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

Lord Shipley Excerpts

Tuesday 11th December 2012 Lords Chamber

[Lord Shipley]

My Lords, I, too, thank the right reverend Prelate the Bishop of Derby for initiating a very timely debate. The current debate on the payment or non-payment of corporation tax in the UK shows that it is a tax that does not work well for the UK, so it is unsurprising that it is not working well for developing countries either. We know that developing countries lose significantly more from lost tax revenue than they receive in international development aid.

In a debate on 22 October in your Lordships’ House on the Economic Affairs Committee’s report on the economic impact of development aid, I raised the claim of ActionAid that British multinationals were directing profits into tax havens from developing countries to the value of around £4 billion—or one-third of the UK’s total planned development aid budget. The Government have subsequently challenged that number. While there may be disagreement on a precise figure, there is common acceptance that the money leaving developing countries owing to tax evasion and avoidance far exceeds the amounts received in aid. In fact, the OECD has estimated that it may be up to three times higher. Christian Aid has estimated that developing countries as a whole lose some $160 billion a year in lost revenues from multinational companies.

We have a clear responsibility to help developing countries. It is not just a question of increasing our spending to 0.7% of our national income. The UN, the IMF, the World Bank and OECD all emphasise that developed countries have a responsibility to undertake spill-over analysis where changes in domestic policy may impact on developing countries. We should welcome the fact that DfID is investing in helping developing countries collect more tax revenues. I have been wondering which Whitehall department is responsible for this matter. Should DfID or the Treasury address where tax is taken? I would be very grateful for the Government’s view on where the responsibility lies between DfID and the Treasury.

I know that the Government are active internationally in promoting tax transparency and the exchange of information between jurisdictions, but I wonder if they are doing all they could in this area. For example, recent reforms to UK-controlled foreign companies rules mean that we need to assess urgently how we can better support developing countries’ tax systems. It would be helpful if the Minister could confirm what action is planned by the Government to address this.

If we want to help ourselves and developing countries alike, we should now be demanding real reform of corporation tax so that profits are paid where they are really earned, including mines and wells in the case of many developing countries. If we could find a way to allocate the profits of international companies on this basis, the money could be so much better invested.

The recent outrage in the UK will, I hope, prompt decisive action, but this action cannot be simply for rich countries. We need reform that works for all countries. If we want our aid to be effective, we cannot undermine it by allowing tax revenues to be transferred out of developing countries.