The Treasury’s new tax loophole will ignore movements of money by British businesses into tax havens. Billions in revenue urgently needed for healthcare and education by developing countries could be lost.

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The UK's anti-tax haven rules make it harder for multinationals to use tax havens to lower their bills, both in the UK and in developing countries.

Although they don’t prevent all tax avoidance, they are an obstacle that multinationals have to try and get around.

The government is proposing to water down these rules, which could cost:

  • £4 billion a year in developing countries
  • £1 billion a year in the UK

How do these rules work?

The current anti-tax haven rules (officially known as 'controlled foreign company' rules) are designed to deter companies from exploiting the low tax rates offered by tax havens.

If a British multinational company shifts its profits from anywhere in the world into any tax haven, the UK tops up its tax bill. This means that the company eventually has to pay the full UK rate of tax, no matter where they try to hide their profits.

These rules apply to all UK companies. Although the rules are not perfect, they stand in the way of any multinational companies that try to avoid paying tax in the UK or in developing countries.

The changes that the Treasury is proposing mean that companies' tax bills will only be topped up if money’s moving in to or out of the UK. If a British company tries to move money from a developing country into a tax haven, it will be completely ignored.

The government must urgently rethink their plans

The government should not be making it easier for companies to use tax havens, especially when developing countries could lose billions in revenue. This revenue is urgently needed to invest in the healthcare and education that people in developing countries require.

ActionAid want the Treasury to assess and help mitigate the impact of any changes on developing countries. Providing additional funding to help developing countries improve their own tax systems could help in the short term.

Ultimately, tax dodging is an international problem that requires international solutions. The government should be leading international efforts to close tax loopholes, crack down on tax havens and make it harder for multinationals to dodge their taxes.

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