Tax Avoidance and Multinational Companies

Rachel Reeves Excerpts

Wednesday 3rd February 2016 Commons Chamber

[John McDonnell]

Of course; I have welcomed that. I have just been saying that I have supported the Chancellor on each piece of legislation that he has introduced to tackle tax avoidance and tax evasion. This deal flies in the face of everything the hon. Gentleman and I have been supporting in the Chamber.

[Rachel Reeves (Leeds West) (Lab)]

Last year Google funnelled £8 billion-worth of royalty payments to Bermuda. Does my hon. Friend believe that the British Government should be doing much more to crack down on tax havens, particularly those that are British overseas territories?

[John McDonnell]

I will address the Bermuda question, so if my hon. Friend waits a few minutes she will hear just how shocking the situation really is.

The Chancellor appears to be missing an opportunity in the EU negotiations to secure a robust international agreement to tackle tax avoidance and tax evasion, which Members across the House have been calling for.

--- Later in debate ---

[Mr Gauke]

The point I am making is that the shadow Chancellor goes around quoting numbers based on profits from sales. To be fair, he went through the methodology carefully in the House today, but that methodology appears to be based on a complete misunderstanding of how the tax system works.

[Rachel Reeves]

I do not misunderstand how the corporation tax system is applied, but without information from HMRC, and without publication of the deal, it is difficult to know exactly how much tax Google should be paying. That is why we are seeking answers. Also, there have been $8 billion of royalty payments to Bermuda. Does the hon. Gentleman really think that that is where the economic activity is and where the value is being added?

[Mr Gauke]

I will deal directly with the issue of transparency in a moment.

On the issue of how our international tax system works, I have explained that it is based on economic activity. However, I would be the first to say that that international tax system needs to be brought into the modern world. That is the very reason why the UK has led the way on the base erosion and profit-shifting process. We should also be aware that there are particular issues with the US tax system, which is failing to tax intellectual property developed in the US in the way that it should.

I gave the example of video games companies. However, I recognise that there are many cases that are much more complex, and where it is not so easy to identify where the economic activity takes place. There is an issue about where multinational companies allocate their profits and where they identify economic activity as taking place. There is a need to address that, which is why we need tax rules that genuinely reflect where economic activity takes place, to ensure that profits are aligned with it. However, that is a very different matter from making big claims about profits from sales and saying that those sales profits have to be taxed where the sales take place. That is the misunderstanding I wish to address.