Tax Avoidance and Multinational Companies

Andrew Gwynne Excerpts

Wednesday 3rd February 2016 Commons Chamber

[John McDonnell]

I am grateful for the intervention. The hon. Gentleman probably knows that I was not the most enamoured of the Labour Government’s track record during that period, but it was a Labour Government who started this inquiry and the hon. Gentleman’s Government took six years to complete it. According to a recent estimate by the Financial Times, the measures introduced by the Labour Government will reap 10 times the amount of tax that this Government have secured.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Will not many of our constituents find it difficult to understand the fact that this information is largely in the public domain? We know the profits, assets and liabilities of Google in the United Kingdom because those finances are public. We also know how much tax is being paid. Does that not lead us to the conclusion that the tax rate is 2.77%, not 20%?

[John McDonnell]

Let me come on to that point.

It did not take long for independent analysis to show what a derisory sum the Google tax payment was. The word “derisory” is not just my description, but the word used by the hon. Member for Uxbridge and South Ruislip (Boris Johnson), the Mayor of London, as well as many others. Google had a UK turnover of approximately £4 billion in 2014-15. If profits here were similar to those across the whole group, about a 25% return, that implies £1 billion-worth of profits. If the standard 20% corporation tax is levied, that implies a £200 million tax bill for the one year, not the £200 million paid by Google for the decade. As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, independent assessors have estimated that the Google tax rate for the past decade was 3%.

--- Later in debate ---

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

This is, undoubtedly, an important debate for all the people outside the House who have commented on the subject, which is of great concern. We are talking about a complex matter, which may require, in the longer run, fundamental reform and international co-operation. There are no easy fixes. The deal with Google needs to be scrutinised, for the sake of all who are concerned that it might be described as a sweetheart deal. That is why I fully supported my hon. Friend the Member for Dundee East (Stewart Hosie) in taking the initiative and being the first person to write to the European Commission to seek an independent examination of the settlement. There is a lack of transparency in the deal, but these are difficult matters, and we may have to look at changing some of the rules in the longer run.

To many people, the recent agreement between Google and HMRC is very obscure and opaque, and gives the appearance of being very generous to a large multinational corporation. It contrasts sharply with the experience of many local SMEs. I would be astonished if I were the only Member of the House who has received comments from innumerable small businesses about what they perceive as the unfairness of the deal. I want to quote the views of two SMEs in my constituency. First:

“It is galling that my business pays its taxes on time and in full, but huge corporations like Google do not and seem to be able to avoid doing so for years”,

says Jim Cruickshank of Cruickshank Glaziers. Secondly:

“It seems there are stringent rules for small domestic businesses but another much easier world for major companies. This often gives unfair competitive advantage to the large companies”,

says Stewart Murray of the Farm Shop, Kirkcaldy. That is a concern of many of our domestic businesses. Because of the complexity of their tax affairs and of how they can operate, many of the largest corporations find that they have—in many cases, legitimately, in this system—a major competitive advantage over domestic businesses.

[Andrew Gwynne]

Does that not show how SMEs across the United Kingdom feel they have been treated? Their impression is that there is one tax law for them and another for large multinational companies. Does it not also provide a contrast between the British approach and the approach of some of our European colleagues to the very same issues? They are holding out for a much better deal for their taxpayers.

[Roger Mullin]

Many people throughout Britain will think that the hon. Gentleman has made a very fair point. That is why I have been arguing that we must have a proper investigation and why, perhaps in the longer run, we need to do something about greater transparency. It will be very difficult for us to bring a proper critique to bear if we do not get such clarification.

It must, of course, be admitted that this is not a new phenomenon. I first became aware of concerns about multinationals paying their fair share of UK taxes back in the early 1970s, when I briefly worked for the multinational IBM, and I am aware of concerns predating that. This has not been going on for just one or two years; Governments have not been able to resolve this issue satisfactorily for decades, which emphasises its complexity. The issue has been around for a long time, regardless of whether this country had a Labour or Tory Government and regardless of which parties formed Governments in many other countries.

I remember that the concerns back in the early 1970s were about what was called “transfer pricing”. For example, a company could buy a handle from a parent company in another country and charge an exorbitant fee for it, which allowed them easily to transfer profits from one area to another. I would be the first to admit that there have been moves to tighten up many such matters since the 1970s, but it remains a fundamental problem to this day. Corporation tax seems to be very susceptible to avoidance by multinational corporations because of the way in which they can, quite legally, operate.