Developing Countries: Impact of Multinational Companies’ Financial Practices and UK Tax Policies

Lord Bishop of Hereford Excerpts

Tuesday 11th December 2012 Lords Chamber

[The Lord Bishop of Hereford]

My Lords, I, too, begin by congratulating my friend and colleague the right reverend Prelate the Bishop of Derby on securing this debate at such a timely moment.

The 19th report of the House of Commons Public Accounts Committee, published only a few days ago, began:

“Transparent, predictable and fair taxation is at the core of our public finances. The Government has a responsibility to assess and collect tax due from all taxpayers, without fear or favour, and taxpayers should pay all that tax which is due”.

It continued:

“The hearings we held showed that international companies are able to exploit national and international tax structures to minimise corporation tax on the economic activity they conduct in the UK. The outcome is that they do not pay their fair share”.

This is all familiar to us, but if that is true for the United Kingdom, it is even more so for developing countries.

The key issue with regard to collecting any tax—unless it is from the extraction companies, to which reference has already been made, where it may be the outcomes that we need to be looking at—is finding the profits on which it is due. You can have the best tax law in the world, but if you cannot find the profits, it is all a waste of time. That means that the first and most important job for developing countries is to identify profits that should be declared in their countries but are not.

There are three ways in which we can do this. We can call for the introduction of country-by-country reporting that requires a multinational corporation to publish a profit and loss account for each and every country in which it trades. We can also voluntarily supply to developing countries information, obtained here in the United Kingdom, on the tax affairs of multinational corporations based in this country, where that information suggests that developing countries have tax issues that they might want to raise with those companies.

Changing our disclosure of tax avoidance schemes rules to include developing countries, not just the UK, as well as potentially high-risk transactions, could greatly assist. It would enable the UK to provide valuable, targeted information to developing countries to help them to both enforce their existing laws and identify and improve their legislation, just as DOTAS has here in the UK.

Lastly, we can ensure that if in future we collect information from tax havens—as it seems that we are likely to do with the Isle of Man and, I hope, others—on who beneficially owns companies in places such as the Crown dependencies that would be of benefit to developing countries, we should send that on as well, although this should be only a stepping stone to ensuring that all countries have access to information, not just the United Kingdom and other richer countries. The United Kingdom should work proactively to ensure that jurisdictions offer developing countries the same access that they grant to the United Kingdom itself. All of this needs not only action here but, ideally, international agreement to act in this way, especially from the G8. The relationship between multinationals and developing countries is skewed by the wealth, influence and power of the former, which makes it extremely difficult for the developing countries themselves to challenge them legally or financially. We need to act to redress this balance, and improving the information is a vital step in that direction.