Multinational Companies and UK Corporation Tax

Lindsay Hoyle Excerpts

Thursday 27th June 2013 Commons Chamber

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I remind Members that there is a four-minute limit on speeches.

[Margaret Hodge (Barking) (Lab)]

I congratulate the hon. Member for Warwick and Leamington (Chris White) on securing the debate and on his contribution, with which I totally agree, and I congratulate my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) on supporting him.

The vexed question of multinational companies and their failure to pay a fair share of corporation tax on the profits they secure from the activities they undertake in this country has struck an incredibly powerful chord with the British public. If we take the Amazon example, we find that in 2012 it had sales of £4 billion in the UK, yet it paid only £2.4 million in corporation tax, and then took £2.5 million in grants from the UK Government. That is simply unacceptable.

In this climate, people are finding it tough to manage their daily income, there are public expenditure cuts and small businesses feel hounded by HMRC, so I can well understand why there is huge anger at the behaviour of multinational companies that seek so aggressively to avoid paying their tax. I am particularly cross about the argument, which so many of them put forward, that because they pay other taxes they can decide voluntarily whether to pay corporation tax. We all pay our council tax, VAT and income tax; they pay business rates and employer contributions, and should also pay their corporation tax.

I know the Minister is concerned that if we tread too heavily on companies they may seek to relocate elsewhere, but I draw to his attention the remarks of Eric Schmidt, the chief executive of Google, who said that whatever we decide to do, his company would remain here, because this is too important a market for it not to do so. I also draw the Minister’s attention to the fact that feelings are so strong on this issue that we should not, in an attempt to keep multinational corporations here, allow them to blackmail us. Such corporations will stay because of the market: they come here because we are outside the euro and have a strong financial services sector, not because our corporation tax regime treats them gently.

We must toughen up HMRC. It is unacceptable that there has not been one case challenging an internet company on whether it pays a fair share of corporation tax here. I am not convinced that such companies are acting within the law, and until we challenge them we will not know whether I and the members of my Committee, who I think feel the same as I do on the evidence we have received, are right or wrong. Greater transparency is needed. Gone is the age when one could hide behind taxpayer confidentiality; proper information should be given to the public, whether it is a matter of opening up the books of the FTSE top 100 companies, or more naming and shaming of people for tax avoidance.

We should be tougher on public procurement. I welcomed the initiative, but its practical effect is much weaker than the original intent. We must simplify our tax code—six people working on that is not enough. In a climate in which multinationals value their reputation, they see themselves in our market over the longer term, and they, too—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

I welcome the moves the Government have been making, but there is still a lot more to do. For example, Vodafone declares a profit of £2.5 billion in Luxembourg, where it has no business. It is incredibly easy for companies to export UK profits to their country of choice. Luxembourg is often the country of choice. It is used by Vodafone, Tesco, Pearson, the Daily Express group and many others.

In fact, it is becoming almost compulsory to do this. Low-risk, profitable businesses, such as utilities, have to do it, otherwise they will be taken over, as most of them have been. That applies to trade takeovers too, such as those involving Boots and Cadbury. Under the system here in the UK, it is almost impossible to be a long-term profitable company without doing this kind of activity.

UK profits are exported. That is a key item in the business case for takeovers, and now we have also got the internet making all this even simpler. As many companies have shown, companies can build up a huge business in a country, apparently without being there. A little quoted part of HMRC’s own rules—I have not got time to read it out now—says it should be going after these companies. It does not apply its own rules, so I urge it to start getting tough and the OECD to start driving home the simple principle that if a company sells in a country, it must account for that there and owe taxes there. Until then everyone will be climbing on the bandwagon—or should I say the Trainline, which now apparently routes its ticket sales through Luxembourg?

I firmly believe the key reason for flat UK growth is that so much of our UK economic activity is no longer counted here. Has productivity really fallen so much that 1 million extra people are producing no extra output, or is that because, for example, Amazon, one of our fastest-growing businesses, is not actually here, and is therefore saving vast amounts of tax?

It is time for Brussels to deal with the cuckoos in the EU nest. Ireland, Luxembourg and the Netherlands have arrangements that routinely enable tax avoidance. I am sure the free movement of capital was never meant to mean the free removal of taxes. International work is vital. For example, are the Government dealing with scams used by banks? They can create instruments that are traded between countries with different tax regimes, and with a bit of fancy footwork create a net tax reduction manufactured out of thin air.

I welcome the moves to greater transparency, but there is a long way to go. I recommend the recent Private Eye article, “Where there’s muck, there’s brass plates”, which has highlighted that over 11,000 UK limited liability partnerships have been set up since that was enabled by the last Government and they are now one of the corporate vehicles of choice for the world’s money launderers and tax avoiders. They provide a magic mix of UK respectability and absolutely no transparency or scrutiny. Action is needed.

The Government obviously work regularly with advisers on tax matters, but who are they? They are top finance directors, who will almost certainly be engaged in tax avoidance, and big four tax partners who make a very juicy living from advising on how to avoid tax. I recommend that the Government add people who are involved in tax campaigning, as well as campaigning journalists, global poverty campaigners and other experts who do not have a vested interest in tax avoidance and who can see how toxic the current system is.

In a speech in January I went into more detail about the solutions. Today, I will just make one recommendation. It is time to cap the allowable offshore royalty and interest payments, possibly by only allowing a double taxation relief—in other words people only get tax relief on interest if they have paid tax on it somewhere else. Secondly, we should set up new systems to police our national borders—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Time is up. I call Nick Smith.