Multinational Companies and UK Corporation Tax

Paul Farrelly Excerpts

Thursday 27th June 2013 Commons Chamber

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I saw this somewhat curtailed debate as an important opportunity for other Back Benchers to add more power to the elbow of the Public Accounts Committee, chaired so forcefully by my right hon. Friend the Member for Barking (Margaret Hodge). The Committee has shone a powerful spotlight not only on multinational tax dodgers but, importantly, on the timidity of HMRC. I shall return to the subject of HMRC’s mindset a little later.

Controversy over profit-shifting is hardly new—it has rumbled on for years—but, with the G8 only just over, it is easy to forget that it is only a little over 12 months since the issue finally gained enough traction to be given a place on the national agenda. I think that the reasons for that are clear: it has happened because since the banking crash and the recession Treasury coffers are bare, because of the sheer cumulative scale of the avoidance, because of the sheer size of the deposits held by United States multinationals offshore—at the last count, $83 billion was held offshore by Apple, the biggest of them all—and because the companies themselves are so brazen. Eric Schmidt of Google said that he was proud of what the company had done. He said:

“It’s called capitalism. We are proudly capitalistic.”

This year, Apple put its money where its mouth was silent. In May, in the world’s biggest corporate bond issue, it raised $17 billion in the United States. Given the comfort of its offshore cash pile, it will pay even less tax, because the interest is tax-deductible.

It is cheaper to borrow than to pay tax in those companies’ universe. They are perhaps not so much “immoral”, as they were memorably described by my right hon. Friend the Member for Barking (Margaret Hodge), as entirely amoral. However, HMRC is so meek that legislators would not have the necessary ammunition without investigative journalists and campaigners prying into the shadows. It was a close friend and former colleague of mine, Ian Griffiths, who combed Amazon’s accounts in Luxembourg and the United States last year. “A great deal for Amazon: £7 billion sales, no UK corporation tax” was the headline on the front page of The Guardian. In February last year, Simon Duke wrote an in-depth piece in The Sunday Times about Facebook entitled “The Anti-Social Network”. He tracked the way in which the social website had deliberately organised the avoidance of millions in tax, routeing revenues through Dublin à la Google. A series of exposés followed on different companies—“the untaxables”, as the newspaper called them—and kept up the pressure.

The third journalistic push came from Reuters, an organisation for which I once worked as a journalist. Following his investigation of Starbucks, Tom Bergin revealed that rather than reducing sales booked in the United Kingdom, like Google and Amazon, it loaded its United Kingdom operation with so many costs that little or no UK profit was apparently made. Two campaigners have also been at the forefront of these investigations: Richard Brooks, a former tax inspector, and Richard Murphy, an accountant and founder of the Tax Justice Network. I urge the people at HMRC to read their recent books closely, as I entirely agree with the PAC report of last year that criticised the mindset of HMRC in not being more assertive in pursuing multinational tax avoidance.

We have heard about how absurd it is for HMRC to accept the way that Amazon does business; that flies in the face of common sense. Despite the scale of its operations here, its overseas Luxembourg subsidiary is not classed as having a permanent establishment. It is important that the OECD changes the rules as they are outdated, but we should not let our attention simply be deflected internationally as there are plenty of things we can do here. There is plenty that HMRC can do. To see that only takes an examination of its rule book, and the double tax treaty with Luxembourg, and the test it applies. With the tools at its disposal, it can push harder here and now, to pursue this issue and raise billions of pounds for the hard-pressed coffers of the Treasury.

--- Later in debate ---

[Katy Clark (North Ayrshire and Arran) (Lab)]

I strongly welcome the cross-party will among Back Benchers to bring this incredibly important issue to the House.

The estimates of how much is lost to the British economy through tax avoidance in its many forms go up to in the region of £120 billion. Lots of people have different figures, but there is no doubt that if we could get on top of the issue—not of tax evasion, when people illegally do not pay their taxes, but of tax avoidance—many of our other debates in this House about the deficit and so on would be skewered. We face a major challenge, as over decades we have reached a situation in which we do not collect the taxes we need to pay for the services we want to provide in the communities we represent. We need to reach some sort of solution so that we can collect those taxes.

It is interesting that in this Back-Bench debate we have heard people from different political parties speaking with one voice. One of the problems in the debate is that for a long time the leaderships of the parties have not had the political courage to take on the multinationals. If we reflect on the speeches we have heard today and read Hansard tomorrow, we will see that it is notable that these companies are household names. They are not the kinds of companies that would move out of Britain. To suggest that Starbucks, Amazon, Vodafone, npower, Google or HSBC will pack up their bags, move away and stop making profits out of our constituents is ludicrous. The reality is not that progress will be made only by the companies themselves. Yes, we need to change the culture in companies. Yes, we need to name and shame. But as politicians we have to change the rules of the debate. That means changes in law so that we are far tougher on those who avoid taxes but also tackle those who evade taxes.

[Paul Farrelly]

Does my hon. Friend agree that we should use our influence within the European Union to, as the hon. Member for Redcar (Ian Swales) said, sort out the cuckoos in the nest who provide effective tax havens? Will she join me in congratulating Senator Philippe Marini, president of the French Senate finance committee, who has been in the vanguard in Europe of pressing for concerted European action?

[Katy Clark]

I congratulate all those who are working to get international agreements to tackle this problem, including the British Government.

The reality is that we also have to look at what we are doing here and now. Since 2005, we have lost 37,000 jobs in HMRC. We expect to lose another 10,000 tax inspectors by 2015. No doubt the Government will come back and say that there are slight increases in the numbers of staff in specialist and criminal investigations, but they are only one part of the team that looks at all these issues. We have to highlight clearly the use of tax havens by FTSE companies—98 out of the top 100 use them. We have to say that roughly one in five of the world’s tax havens are the responsibility of the UK and that the use of those tax havens is estimated to cost the UK £18.5 billion a year. These issues need to be tackled internationally, but we have a lot to do at home.

We need to build a consensus in all political parties that we need tax laws which ensure that multinationals pay their due in this country. Unless we do that, a lot of the other debates in this place, whether on legal aid or how we fund hospitals or education, are nonsense. We need the money to go forward. Perhaps one of the things that comes out of this financial crisis will be a recognition that all parts of society must make their contribution. Some of the companies that we have been talking about today should be at the top of the list for ensuring that we all pay our way.