' shatters accountant stereotype, claims ACCA
• New SAYE bonus rates offer 'almost no return'

‘Enormous’ tax debt is likely to grow, say MPs

The number of tax debts grew by 22 per cent during 2007/08 and nearly a third of all tax payments are made late. The Commons public accounts committee's findings were published as concerns were being expressed that the deferral of tax under HMRC's Business Payment Support Service was putting large amounts of revenue at risk. Most of the tax deferred is either PAYE or VAT.

The current issue of Tolley's Practical Tax newsletter ( 19 June) has more on this and other very recent developments including:

• HMRC guidance on new interpretation of capital gains tax law is inadequate, according to the ICAEW's Tax Faculty
• PAYE upgrade – tax agents told to expect delays
• Security checks add to repayment delays
• HMRC refines new disclosure facility plans
• Payrolling benefits – a questionnaire
• HMRC staff morale is 'really rock-bottom', says Low Incomes Tax Reform Group
• Technical guidance on domicile is biased, tax body claims
• Country-based reporting will be on OECD agenda, says Dave Hartnett at HMRC
• Holiday let reliefs will be withdrawn 'for all'

Zimbabwe – five undercover reports

BBC Radio 4's Today programme's ran a series of five reports by Mike Thompson:

9 June: Violence threatens Zimbabwe calm

10 June: 'Harsh life' of Zimbabwe's orphans

11 June: Zimbabwe's children 'do their duty'

12 June: The collapse of Zimbabwe's education system

13 June: The collapse of Zimbabwe's health system

Related:

BBC Radio 4 Today, 13 June: Zimbabwe 'can't cope' without aid

BBC Radio 4 Today, 13 June: How can Britain help Zimbabwe?

BBC news website: Zimbabwe – New era?

Zimbabwe's 1.5m orphans

The BBC's Today programme has this (audio file):

"Malaria, poverty, HIV and political violence have left Zimbabwe with more than 1.5m orphans in a country of just 11m people - more per head of population than anywhere else on earth. Correspondent Mike Thomson, in the second of his undercover reports from Zimbabwe, reports on the plight of Zimbabwe's orphaned youngsters. Note: The BBC is not allowed to operate legally in Zimbabwe so some names and places in Mike's report have been changed to protect the identities of some of those he's spoken to."

Related:

Today programme website: Zimbabwe's children (audio slideshow)

Today programme website: Under Zimbabwe's skin

BBC News: Zimbabwe 'facing fresh violence'

CAFOD: Zimbabwe

Save the Children: Zimbabwe

Christian Aid doorsteps Taxation awards and posts interviews on YouTube

Several guests at last month's LexisNexis Taxation Awards found themselves featured on YouTube, answering questions put to them by Christian Aid campaigners as they arrived at the event. Christian Aid has lobbied the big four accountancy firms in its campaign for country-based tax reporting. The charity invited many of the guests arriving at London's Park Lane Hilton to answer questions about corporate "tax dodging" which, it claims, costs developing countries $160bn a year.

The charity declared that "while the accountancy industry celebrated its achievements in tax-bill-minimisation, we held our own awards ceremony outside". The "winners" included Barclays, which the charity described as "tax haven enthusiast of the year". Christian Aid posted two videos on YouTube, featuring its "alternative" tax awards and the filmed reaction of several guests to questions put to them outside the Hilton. While some respondents were clearly in the "no comment" camp, others appeared more sympathetic. One said: "I don't know where you get your figures from, but if that's correct it's not going to make anyone feel very good."

"The majority of people we spoke to were positive about our campaign," the charity said. In this week's issue of Tolley's Practical Tax newsletter Madeleine Brand, a chartered tax adviser and Christian Aid volunteer, calls on tax advisers to support the charity's Big Tax Return campaign.**

See related posts in the Christian Aid category of this blog. The current issue of Tolley's Practical Tax newsletter ( 5 June) has more on this and other very recent developments including:

• HMRC discusses regulation of tax agents and possible penalties for "poor behaviour"
• Finance Bill "aggravates" long and complex tax code, says Tax Faculty
• OECD watching havens "like a hawk"
• Tax authorities agree "new co-operation" plan
• Chartered Institute of Taxation launches green tax report

** TPT reported on 22 May, having invited each of the big four firms for their reaction to Christian Aid's campaign, that:

PricewaterhouseCoopers said in a statement that it had "led the profession" in promoting more transparency in tax and wider corporate reporting. "PwC has met with Christian Aid to discuss our shared interest in improving corporate reporting of tax information and indeed subsequently continued this dialogue in writing," said Barry Marshall, the firm's UK head of tax. "We have a common interest to continue to improve corporate reporting of tax information. However we do not believe that the introduction of the kind of country-based reporting proposed by this campaign would meet this ambition." PwC added that its total tax contribution (TTC) framework was "designed to improve communication and understanding of a company's tax position" and "gaining traction and support around the world". The firm would "continue to support its development, in conjunction with our corporate reporting colleagues, to continually improve business reporting generally". The firm's website promotes TTC in the light of increasing scrutiny of the amount of tax paid by large businesses which, it adds, "pay considerably more in tax than it might first appear". It suggests that "a business's tax contribution and its tax strategy should be looked at from the point of view of all the taxes it bears and collects" ...

A KPMG spokesperson told TPT: "We have received a large volume of mail from Christian Aid supporters and we are listening to what they have to say." Ernst & Young told TPT: "We are aware of the campaign but are not commenting further." Deloitte declined to comment.

Tax is too important to be left to the professionals

Alan Rusbridger of the Guardian and Ian Hislop of Private Eye have told a committee of MPs that the "chilling" costs of legal action are "increasingly deterring investigative journalism," the Guardian has reported. The press is

"growing wary of running controversial stories about large companies and rich individuals because of the potential cost of dealing with legal action".

Two figures illustrate the challenge facing journalists investigating the scale of tax evasion and avoidance and the response of governments and international institutions like the OECD. The Guardian report said:

"Rusbridger said that the Guardian had spent £90,000 on pre-publication legal work to make sure [its recent "Tax Gap" series] on tax avoidance was free of errors."

And the Press Gazette has reported that:

"Rusbridger said it would cost about £100,000 to appeal against the [recent High Court injunction banning the paper from publishing leaked memos relating to the tax affairs of Barclays Bank]."

A Guardian editorial pointed out that the vast majority of journalists do not have the resources to tackle the complexities of tax law, and that the resulting lack of scrutiny means that large accountancy firms and powerful voices from business have a "disproportionate share of influence" on government.

No public interest issue should be too complex to be above investigation by independent media. The Chartered Institute of Taxation welcomed the "unprecedented level of informed coverage of tax issues" in the Guardian's Tax Gap series. But the debate is hindered, as the Guardian editorial explained, by a knowledge gap between mainstream media and those with the specialist knowledge, few of whom seem prepared to engage.

Tax is high on the political agenda. Informed public debate of tax issues is more important now than ever. But this knowledge gap, added to the "chill wind" of our privacy and libel laws, is looking bad for taxpayers and bad for democracy.