Diverted Profits Tax

Jim Shannon Excerpts

Wednesday 7th January 2015 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Member for Amber Valley (Nigel Mills) for giving us the opportunity to contribute to the debate. It is always a pleasure to speak on such issues. It is nice to see the shadow Minister in her place. More importantly, it is nice to see the Minister in her place, because we have conversed and supported each other in many debates in Westminster Hall. It is nice to see her back in a ministerial position. I look forward to her response, which will be worth listening to.

The public anger has been immense over this issue. If there is one thing that nyarks people, to use an Ulster Scotsism, in my part of this country, it is the issue of tax avoidance—big companies making money and not making the contribution they should.

We welcome the Chancellor’s introduction of the new tax; we are pleased to see it. Many of the companies that hit the headlines back in 2012—they are not all UK-owned—have been in and out of the news ever since, which infuriates people. The Chancellor said that this new legislation will bring in £1 billion over five years, although others have said that they are not sure whether it is workable. When the Minister replies, will she give us an idea of how it will work and how we can make those companies accountable?

[Mr Gregory Campbell (East Londonderry) (DUP)]

Does my hon. Friend agree that although the proposed legislation is welcome, we need to take account of what was said earlier? The director of the Oxford University Centre for Business Taxation said:

“The fundamental problem is the structure of the international tax system”.

In addition to this legislation, we need international co-ordination to prevent people from brass plating.

[Jim Shannon]

My hon. Friend and colleague is on the button. Although it is good that we have the legislative change, we need co-operation among countries across the world so we can work together to address this issue.

This new legislation aims to ensure that people pay tax. There are various safeguards that, as my hon. Friend and colleague said, we need to see in place. We need to work better with other countries across the world. We also need to ensure that businesses that are pursued wrongly are not affected.

The legislation is for larger companies. It concerns what is referred to as artificially diverted profits, and that is exactly what it is. Foreign companies must have UK sales of at least £10 million, and if the UK activity would be considered a small or medium-sized company for UK accounting purposes, this new law does not apply, so there are some important concessions.

Finally, the tax provision examines whether UK costs have been inflated or UK sales have been reduced, which is another way of artificially diverting the figures. We must look at whether there is a tax mismatch between what seems likely should have been reported in the UK and what is reported in a foreign company. We need clarification on those issues from the Minister. The hon. Member for Amber Valley set the scene well in his introduction.

Although £10 million might seem like a lot of money, I will put it in perspective. In 2011, Starbucks, a global company that has come into disrepute again for not paying any tax—its coffee is lovely but there is an issue to address elsewhere—made £398 million in UK sales alone. I used the word “nyark” earlier. It nyarks us greatly that companies can make that much turnover and not pay a considerable amount of tax.

[Dr William McCrea (South Antrim) (DUP)]

Does my hon. Friend accept that doing nothing is not acceptable? However, as questions have been asked about the new scheme that the Chancellor spoke about, is it not best that we look at those questions and ensure that the legislation that is being introduced will tackle the problem we face?

[Jim Shannon]

My hon. Friend is absolutely right. We need to have legislation in place that enables us to oversee the loopholes that have been outlined. We are all hoping that the Minister will tell us how it will work in her response. I hope she will address the questions that have been asked.

Starbucks employs 8,500 people in the UK, so it makes a contribution in employment, wages and associated taxes, but it pays no corporation tax. Amazon, another global company, employs 15,000 staff in the UK and reported sales of £3.35 billion in 2011, as well as profits of £74 million, but it paid only £1.8 million in corporation tax. That annoys me greatly. Google, one of our favourite search engines, made £396 million in 2011 and paid only £6 million in corporation tax. Some of the companies have of course been stung into making tax contributions, although those have been minimal.

An article by Joseph Brothers that I read last month in the magazine Tax Notes International sums up the subject of the earlier intervention by my hon. Friend the Member for Upper Bann (David Simpson) on brass plating. Brothers suggested that Apple, reacting to a threat by the Irish Government to shut down one of their lucrative, corporate-friendly, tax-avoiding laws, would switch strategies to escape taxes in Ireland. He wrote that the so-called “Double Irish” might soon be replaced by a new “Bermuda Triangle”: instead of ships and planes mysteriously disappearing in it, it would be a triangle of tax treaties between Ireland, the Netherlands and Bermuda, exploiting rules that do not quite align and creating the space for profits to vanish, at least to the eyes of the Internal Revenue Service auditors.

If that strategy works, Google and others are likely to follow suit. The outcome could well be that the big corporate tax dodgers achieve what a noted tax lawyer calls “stateless income”: siphoning profit out of high-tax countries in Europe, Japan and North America and moving it around under tax treaties until it is not subject to any tax, because any profits are being reported in a non-existent country called “nowhere”. That is the bottom line of what could happen if our legislation is not correct and if the loopholes, disparities and open questions are not dealt with.

I am using those three companies as examples, but there are many others. Unfortunately, a common trend is filtering down through to a large number of companies. At the end of the day, we must remember that UK-based companies pay corporation tax on their taxable profits wherever those are made. It is only right, therefore, that foreign companies pay tax in the UK on profits made in this country. We must make it clear that the UK is not a country to come to for freeloading. Those are the issues.

Many British-based global companies do pay their taxes. They are concerned that the new legislation might give HMRC too much discretion. Furthermore, as the head of the tax policy unit of KPMG here in the UK noted in the company’s latest annual tax competitiveness survey, companies value “stability” and “simplicity”, but unfortunately, one criticism of the proposed legislation is that it does not offer simplicity. Many questions therefore need to be answered and much transparency applied to ensure that the legislation, while welcome—we have to take a step in the right direction—can work in practice.

The aims of the legislation are admirable as well as necessary. In a recent poll of more than 500 accounting and small business professionals, taken immediately after the Chancellor’s autumn statement, 56% of respondents said that the most significant tax announcement in the speech was the one about the diverted profits tax. Many, perhaps all of us—if not the companies trying to avoid the measure—welcome it, but we need to be sure that everything is in place.

Will the Minister tell us about another issue raised by the hon. Member for Amber Valley: the IT equipment necessary to ensure that expertise is in place? There is also the question of the resourcing of moneys. I understand that the initial set-up will cost £2.3 million in staffing for the first year and £1 million per year thereafter. At a time of HMRC cuts, of which we are all aware in every area, perhaps the Minister will indicate whether provision has been made for the IT equipment and the necessary staffing resources to ensure implementation.

It is of course important to remember that big businesses are always welcome in the UK and, as other Members have said, we do not intend to turn any away. We want companies to be based in the United Kingdom, but we, like everyone else, want them to make their contribution to the tax system. It is always extremely pleasing to hear that another company has made the decision to expand in the UK, and we are seeing a lot of that at the moment in Belfast. It is good to have those companies providing employment opportunities and taxes, and spending money so that our economy in Northern Ireland grows. That is super news for local people, local business and the local economy. It is also vital, however, that those big companies pay their way, otherwise it is not so lucrative after all for local businesses, people and economies. Instead, the money will simply stay in the hands of the global giants.

Will the Minister say what steps the Government will take to deal with the tax havens in the Isle of Man and the Channel Islands? Will we have some influence there, or access to information? Gone are the days when money was hidden under the mattress, the bed or the floorboards; people now put it overseas in tax havens. Will the Minister give some indication of the direction of policy?

[Nigel Mills]

I am keen to check the view of the hon. Gentleman’s party. In the event that Northern Ireland chooses to reduce its corporation tax rate, does he agree that Northern Ireland should not use that lower rate to attract artificial income into Belfast, as the Irish did in the Republic? The lower rate should be for the purposes of getting real jobs and real substance into Belfast, instead of dragging profit out of the UK mainland, perhaps through the financing of intellectual property companies or other ways of artificially moving tax.

[Jim Shannon]

The hon. Gentleman will find that my party, through the Northern Ireland Assembly and the First Minister, will hold an upstanding position in working the policy. We will not be developing into a tax haven. We want to see real jobs for real people on the ground. That is the way forward, and it is what we support.

We are pleased to have the Minister in her place today. Responsibility for answering our questions and for how this will work lies very much with her Department. We are committed to having the new legislation in place, I hope by 1 April. We want the big companies to be brought into line and made accountable for tax avoidance. We want the issue of the tax havens over which we have control to be dealt with, and for our neighbours in the Republic of Ireland to have the same opportunity. In addition, we have to look at the global picture, because although legislative change may take place in this country, what will really make it work is how we interact with other countries.