Tax justice FAQ

Your questions about tax answered: 

This webpage has been produced with the financial assistance of the European Union. The contents of this webpage are the sole responsibility of War on Want and can under no circumstances be regarded as reflecting the position of the European Union.

 

What is tax dodging?

Tax dodging is a general term we use for all of the ways that companies and rich individuals can try and reduce their tax bills, whether through lobbying governments for tax breaks and lower corporate tax rates, exploiting obscure loopholes in tax laws, or shifting profits into tax havens. Some of these are legal and some of them are not, but all of these can increase poverty and inequality.
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What is the definition of tax avoidance?

Tax avoidance is the artificial ways companies and individuals try to reduce their tax bills by exploiting tax rules in ways that were not intended.

Tax avoidance is fundamentally an unjust activity, as it offers advantages to rich individuals and multinational companies to reduce their tax bills in a way never intended. Tax avoidance undermines the ability of the tax system to fulfil its core purpose: to raise revenue to fund public services and to redistribute wealth.
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What is the definition of tax evasion?

Tax evasion is acting illegally to reduce a company or an individual’s tax bills. Tax evasion often involves lying to tax authorities, such as by not declaring all of a company or individuals’ income or by hiding money from tax authorities in a tax haven.
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What is tax justice?

Tax justice is a principle, about how taxes are raised and how taxes are spent. Taxes should be raised progressively, based on ability to pay, and spent according to need.

Tax is not only government money, it is redistributed wealth, so a just tax system is one where money is not only raised fairly, it is spent fairly. Tax should be spent to reduce inequality in society, and to fund effective universal public services – tax shouldn’t be spent on corporate welfare or on destructive and wasteful military spending. Tax should be raised and spent transparently, and with real democratic oversight and control.
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What are tax havens?

Tax havens, also known as ‘secrecy jurisdictions’, enable people or companies to escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.

Many of the world's tax havens are British, whether overseas territories such as the Cayman Islands, Bermuda and British Virgin Islands or Crown Dependencies such as Jersey, Guernsey and the Isle of Man. The City of London itself acts as the nerve centre for these tax havens and supports an army of lawyers and accountants devoted to helping companies dodge tax.
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How do companies dodge tax?

Companies use lots of methods to dodge tax, working together with accountants and lawyers companies continue to find new innovative ways to try and cut their tax bills.

One of the most common ways big companies can dodge tax is through a process called ‘transfer mispricing’. This involves artificially increasing or reducing the cost of goods or services bought and sold by the subsidiaries of a multinational company in different countries; the international trade within multinational companies. By charging huge fees for the use of a company’s brand name or trademark, or by exporting goods out of developing countries at knock down prices, multinational companies can shift their profits out of countries where those profits would be taxed heavily into countries where they can pay less tax.
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How much money does the UK lose to tax avoidance?

Every year the UK government loses out on an estimated £25 billion a year in revenue to tax avoidance by large companies and rich individuals [pdf]. This figure, published by the TUC, is much higher than the government’s official estimate of £5 billion as it includes revenue lost where HM Revenue & Customs should have the power to tackle it, not just the money lost where it currently has the power to tackle it.
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How much money do developing countries lose to tax avoidance and evasion?

There is no one definite figure for how much developing countries lose to tax avoidance and evasion, as the real figures are hidden behind the secrecy of multinational companies’ internal trading and the world’s tax havens, however there are some well researched estimates we can use for the scale of money lost.

Up to £20 trillion is now held by rich individuals in secrecy jurisdictions [pdf], better known as tax havens. This sum is equivalent to more than 13 times the annual output of the UK economy. If this money was taxed instead it could generate as much as £180 billion a year in tax revenue, more than twice the amount rich countries spend on all overseas aid.

In addition, more than £360 billion is illegally siphoned out of developing countries every year [pdf], mostly into offshore banks and tax havens, 80% of which is due to the illegal mispricing of imports and exports. This is in part possible because the majority of world trade now takes place within multinational companies; where companies are able distort the price of goods they move between subsidiaries in different countries, allowing them to their profits into secretive tax havens.
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Where can I find out more?

War on Want is a member of the Tax Justice Network, an international network of campaigners and academics which promotes tax justice and tax cooperation and resists tax avoidance, tax evasion and tax competition.

Tackle Tax Havens  is a project of the Tax Justice Network, with more information on what tax havens are, what the problems and solutions are, more background information, and what can be done to tackle tax havens.

If you want to know more about War on Want’s tax justice campaign email support@waronwant.org
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What can I do?

The UK plays a central role in the ‘offshore’ system that allows this appalling injustice to happen, and it is only through public pressure that the UK government will stop fuelling tax dodging by multinational companies.

View our urgent actions >

We need your help to make our campaign as strong as possible to build the pressure on the government to stop fuelling tax dodging, increasing poverty and inequality. Please make a donation and help us put our plans into action.

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