Labour leader Jeremy Corbyn says increased spending on essential services and infrastructure could be financed by reducing the amount of tax avoidance and evasion, mainly by companies doing business in the UK.
Blogger and tax expert Professor Richard Murphy argues that up to $1.8trn is being lost to the UK government as a result of tax avoidance and evasion. This is almost eight times its budget deficit this year and compares with gross government debt of $2.3bn.
The estimate has provoked a storm of criticisms. Some argue that the “tax gap” doesn’t exist and that HM Revenue & Customs is doing everything it can to stop tax avoidance and evasion. Others say the figure is wrong, too high or misleading.
You can form your own view. But whatever it is you have to recognise that the increase in the capacity of corporations to reduce their tax bills by changing their place of incorporation including to low or zero tax jurisdictions is neither coincidental nor natural.
It’s due to the rise of intangible capital.
If you want to avoid tax, the first thing you should do is ensure you have no physical assets in a jurisdiction that imposes tax. That’s because if you have no physical assets in such a place, you become largely invisible to tax agencies. Given there are more than 200 sovereign states, you can happily move around the world without the authorities knowing where you are. This in part explains why some rich people like to live on boats.
The second thing is to ensure your assets are in intangible form. That means in a digital form. That allows you to move them instantly anywhere in the world at any time. It also means your assets can be where you aren’t. This was difficult when owners of capital had factories, warehouses, tangible goods and equipment.
Once that is understood, the boom in tax havens and the rise of intangible capital can be seen to be no coincidence and certainly not natural.
Corbyn and Murphy may have made the right diagnosis. But is the treatment — stronger implementation of tax laws — going to work? Not if capital is defined by legislatures and accounting codes that have been captured by lawyers and accountants it won’t.