Tax Transparency (FTSE 100)

John Stevenson Excerpts

Wednesday 6th February 2013 Westminster Hall

[Stephen McPartland (Stevenage) (Con)]

It is a pleasure to serve under your chairmanship, Mr Betts.

Many Members over many years have spoken eloquently in this House about the differences between tax avoidance and tax evasion and how the lines between them have become blurred. Tax evasion is clearly wrong, illegal and unfair to the rest of society, because everyone else has to pay more in taxes to make up for those who do not pay their fair share. We cannot have mob rule and many Members are very much in favour of the positive contributions that large FTSE 100 companies make to the larger overall tax take.

Just before Christmas, there was an explosion of public interest after the Public Accounts Committee named and shamed some well known companies that use transfer pricing to offset their tax liabilities in the UK—basically, to avoid paying tax. I am aware of the strong argument that UK tax authorities could do more to enforce tax payments. The Government have done a lot of work on tackling tax avoidance—so much so that I fear that the general anti-avoidance rule that will be introduced might be too severe and end up penalising sole traders and small and medium-sized enterprises more than larger companies.

[John Stevenson (Carlisle) (Con)]

I am grateful to my hon. Friend for securing this important and topical debate. Does he agree that it is incumbent on us as legislators to ensure that tax legislation is robust but fair?

[Stephen McPartland]

My hon. Friend makes a valuable point, which has been put to me in the more than 60 responses I have received from FTSE 100 companies. I agree that we need to get the legislation right, but later in my speech I shall explain how there are more companies registered in Jersey than in the whole of China, despite tens of billions of pounds of trade with that country.

My interest in tackling tax avoidance stems from a meeting I had with Christian Aid supporters in my constituency last September, when the “tax justice” bus visited Stevenage. The tax justice campaigners believe that tax dodging by international companies costs the UK about £35 billion and developing countries an estimated $160 billion a year. Many of the FTSE 100 companies that replied to me questioned the figures, but, in reality, the figures are large, irrespective of the measure used. Imagine for a moment the dramatic difference such a huge sum of money would make, if it were available to invest in public services, infrastructure and other services essential for economic growth both at home and abroad.

There is growing anger and concern about the fact that some large companies are hiding behind complex accounting rules that may be strictly legal, but are considered to be unethical by the public. The problem of the missing billions in tax is not just a problem for the UK; it is worldwide, and it does the greatest damage to poor and developing countries that cannot stand up to massive corporations. ActionAid told of a lady selling beer in Ghana who paid more in tax than the large brewer in the facility next door. That large brewer’s parent company in the UK declared profits of £2 billion. Governments all around the world will agree with the sentiment of greater tax transparency—I know that the Minister agrees with it—but they will struggle to introduce it, because every nation competes in the global race.

I welcome the Prime Minister’s initiative to make tackling tax avoidance a priority when the UK takes over the presidency of the G8. He made strong references to a particular company needing to

“wake up and smell the coffee”.

I must be one of the few Members who does not have any such coffee chains in my constituency. The Chancellor, with whom I do not see eye to eye on many issues, has also agreed that aggressive tax avoidance is “morally wrong” and “abhorrent”. We have had the words; it is now time for action.

My first question to the Minister is, what plans do the Prime Minister or Chancellor have to convene a cross-Whitehall meeting with tax justice experts and campaigners to identify what a tax transparency policy would look like in practice? There is real concern and feeling that transfer pricing is at the heart of the problem, so what measures will the draft finance Bill include to create enforcement in respect of transfer pricing and put a stop to it?

As I mentioned, ActionAid commissioned interesting research in October 2011 into the use of tax havens by FTSE 100 companies. It found that the FTSE 100 companies at that time had 34,216 subsidiary companies, joint ventures and associates and that 38% of their overseas companies were located in tax havens. Ninety-eight groups had declared tax haven companies; only two groups, Fresnillo and Hargreaves Lansdown, did not. There were 623 companies registered in Jersey—a tiny island just off our shores—and despite our tens of billions of pounds of trade, only 551 are registered in China. ActionAid struggled to get the research and, like me, would like to see Companies House enforce sections 409 and 410 of the Companies Act 2006, so that information on UK-registered multinationals is more accessible to the public.

The Minister and Government have the best of intentions, but in the end, it will be up to the companies themselves to lead the way, and they will do so only if their customers—the British public—drag them kicking and screaming towards tax transparency and a fairer tax system for all. With that in mind, last November I wrote to the chief executives of all the FTSE 100 companies asking them individually whether they were willing to pledge their support for corporate tax transparency and whether they would support a new international accounting standard for country-by-country reporting.

The current international accounting standards require multinational companies to report accounts on a global consolidated basis only, which makes it incredibly difficult to know where taxable economic activities are occurring and where profits are declared. I gave the example a few moments ago of a lady in Ghana paying more in tax than a massive, multi-billion dollar, multinational company. Companies, particularly multinational corporations, move billions of pounds of profit between jurisdictions in order to reduce their tax bills, and large companies are allegedly manipulating their centres of interest through the use of holding companies, offshore accounts and intellectual property rights.

I am not saying that FTSE 100 companies are engaged in tax avoidance or aggressive tax planning; the point I am trying to make is that whether it is tax avoidance or tax evasion, illegal or immoral, the British public and most Members believe that it is wrong and should be stopped.

A recent inquiry by the Select Committee on International Development called for

“legislation requiring each UK-based multinational corporation to report its financial information on a country-by-country basis. Such information should include the names of all companies belonging to it and trading in each country, its financial performance in each country, its tax liability in each country, the cost and net book…of its fixed assets in each country, and details of its gross and net assets in each country.”

Some of the FTSE 100 companies that replied to my letters believe that there could be greater tax transparency. All agree that they are as transparent as they possibly could be and that people would not like them to be even more transparent because it would make their accounts more unwieldy.

I look at the extractive industries, the work coming out of America on the Dodd–Frank Wall Street Reform and Consumer Protection Act and the proposals for EU directives on transparency and accounting, and I wonder whether such legislation could be used for our multinationals. The extractive industries are being forced down a line of country-by-country reporting with more focus on transparency, because it has been felt over many years that they have not been as clear as they should have been. Do we need a more even playing field?

The only way to resolve the problem is to introduce greater transparency. Members will be pleased to learn that, in the interests of transparency, I have published all the responses that I have received on a website: www.taxchallenge.co.uk. The responses from over half the companies are online. With the responses, I have given people an opportunity to sign a petition to demand greater tax transparency.

The responses from the FTSE 100 companies have been wide-ranging, but generally disappointing. HSBC offered to help design a tax transparency standard. BT and others welcomed the transparency initiative, but not the new accounting standard. Hargreaves Lansdown, which we now know was one of the few FTSE 100 companies not to have tax havens at the time, questioned the value that it receives for the taxes that it pays.

More positively, the chief executive of Sainsbury’s agreed that consumers are best placed to encourage companies to pay the tax that they are supposed to pay, as they can vote with their wallets if they do not think that the company is making a fair contribution to society. Capita stated that it was both interested in and supportive of the establishment of a new international accounting standard. Morrisons suggested that the Government should force all companies to disclose their corporation tax payments in the UK. Does the Treasury have any plans to do that? The refreshingly honest response from Aggreko summed up what many other companies felt—that they pay lots of tax and probably more than is needed, but that greater tax transparency is “a lousy idea”.

--- Later in debate ---

[John Stevenson]

I understand my hon. Friend’s arguments on transparency, but does he believe that the Government should also look at how we tax companies?

[Stephen McPartland]

I agree. My hon. Friend makes a valuable point, and has a wonderful legal mind. Many of the companies believe that they have a responsibility to their shareholders, but shareholders, to push up their returns, are interested only in the overall amount of tax that they have to pay globally. In their responses, some companies claimed that their overall tax rate is more than 45%, while others claim that it is about 25% to 28%. Although they all believe that they are as transparent as possible, it is perfectly clear that they are not being as transparent as the general public would like to see and understand.

We must move to a simpler tax system, in which it is much easier to see what is going on, and what companies have to pay in tax. I do not want this debate to appear to be anti-business or anti-FTSE 100. I am a Conservative Member of Parliament who is going to end up in the Morning Star as a result of this debate—probably the first one to do so—but the reality is that FTSE 100 companies make a huge contribution to Britain, including through the whole range of taxes that they pay. I understand that the FTSE 100 are responsible for almost 10% of the tax take in the UK, including the income tax and employer’s national insurance contributions that they collect on behalf of the Treasury.

The FTSE 100 are therefore massively good companies for the UK, and I am delighted that we have them in our country, but I want them to be a little more transparent, so that we can all have a bit more faith. As I have said, I believe that we have to lead the way in forcing them to accept the idea of tax transparency. Aggreko has said that it pays lots of tax and probably more than is needed, but that greater tax transparency was “a lousy idea” because it sees that as 500 new pages of the tax code and a great load of regulations that it does not want.

I could go on about the responses—I will if hon. Members wish—but the general thrust is pretty simple: the biggest companies in Britain believe that they all pay their taxes honestly and make a huge contribution to the economy by employing people who pay taxes. So far, most responses clearly show that they are not prepared to be proactive, and will comply only with current laws. Unfortunately, fancy corporate lawyers can blur the lines between tax avoidance and tax evasion, but that is clearly wrong, illegal and unfair to the rest of society, as I have mentioned.

I firmly believe that most employees in most of the FTSE 100, the FTSE 250 and other companies in the United Kingdom would expect their employers to pay their fair share of tax in the UK. We must start thinking about tax and tax transparency as a measure of corporate social responsibility.