Tax Transparency (FTSE 100)

David Gauke Excerpts

Wednesday 6th February 2013 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Betts. I congratulate my hon. Friend the Member for Stevenage (Stephen McPartland) on securing this debate and setting out his case so clearly. In recent months, he has shown great tenacity on the issue, including by raising it on the Floor of the House a few weeks ago.

I want again to put on the record the Government’s view that companies must pay tax in accordance with the law, and it is crucial that they are seen to do so. Many businesses help their cause by releasing data or other information relating to their tax payments, and I very much welcome greater transparency from businesses about their tax affairs. As a Minister, I have said for some years that businesses need to do much more to explain the taxes that they pay and how they comply with their obligations. Such transparency can go a long way towards building greater trust between them and their customers, and might end up having commercial benefits.

Of course, Her Majesty’s Revenue and Customs, as the tax collector in the UK, has a statutory duty of confidentiality that protects the tax affairs of all taxpayers, and it is important that it continues to honour that duty. I make that point because that is one of the reasons why it is difficult for Ministers to engage in individual cases, some of which have been very high profile, because we do not of course see any information that is not in the public domain.

I want to focus on what we in this country can do to assist developing countries in collecting the tax that is due, which is at the heart of my hon. Friend’s concerns. We are committed to supporting developing countries to access sustainable sources of revenue, while balancing action in this area against costs to Government and industry. To achieve that, our priorities, which I will set out before turning to my hon. Friend’s specific questions, are capacity building; improving exchange of tax information and assisting developing countries in accessing the benefits from that; and increasing transparency, particularly in the extractives sector, to address corruption.

On capacity building, it is of course up to individual jurisdictions to make decisions on how best to run their tax systems, but the Government are committed to supporting developing countries to access sustainable sources of revenue and to collect the tax that is due. The most effective way of doing that is to provide the technical support to their tax administrations that will help them maintain sustainable domestic taxation systems.

The Government’s work with the Ethiopian Revenues and Customs Authority, for example, has helped strengthen the accountability and efficiency of revenue collection in Ethiopia. As a result, tax collection in Ethiopia in 2011 was seven times higher than it was in 2002. Furthermore, Ethiopian customs clearance times for low-risk imports have been reduced from seven days to 10 minutes. The UK will also continue to work with international organisations such as the African tax administration forum, the World Bank and the OECD to support other capacity-building projects in developing countries.

There is increasing recognition that strong institutions are important for a country’s development. In the light of that recognition, the success or otherwise of the revenue-raising authorities in a developing country is absolutely crucial. We want to do everything we can to assist them.

[Stephen McPartland]

The Minister will be delighted to know that many FTSE 100 companies see capacity building, revenue building and the secondment of HMRC civil servants to developing countries as positive steps towards helping create that tax base. Many have offered to help, so I would be delighted to pass on those names to him.

[Mr Gauke]

I am grateful for my hon. Friend’s constructive point. It is recognised that effective tax authorities are important. That feeds into political benefits as well, because a broad base of revenue raising will result in stronger political institutions that will be held accountable by the people of that developing country. I welcome his remarks and I know that he welcomes the measures that we are taking in this area.

Related to strengthening capacity building is ensuring that information is available to tax authorities around the world. The international tax transparency agenda, and the tax information exchange in particular, is a key tool in tackling offshore tax evasion, and we are actively promoting that agenda. Through the G20, we are providing leadership and direction in increasing tax transparency and the exchange of tax information. Through the global forum on tax transparency, we are ensuring that jurisdictions meet the international standard on tax transparency. Through the expansion of the multilateral convention on mutual administrative assistance to more jurisdictions, we are providing a mechanism to access the benefits of tax transparency, which is particularly suited to developing countries. Furthermore, our direct assistance to Ghana ensured that it was in a position to join the convention and access the benefits of exchange of information, and we look to build on that. I am confident that the sensible, considered conversations that we are having internationally, and the exchanges of information coming from them, will have a real impact on the overall tax landscape.

Extractive industries is the third area of international action that I want to highlight. This sector and the fears of corruption in it are of great concern to not only this debate, but the wider global community. My hon. Friend will therefore be pleased to hear that we are committed to greater extractives transparency through the accounting directive, which addresses civil society accountability without imposing unnecessary burdens on business. Not only do we support EU proposals to improve transparency in the extractives and forestry sectors, but we have extensively consulted representatives from civil society groups and industry to reach a position of reporting in greater detail that is proportionate with existing burdens upon industry.

I want to address my hon. Friend’s concerns about country-by-country reporting, which is a somewhat broader approach than the one that we have been taking on extractives and forestry. The country-by-country reporting model is currently being considered in the proposed amendments to the EU accounting and transparency directives. The UK supports EU requirements for extractives companies to ensure that they disclose the payments that they make to Governments—as I said, corruption is a particular concern in this sector—and that proposal will have an immediate impact on reducing potential corruption by allowing citizens of resource-rich countries to hold their Governments to account for their use of the extractives revenue received. However, we are not yet convinced of the merits of the wider model of country-by-country reporting proposed by some and neither is the OECD. We do not believe that the case has been made in terms of the costs and benefits of extending the proposals for EU mandatory requirements to report payments to Governments beyond the extractives sector and forestry. We will of course keep the matter under review, and it will be interesting to see how the experience of greater extractives transparency plays out.

On profit shifting, there are international concerns over whether the current international tax rules manage properly to capture the profits generated by multinational companies. It is an issue that all countries face, and we need to work together to develop the appropriate solutions. As with most major economies, the tax system in the UK is based on the internationally agreed OECD guidelines that mean that a multinational company pays corporation tax where it carries out the economic activity that generates its profits and not on its sales. We have already reaffirmed our support for the OECD work to address profit shifting by multinationals and erosion of the corporate tax base at the global level. At the G20 meeting of Finance Ministers last November, the Chancellor of the Exchequer issued a joint statement with his German equivalent calling for concerted international co-operation to strengthen international tax standards as a first step to promoting a better way of dealing with profit shifting and base erosion of corporate tax at the global level. To back that up, the UK, alongside France and Germany, has offered additional resources to the OECD to speed up progress. We will hear of that progress at the G20 meeting later this month.

My hon. Friend asked specifically what we are doing in the UK on the matter. The problem is essentially international, because the UK complies with the OECD rules, as do all other major economies. We are, however, strengthening HMRC’s capacity in the area. In the autumn statement last year, additional funding for HMRC was announced, much of which is to be focused on strengthening the transfer pricing capacity of HMRC, challenging multinationals to ensure that their arrangements are compliant with the rules that currently exist, and ensuring that tax is paid in the jurisdiction where economic activity occurs. I do not want to be drawn into individual cases, but it is clearly not acceptable for multinationals artificially to inflate the costs apparently incurred in a low-tax jurisdiction, resulting in tax not being paid on profits that should, in truth, be attributed to other jurisdictions. We are determined to give HMRC the capacity to deal with that. It is worth pointing out that HMRC’s activity on transfer pricing over the past four years, for example, has brought in some £4.1 billion. Last month, I visited one of the transfer pricing teams in HMRC and we should recognise the good work that is being done, but we want to build on that, which is why we are strengthening HMRC’s capability in this area, which my hon. Friend will support.

I hope that the Government’s actions, both domestically and internationally, also have my hon. Friend’s support. We have taken steps to address concerns and we are clearly moving to a climate of greater international tax transparency. The Government do not necessarily accept all the numbers that are cited on the loss to developing countries, but we want to strengthen developing countries’ capacity, and we are at the forefront of ensuring that we do precisely that.