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November 9, 2012 / politicsbitesize

Globalised tax avoidance

In the aftermath of the Cold War a new term came into vogue.  Globalisation entered into the jargon of current affairs during the 1960s, due to a number of anti-globalisation protestors who had started to present their fears that the process was going to impact on everyday life in a very negative way.  During the 1970s and 80s, markets were opened up to neoliberal orthodoxy and the privatisation of previously nationalised or state-funded institutions started in earnest.  It was thought that globalisation would be the process that would sweep the new and completely ‘free market’ imagined by the neoliberalists into territory previously untouched by the hand of capitalism.

The thought soon became a reality.  Globalised neoliberalism did indeed reach parts of the world that capitalism had failed to reach on its own.  A brave new world, wherein corporations built offices, production plants or retail premises all over the surface of the globe, tantalised governments and workers alike.  By the late 1990s, multinational companies took advantage of the ability to move their activities around the world by locating factories and offices in countries where cheap labour was abundant.

With this increase of trade across the globe, however, came the now ubiquitous symbol of globalisation.  Low-paid sweatshop workers, who slave for a pittance making some of the world’s most luxurious consumer goods, exemplify the fears of the anti-globalisation protestors some fifty years ago.  So too does the fact that in their global race to find the best place to pay the lowest wages, some of the largest multinational companies have driven down wages across the world.  This has produced stagnation in the wages of workers in some of the most advance economies. According to Yanis Variufakis in his book, The Global Minotaur, nowhere is this more pronounced than in the US, where the purchasing power of the average real wage has remained the same since 1973.

Another result of globalisation is the ability of multinational companies to hold governments to ransom. In this month’s Socialist Review, Kevin Best claims that it has been argued that, ‘states must avoid taxing a company too much or their investment will find a more welcoming home overseas.’  Kevin goes on to suggest that this, along with a company’s ability to simply move abroad on a whim, is no more than a myth that has surrounded the nature of globalisation over the years.

The reality is that because the economics of globalised capital is so complex and designed to be profit-friendly, companies are able to set the rules as they see fit.  A senior tax official admitted on Monday that the UK government is powerless to prevent multinational corporations from avoiding the payment of tax on profits made in this country.  Lin HomerPermanent Secretary of HMRC, told MPs that at present the government is unable to prevent big international corporations from declaring their profits in countries where tax rates are low.

In a bid to address this lack of power the Chancellor, George Osborne, has announced that he is in talks with Germany in order to seek a solution to international tax evasion.  He went on to say that both countries will raise this issue at the G20 meeting to be held in Mexico over the weekend.   It is hoped that new laws can be put in place to prevent the practice of tax evasion, which will go some way to restricting the negative effects of globalisation.

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