Corporate Tax Avoidance

Debate between Paul Farrelly and Stephen McPartland

Monday 7th January 2013 Commons Chamber

[Stephen McPartland (Stevenage) (Con)]

I congratulate the hon. Member for Redcar (Ian Swales) on securing such an important debate. I listened with great interest to the comments of my hon. Friends the Members for South Norfolk (Mr Bacon) and for Bognor Regis and Littlehampton (Mr Gibb), who eloquently described the differences between tax avoidance and tax evasion, and how the lines between them have been blurred. Tax evasion is clearly wrong, illegal and unfair to the rest of society, as everyone else has to pay more in taxes to make up for those who do not pay their fair share. We cannot have mob rule and, as explained by my hon. Friend the Member for Cities of London and Westminster (Mark Field), we cannot have anti-business sentiments.

Just before Christmas, there was an explosion of public interest after the Public Accounts Committee named and shamed some well-known companies that used transfer pricing to offset their tax liability here in the UK, basically to avoid paying tax. I am aware there is a strong argument that the tax authorities in the UK could do more to enforce tax payments. The Government have done a lot of work on tackling tax avoidance—so much so that I fear the general anti-avoidance rule that will be introduced might be too severe and end up penalising the sole trader and small and medium-sized enterprises more than the larger corporates.

My interest in tackling tax avoidance stems from a meeting I had with Christian Aid supporters in my constituency last September when the tax justice bus tour visited Stevenage. The tax justice campaigners believe that tax dodging by international companies costs the UK around £35 billion and developing countries an estimated $160 billion a year. Just imagine the dramatic difference such a huge sum of money would make if it were available to invest in public services, infrastructure and other vital services essential for economic growth—both at home and abroad.

There is growing anger and concern at the fact that some large companies are hiding behind complex accounting rules that may be strictly legal, but are considered to be unethical by the public. The problem of the missing billions in tax is not just a problem in the UK; it is worldwide, and it does the greatest damage to poor and developing countries that cannot stand up to massive corporations.

I know that Governments from all around the world will agree with the sentiment of greater tax transparency, but they will struggle to introduce it as every nation competes in the global race. I welcome the Prime Minister’s initiative to make tackling tax avoidance a priority as the UK takes over the presidency of the G8, and I would urge him to convene a cross-Whitehall meeting with tax justice experts and campaigners to identify what this policy would look like in practice.

There is real concern and feeling in this evening’s debate about the fact that transfer pricing seems to be at the heart of the problem, so the draft Finance Bill could include some measures to try to create enforcement in respect of transfer pricing and to stop the problem. However, despite the best of intentions, I believe that in the end it will be up to the companies themselves to lead the way and they will only do that if their customers—the British public—drag them kicking and screaming towards tax transparency and a fairer tax system for us all.

With that in mind, in October or November I wrote to the chief executives of all the FTSE 100 companies asking them individually whether they were willing to pledge their support for corporate tax transparency, and whether they would support a new international accounting standard for country-by-country reporting. The current international accounting standards only require multinational companies to report accounts on a global consolidated basis, which makes it incredibly difficult to know where taxable economic activities are occurring and where profits are declared. Companies, particularly multinational corporations, move billions of pounds of profit between jurisdictions in order to reduce their tax bills, and large companies are allegedly manipulating their centres of interest through the use of holding companies, offshore accounts and intellectual property rights.

Whether this is tax avoidance or tax evasion, whether it is illegal or immoral, the British public and most Members of Parliament believe that it is wrong and should be stopped. A recent inquiry by the International Development Committee recommended legislation

“requiring each UK-based multinational corporation to report its financial information on a country-by-country basis. Such information should include the names of all companies belonging to it and trading in each country, its financial performance in each country, its tax liability in each country, the cost and net book value of its fixed assets in each country, and details of its gross and net assets in each country.”

I believe that the only way of resolving the problem is to introduce greater transparency, and Members will be pleased to learn that, in the interests of transparency, I am publishing all the responses that I have received on a website that I launched today: www.taxchallenge.co.uk. The first 15 responses from the FTSE 100 are now live, and many more will be published during the coming days and weeks. The responses have been wide-ranging. HSBC has offered to help design a tax transparency standard, BT and others have welcomed the transparency initiative—although not the means—and Hargreaves Lansdown has questioned the value that it receives for the taxes that it pays. My hon. Friend the Member for Lincoln (Karl MᶜCartney) spoke about that eloquently earlier today.

[Paul Farrelly]

One of the reasons for the Government’s intention to change remote gambling taxation is the fact that all the companies bar one have gone offshore. That one is Bet365, which owns my local team, Stoke City. It is staying here because the Coates family believe in paying their taxes—they paid £130 million last year through Bet365—and in creating local employment. Does the hon. Gentleman agree that all the companies in his survey should wholeheartedly follow their example, and that the National Association of Pension Funds and the Association of British Insurers should try to ensure, on our behalf, that shareholders encourage them to do so?

[Stephen McPartland]

I do agree, and I firmly believe that most employees in most of the FTSE 100, the FTSE 250 and other companies in the United Kingdom would expect their employers to pay their fair share of tax in the UK. They all have very devolved and developed corporate social responsibility projects and organisations, and they want to understand what British customers, employees and consumers want them to do. They are very conscious of their brand.

The new website—www.taxchallenge.co.uk—gives Members’ constituents an opportunity to sign a petition calling for greater tax transparency, so that everyone will know which FTSE 100 companies are willing to sign up to tax transparency and which are not. Every one of us can then decide individually whether the biggest companies in Britain really care about the poorest in our society, at home and abroad.