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How much tax is lost each year? #defi

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Building on my discussion yesterday about offshore tax havens and decentralisation to avoid governance in both the physical and virtual world, there’s a more fundamental issue at large here. Tax avoidance.

Some people hear the words "a tax" and interpret it as "attacks".

I heard a figure the other day that the UK Tax Office, known as HMRC (Her Majesty’s Revenue & Customs), has lost £500 billion in missed tax opportunities in the last twenty-five years. That’s wrong. It’s way too low.

According to George Turner, a director of Tax Watch:

Every year, HMRC publish their estimate of the tax gap – the amount of tax they claim is lost though avoidance, evasion, omission and error.

At £35 billion, the government’s official estimate of tax losses is now the highest it has ever been in cash terms since figures were first published in 2008 ... worryingly these estimates have been increasing sharply in recent years. The tax gap has increased by 17 per cent since 2016 when the figure was £30 billion. 

If you think that sounds bad, the reality is much worse … for example, the way in which HMRC calculates the tax gap specifically excludes profit shifting by multinational companies, the kind of tax avoidance strategies used by Google, Starbucks, Facebook and others.

Profit shifting is thought to cause the Treasury losses of many billions a year. Indeed a study by TaxWatch of profit in the tech industry estimated losses of £1 billion a year from just five US tech companies.

Yep. Tax shifting. Is that tax avoidance? Nesting profits in overseas subsidiaries located in tax havens. Is that tax avoidance?

I’ve blogged about this before too, and how it’s all wrapped up in money laundering and decentralised finance in the physical world.

Now, as we move to decentralised finance in the virtual world, the concern of governments is obvious. If you have decentralised finance in the physical world, at least it can still be tracked and traced a little bit. You can see that ABC firm has XYC subsidiary in the Cayman Islands. You can ask questions about it, but you can’t say it’s illegal as it isn’t. However, if this trickle of funds – around five percent of all taxable income in the UK, according to Tax Watch – became a flood, what would you do. If crypto and decentralised technologies made this ten times easier, then that figure would become huge, wouldn’t it?

Well, maybe not. The average Joe and Jane on Main Street think that money is taboo, they don’t talk about it, and they accept that HMRC and the IRS are going to get them. They get taxed on income as they’re paid and find it easier for their employers to deal with their tax than having to deal with it themselves.

In other words, the general populous get taxed at source and can’t do much about it. It’s the rest, the corporations and millionaires, who get away with the avoidance and live the life of Riley.

But hey, let’s not get political here. Just because the one percent can get away with it and the 99% cannot, is just the way it is, OK?

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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