Corporate Tax Base

Helen Goodman Excerpts

Tuesday 20th December 2016 General Committees

[Jane Ellison]

I should perhaps say in anticipation that if I cannot respond to any questions from colleagues, I will of course write to them. I hope that satisfies hon. Members.

I will deal with the points raised. There was a general question about subsidiarity. We do not believe that either the CCTB or CCCTB are necessary for the internal market to function effectively, so we do not accept the assumptions that appear to underpin the Commission’s proposal. At present, we are therefore not convinced that the proposal is consistent with subsidiarity.

The hon. Member for Bootle mentioned ECOFIN’s conclusions. They were high level in nature and do not commit the UK to anything. The Government have made our reservations about the proposals clear. As directives on direct tax, the files require the unanimous approval of member states before they can be agreed. We will continue to engage constructively. As I said, as can be seen from our co-operation on the OECD project and the substantial number of measures we have passed since 2015 alone, we are clearly very supportive of the intended direction of travel. However, we will not sign up to anything that unduly restricts our sovereignty over direct tax, as the current version of the file does.

The legal base was also mentioned, which I touched on. Article 115 of the treaty on the functioning of the European Union provides for EU legislation that directly affects the single market. While we think that it might be possible to make the case that that article is an acceptable legal base, we have broader reservations about whether the proposals can achieve their objectives, as I have set out.

The shadow Minister asks what is envisaged as we go forward; that question quite reasonably arises whenever we debate EU matters. He mentioned the timing, which clearly relates to when we will leave the EU. UK companies that operate in the EU and meet the conditions of the CCCTB would need to understand and operate under its rules if it were to come into effect. The amount of profit allocable to UK activities will remain the same.

From the perspective of double taxation relief, our rules and treaties should continue to operate as they do now. In fact, we have double taxation treaties in place with all of our European partners—as the hon. Member for Kirkcaldy and Cowdenbeath knows; we debated this on Friday—so we are not dependent on EU laws alone on such matters. Those are already in place and will continue to operate as they do now, so we do not think that that is too much of a material concern. I think I have touched on all the key points. Subsidiarity was mentioned, but I think I have alluded to it sufficiently.

[Helen Goodman (Bishop Auckland) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hanson. I have two questions for the Minister. First, I am not clear whether her primary objection is on principle, or because she dislikes the content of the proposed instrument. Will she engage in a thought experiment with me? Were member states to come together around a table and all agree to move together and change their corporate tax bases in the way that is proposed here, but not through an EU instrument, would she be happy to sign up to that? Does she object on principle, or does she dislike the content of the proposal? Secondly, what consideration has the Minister given to the impact on the Government’s Brexit negotiations of adopting this stance on this instrument?

[Jane Ellison]

I thank the hon. Lady for her questions; they were good, as I would expect. As I said, the UK will not give up member state sovereignty over our tax base without very good reason, and we are not convinced that there are such reasons in the directive. On some measures, such as the ATAD measure to which I referred, we have come together and been able to agree something.

Having direct control over our tax base enables us to respond to events in our own jurisdiction. We have debated tax a lot over recent years, and it has become apparent to all of us in this House that the challenges we face are global. Leaving aside the timeline issue, it is quite hard to envisage a situation in which there would be a sufficiently compelling reason—the hon. Lady set out a hypothetical situation—to give up direct control over our tax base, given the global challenge we face with some of these tax issues.

We are working very well domestically, with almost 30 measures passed since 2015—some of them are yet to come into effect, and others are already working—and have co-operated through the OECD. For those reasons, we do not see this proposal as compelling enough to cause us to give up something as important as direct control over our tax base.

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[Helen Goodman]

Very good questions.

[Jane Ellison]

They are indeed good questions. The latter point is something to which we have all given a great deal of thought. I might write to my hon. Friend the Member for Croydon South with further reflections, if that is all right. He is right to say that these issues exercise us all, but they are not purely European issues. Indeed, some of the challenges with famous companies’ taxation arrangements actually have their roots in the US tax code, more than EU taxation, but I might write to him with a more thought-out response.

On my hon. Friend’s first question, it is true that we have agreed files in Europe that impact on direct tax. As he said, the UK has been actively participating in multilateral action through G8, G20 and the OECD to reform international tax standards and prevent tax avoidance and aggressive tax planning by multinationals, as part of the Government’s objective to align the taxation of profits with economic activity, which relates to his second point.

We have supported EU-level action where appropriate but are keen to ensure that it fits with the way multinational enterprises are taxed globally. We fully supported the European Commission’s work to implement the recommendations from the BEPS project through the anti-tax-avoidance directive, but the crucial point is that those actions are targeted at particular issues, and the degree of co-ordination required between countries’ tax regimes is limited to the extent necessary to address them. We feel that agreeing a common consolidated tax base at EU level is a more fundamental change in the way companies are treated. For the reasons I laid out in my opening statement, it goes too far for us to agree that it is the right way to proceed.

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[Helen Goodman]

I want to take hon. Members back two or three years to debates in the main Chamber when the UK was asked to contribute to the Irish bail-out. I had an extremely interesting conversation at that time with colleagues from the Ulster Unionist party. They pointed out that the Irish had made cuts in their corporation tax in an attempt to attract inward investment. They were extremely irritated by this, because some firms had relocated from Northern Ireland to the Republic; Northern Ireland had lost jobs, output and economic activity. However, the Republic’s tax take, which should have supported it, was not going into its coffers, so there was a double whammy, and we in Great Britain and Northern Ireland were asked to contribute to the Irish bail-out. Understandably, Northern Ireland Members were extremely unimpressed by this sequence of episodes.

That made me think we need to get a handle on competitive corporate tax-cutting around the world. Ministers are trumpeting the possibility of having the lowest corporation tax in the western world, but I am not sure how clever it is for countries to undercut one another constantly. There is a serious risk that we so distort our tax arrangements that we will not raise enough money to run the public services that we need for a modern economy. Yesterday in the Chamber, we discussed the importance of supporting science and R and D, for example. We so undermine our capacity to raise money to do things that we undermine our economic activity.

[Chris Philp]

I thank my Treasury Committee colleague for giving way. How does she respond to the fact that even though we have cut corporation tax, the total pound amount of corporation tax paid has gone up?

[Helen Goodman]

I am not sure what time period the hon. Gentleman is talking about, but we have had a recovery since the great crash; if we have more economic activity, we will get more corporation tax receipts, irrespective of corporation tax rates. I do not subscribe to extreme Lafferism; I am not convinced that going down the path of competitive tax cutting is a good idea. A common consolidated corporate tax base is an aspect of that. I see that the impact assessment states that a CCCTB would increase growth by up to 1.3%. That is an astonishing amount of money—more than twice the benefits that the Government estimate would come from signing the Transatlantic Trade and Investment Partnership. Compliance costs would be expected to decrease significantly as well, which is an extremely business-friendly approach.

I have not looked in infinite detail at every aspect of the proposals, so I can believe that they are not satisfactory, but we need to be careful about saying that we will not co-operate with other countries on this. The Minister knows that the OECD process is extremely slow. If the European Union was united on what it proposed in the OECD, we might be able to speed up and improve the international settlement. She is absolutely right to say that we need agreement with the Americans.

On the interrelationship with Brexit and the point made by my hon. Friend the Member for Bootle, I asked the Minister whether she had considered the read-across to the Brexit negotiations, and she did not respond, so I take it that she has not considered that. The Treasury Committee visited Berlin and Rome in September—unfortunately, the hon. Member for Croydon South was not able to be there—and we had interesting conversations. One that comes back to me is the conversation we had with the Bank of Italy about the negotiations with respect to banking.

One issue on the table is banking regulation. We have had a constant stream, if not a barrage, of lobbying from the City—we can see the City if we look out of the window—about its concerns to maintain passporting, common regulations and so on, so that we do not lose activity to Frankfurt, Dublin or even Paris. When the people on the other side of the table, our European partners, consider what concessions and agreements they will make on banking regulation, they will have in their minds the risks for their banks once the UK has left the European Union. One of the really big risks for them is our cutting our taxes on banks. If we cut those taxes significantly, that would make London even more attractive. By resisting these measures, the Minister makes it look more likely that we will reduce our taxes on the banks; that increases the resistance on the other side of the table in Brussels to the kind of regulatory settlement that we would all like to see, for the benefit of the people in the City of London who bring in so much tax revenue to this country.

I am not sure whether the detail of the measures are absolutely right, but I do think that we run a risk of appearing to be sceptical. The Minister does not have a history as a Eurosceptic, but let her not run scared from those in her party who were hard Brexiteers.

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[Jane Ellison]

A fair point, and I welcome the clarification, but I would still slightly disagree. The debates we have been having about the challenges of international taxation and multinationals, which were laid out eloquently by the hon. Member for Bishop Auckland, are ongoing. They have taken place in the context of the G20 and the OECD, and will continue to take place in the EU. We will continue to have those debates after our exit from the EU because, as people have said, we are leaving the EU, not Europe, and we will continue to have very important relationships. It is important that we engage with this direction of travel, because this is hardly going to be an overnight process.

There was a slight implication in the contribution from the hon. Member for Bishop Auckland that compared to the OECD, the EU was a model of speedy progress; that is where I would sound my only note of scepticism. It is clear that we will be engaging on these matters for a long time to come, in a range of international forums, so the debates that we have are useful. They have been echoed in other countries. Other people have expressed issues and concerns, as we have as a country, and there have been other reasoned opinions offered.

[Helen Goodman]

Will the Minister tell us which other countries have been resistant? She said there were seven.

[Jane Ellison]

No, I said several. I think I am right in saying that Ireland has offered a reasoned opinion, and there has been debate in other countries as well. On the issue of direct tax and sovereignty in particular, the UK is not taking a stand-alone point of view.

I want to address the points made by the hon. Lady about wider co-operation and competitive corporation tax. My main reason for pushing back against the points she made is that although it is true that UK corporation tax was 28% in 2010 and will be 17% by the end of this Parliament—we have already legislated for that—the backdrop to that is our active engagement and, indeed, leadership in international forums to address some of the issues that we are all concerned about to do with multinational tax avoidance and aggressive planning.

Our mantra is that taxes should be competitive and fair, but paid. The Chancellor has been clear about the path that we have set for this Parliament to the figure of 17%, and that it is right in the circumstances. We have no plans to go further at this time, but as I mentioned, we have brought forward a number of measures—about 30 since 2015 alone.

On one hand, it is true that we have set the most competitive corporation tax in the G20, but on the other, we are extremely proactive in international forums in leading on measures to clamp down on international tax avoidance. We shall continue to do that post-Brexit, within the OECD and with European partner countries. That is a balancing point to put against the slight implication in what the hon. Member for Bishop Auckland said that we are in a race to the bottom. We want to be competitive, but also to make it clear that taxes must be paid. The measures that we have passed underline how seriously we take that.

While we remain in the EU, the Government will continue to engage with EU tax files, championing the approach to business tax that encourages investment in jobs and growth, places proportionate administrative requirements on business, and ensures that businesses large and small pay their fair share of tax. As I said, that will happen through the tackling of avoidance. We will also scrutinise proposals to ensure that they are proportionate and effective; proportionality, and questions as to effectiveness, are obviously germane. We will not compromise member state sovereignty when it comes to direct tax.

I hope that what I have said provides an update for members of the European Scrutiny Committee on the Government’s stance on these matters, and that I have sufficiently reassured the hon. Member for Bishop Auckland that we will continue to be engaged. I welcome the interest in these important issues. I will review the Hansard report of the debate, and if there are any matters that I did not deal with in sufficient detail, I shall write to hon. Members. It was a good debate. We will continue to debate and engage with some of the issues raised by the hon. Member for Bishop Auckland beyond our membership of the EU, because we are, and want to continue to be, a leader in international forums in ensuring that businesses can operate in a fair and competitive environment, that the taxes that are due are paid, and that—as we have already sought to do, and are continuing to do—we use reasonable ways of clamping down on aggressive international tax avoidance and evasion.

Question put and agreed to.