Tax Avoidance and Multinational Companies

Seema Malhotra Excerpts

Wednesday 3rd February 2016 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I thank all right hon. and hon. Members who have made such excellent contributions to this debate, including my right hon. Friend the Member for Barking (Dame Margaret Hodge), who said that the Government have lost the argument on transparency. Other Members raised important issues about how we now seem to have one tax rule for large companies—multinationals—but another for small businesses in our country. We heard about the use of tax havens, transfer pricing, and the fact that the Tories cannot claim that they have continued Labour’s progress on this issue. I pay tribute to the work of those who have campaigned for tax justice, including Richard Murphy, Christian Aid and others, as well as the Co-operative movement, with its campaign for a fair tax mark that includes country-by-country reporting.

Over the past week, the Google tax settlement issue has shocked us all. The Chancellor cut a lonely figure when he tweeted that that tax deal was a “victory”. The tweet had scarcely had a chance of a retweet before Downing Street distanced itself and MPs in all parts of this House called the deal derisory. Questions then came thick and fast about how we could have reached a settlement that effectively implied a 3% tax rate. It was the moment when, as one journalist wrote,

“Google lost the argument in the court of public opinion.”

Yes, there is a lot to admire about Google. Millions rely on the access to knowledge and information that the Google search engine helps to put at our fingertips, and innovative products pushing at the frontier of our digital age have transformed our personal and working lives. However, we cannot tolerate this huge global business not playing fair when it comes to tax. We now know for a fact that Google has been short-changing us for more than a decade. Whatever else it has done, this settlement proves that fact.

The deal has left a series of questions in its wake. Do we know whether Google is paying its fair share of taxes, as it tells us? We do not know, because the deal is shrouded in secrecy, but there is lots to suggest that it is not. Only this week, we heard that Google’s parent company, Alphabet, is now the world’s most valuable company, with a valuation of $568 billion. In just four years, Google paid its chairman a total of £166 million—more than it paid in UK taxes for 10 years.

We support and celebrate success, but this is an issue of fairness. Many are therefore asking a second question—after his tweet, can we trust the judgment of the Chancellor on this issue? Can we trust the judgment of a man who describes what is effectively a 3% tax rate for the world’s most valuable company as a “victory”? In 2014 alone, Google UK made an estimated £1 billion profit; 20% tax on that alone would have been £200 million, enough for 4,000 police officers. Fairness in the tax system is important for us all, and this is not a victim-free zone. When global companies such as Google do not pay their fair share, businesses and families in the UK take a hit. We have all heard from businesses in our constituencies that wonder why there is one rule for large multinationals and another for them. British families lose out, too, because uncollected taxes mean revenue forgone, with bigger cuts to public services and lower levels of investment when we need it the most.

There is another reason for questioning the Chancellor’s judgment. How can people trust the judgment of a man who thinks it is right to undermine and demoralise his tax-collecting agency? It is a classic example of a false economy—short-term cuts that have long-term costs. Why has the inquiry, which was set up under the Labour Government in 2009, taken more than six years? Nobody knows, seemingly not even the Chancellor. If ever a situation showed a lack of political will, it is this one.

People’s trust in the Chancellor and in the fairness of the tax system has been undermined further by two recent reports. The Chancellor and 16 different Tory Ministers have had face-to-face talks with Google bosses over the last two years, but did any of them raise the issue of the company’s tax structures? Perhaps the Minister can tell us today.

People feel a growing sense of huge injustice when large multinationals can shift their profits so easily and avoid the taxes that they should be paying. Now we find out that, only last year, Tory MEPs were instructed on six occasions to vote against proposals to clamp down on multinationals that engage in aggressive tax avoidance. In addition, they have voted repeatedly against measures to tackle tax evasion.

The Chancellor has even failed to apply his Google tax to Google. Perhaps he can tell us whether the Google tax—the diverted profits tax—would have applied if a deal had not been reached. Things need to change, and we believe that the Chancellor has a duty to take steps to restore public confidence in how HMRC operates in cases such as this. He must now address widespread concerns about the lack of transparency surrounding the deal and show us how the deal was reached so that it can be scrutinised by Parliament and the public. Few can understand how HMRC accepted at face value Google UK’s claim that it, a company with more than 2,000 UK employees, does not have a permanent establishment in the country for corporation tax purposes.

Since last week, we have seen this deal unravel. Every step of the way, the Chancellor’s failure of judgment has been apparent. It is not the first time that the Chancellor has failed to stand up for people in Britain. He is hurting, not helping, British businesses and families. We need renewed focus and action on tax avoidance and tax evasion, and a real plan to close the UK tax gap. That is what Britain deserves and the British people expect. We need a plan that puts transparency and fairness first—a plan through which we work to reach international agreement on country-by-country reporting and drive forward its implementation. The deal, and the way in which it came about, must not be allowed to set a precedent. If the Chancellor will not act, Labour stands ready. I urge all hon. Members to vote with us in the Aye Lobby.