Common Consolidated Corporate Tax Base

Nigel Mills Excerpts

Wednesday 11th May 2011 Commons Chamber

[Justine Greening]

As has been pointed out already this evening, we ultimately have the ability to say no, but rather than having to do so, we want to ensure that we carry the majority of member states in the first place. That is precisely what we are doing now, and we want to ensure that we are in a position to do it as effectively as possible.

I assure the House that we are putting our points across. Tonight’s debate is a key part of that, because it is an important opportunity for the House to put on record its concerns and views as these proposals develop. The proposals are at an early stage, but they are shaping up to be important and fundamental.

[Nigel Mills (Amber Valley) (Con)]

We are inviting the Minister to say whether she agrees that, as I believe, no form of consolidated tax base will ever be acceptable. It is vital to our competitiveness that we can attract business here with a more competitive way of calculating the tax base, so any proposals under which we would not have that competitive edge must be bad for our nation. It is all right saying that this is a draft, but I cannot think of any form of this proposal that could ever be in our interest.

[Justine Greening]

My hon. Friend might well be right, but I want to make clear the rules and the processes going forward. No member state can unilaterally block the use of enhanced co-operation. Of course we can decide whether we want to be part of that—I have clearly set out the Government’s concerns about the proposal—but I am saying to the House that we need to participate in the debate and ensure that we influence the underlying proposal. We do not want to end up being unable to stop enhanced co-operation simply because it was a proposal that we fundamentally did not want in the first place. We need to make our case, with other member states, in order to influence the proposal as it develops, and that is precisely what we want to do.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

It is a privilege to follow my hon. Friend the Member for Stone (Mr Cash), although I shall not follow his lead by addressing European law in forensic detail. In these debates, we run the risk of getting lost in the detail of legal technicalities and forgetting to look at why the whole idea before us is bad for Britain and bad for Europe. Although I understand why the Government have put forward this proposal, I want at the very least to try to improve it and to make the final agreed measure the least bad it can possibly be. More than that, however, I think we must explain why the whole idea is so bad for all European Union member states and try to persuade them to kill it off and not run with a slightly improved version.

My hon. Friend set out some of the reasons why this is bad for Britain. There is great concern that it would lead to tax revenue disappearing from Britain and going to other member states. We should consider the three proposed allocation keys: the number of employees and the wage bill; the value of tangible assets, but not intangible assets except in some limited circumstances; and the level of sales. Those keys will greatly favour economies that have high employee-intensive and asset-intensive industries, and I am not at all sure that that is how we would describe our economy, or whether it would accord with our vision for our economy in the future. The amount of profit, and therefore tax revenue, could be skewed, with the extra sums going to the nations with high numbers of employees and high-value tangible assets. As a result of this measure, multinational groups would be able to allocate certain activities and thereby place their corporate tax bills in territories that would result in their getting a lower rate than we might want. We must thereore be very careful.

From my experience as a tax adviser for 13 years, I can say that what we want is choices. It would be a great start if we could choose whether or not to be in the regime, or if we could choose to be in, and then try to have a completely different allocation key if we can find one that gets us a lower bill. The draft directive allows that. The aim must be to get every possible chance to choose. If I can choose where to base and allocate certain activities, I can come up with some clever ideas on how to reduce my tax base. In these days of internet sales, where we recognise a sale to have been made is an interesting exercise. Is it where the server is based, for instance? It could be set anywhere we like, I think.

For some, there is an attraction in such Europe-wide measures. If I were an American finance director I might think, “I have 27 EU subsidiaries, and sorting out all the tax returns and compliance issues is horribly complicated, but now I can just do one nice and simple tax return. Great!” In the US system however, there is a federal corporate tax, but also a load of different state systems. I do not think anyone would say its system is at all simple, or would choose to adopt that model.

We should be looking to take away some of the tax barriers across Europe. Frankly, the EU has led to the creation of some unnecessary tax obstacles. The idea that the EU involves a tax simplifying arrangement is somewhat laughable. About seven years ago, we had to extend transfer pricing rules to apply between UK resident companies of the same group because we were concerned that the European Court would otherwise throw out the transfer pricing rules that only applied on cross-border transactions. That increased the compliance burden on almost every corporate tax group in the UK. Ideally, we would allow our large groups to have a consolidated tax filing in the UK of all their UK entities, and thus take away the need to keep separate records and make separate transactions. We cannot do that because we fear European law would strike it out for no particularly good reason, yet we can try to have this complex arrangement for the whole EU.

We would think that the EU would be taking away withholding taxes, yet its directives allow withholding taxes on certain transactions between member states. If we are going to spend a lot of time and money looking to simplify tax across the EU, let us look to take away the barriers that are already there, and not create whole new levels of complexity we do not need. This whole agenda is a complete blind; this has to be seen as a drive towards a single European Union, a single federal state and a single tax system. If we want to be competitive, we are making exactly the right moves in reducing our tax rate, but there is more to a competitive tax system that attracts overseas investment than just the rate; there is the tax base, and the stability and simplicity of the system. If there is one message for the Government coming out of this, it is that we need to simplify our tax regime to make these ideas, which are superficially simple but which would not turn out to be so, seem less attractive.

I took the time to look through the draft directive on a common consolidated corporate tax base and I could see a few things in it that will attract some multinational directors. Its level of tax depreciation or capital allowances allowed for fixed assets is somewhat higher than we are reducing ours to. As I recall it, the EU is allowing 25% on a reducing balance basis, rather than the 18% that our level is now down to. Various other things in the directive may also be found attractive. We should focus our energies on trying to simplify our tax system to keep our competitive advantage, which arises from some of the reliefs we offer. We should also try to take away the tax barriers around Europe and not create a whole new complex system. We should not waste loads of time and money and miss the big picture.