Corporate Tax Avoidance

Sheila Gilmore Excerpts

Monday 7th January 2013 Commons Chamber

[Sheila Gilmore (Edinburgh East) (Lab)]

From the beginning of this debate until the point when the hon. Member for Lincoln (Karl MᶜCartney), who is not in his place, spoke, I wondered, given that we were all so agreed, whether there was any point in our having a debate. That prompts the question why we, collectively, have not dealt with the issues sooner if we are in so much agreement. However, we have different views about tax and they underlie many of the issues.

One such view is whether there should be tax at all. There is a tendency in Britain and, I suspect, a lot of other countries, but not all, to see tax as inherently a bad thing. If that is the case, it then becomes legitimate, according to many people, to find ways to minimise either one’s individual personal tax burden or a business tax burden. I believe, however, that tax is inherently a good thing and that it is right that we as a society pay in what we can afford in order to provide the kind of social and other services that we want in a civilized society. It would help if we took the view that tax is not inherently bad, because once that stance is taken all kinds of things flow from it.

Another issue that we have come up against is tax simplification, as if that is the answer to a lot of the problems we face. I briefly studied tax law—it was not my favourite law subject, although I did win a class medal in it, somewhat to my surprise. As I understood it then—this did not happen yesterday; it is not something new—much of the reason for having a lot of complexity in tax law was precisely because people were constantly finding loopholes.

If the answer is simplification, can we be satisfied that complicated ways around it will not be quickly found? The law, perhaps, follows clever tax lawyers and accountants—not the idea that we have made our tax book and tax code so complicated—and that is why people get to the point of saying, “Well, we’ve got to have complicated tax avoidance.” It is a question of where we think the starting point should be. There appears to be a view that the starting point should be that the law is too complex and that if we somehow made it simple, people would no longer seek to avoid tax.

There is a clear legal distinction between tax avoidance and tax evasion, but perhaps the time has come to think about where we place the line. I agree with those Members who have said that it is important that we and the law are clear and that people know where they stand. We cannot have a system that allows people to say, “I don’t particularly like this or that kind of scheme.” The other side of that coin seems to be to allow companies to decide how much they want to pay, rather than how much they should pay. We might need to think, at another time, about drawing a line with regard to what constitutes tax evasion and tax avoidance. Aggressive tax avoidance, which has been described, might actually be tax evasion and not just a very clever way of avoiding tax.

It is interesting that many of the companies that we talk about a great deal have bad practices in other respects. Only a few months ago, we heard not only that Starbucks was not paying a great deal of corporate tax, but that it was seeking to reduce the working conditions of its own employees here in the UK. Usually, we are told that that is necessary because companies are not making a profit. In this case, Starbucks appears to be making a profit, although it is not always accountable here, yet it wanted to reduce the conditions of its own employees. Bad practices, therefore, go beyond tax.

In a global economy we need to look at things internationally. The Government have said that they will use the next few months as an opportunity—in the G8, for example—to try to make some progress. I hope that that will be the case. If we need international clarity and transparency and proper accounting, we should do it. It cannot be right that it is possible for companies that are clearly profitable here—they are not unprofitable—to be able to siphon profits away through schemes such as brand purchasing and loans, which mean that they are paying interest rather than making a profit. If those are avoidance schemes and if we cannot deal with them in our country, we must do so internationally.

If we are all able to sign up to a certain level of consensus—it may not be universal in this place—we need to introduce the necessary legislation for the UK in this year’s Finance Bill. We should all sign up to that. It is not good enough to come back from international conversations and say, “We had some discussions and made some progress.” We need to set some clear targets to end some of the practices. If the UK does that today, other countries might take note and do so tomorrow.

That leads to another international dimension—the problems that many developing countries face with regard to tax. They, too, suffer deeply from the way in which income profits are manipulated and moved out of their country so that, despite the fact that production is taking place in the developing country, the profit appears to be made elsewhere, usually a tax haven with a much lower rate of taxation. Developing countries probably suffer from that more than we do. They are trying, as they have been asked and told to do, to raise themselves up, not rely on aid and get going with their own businesses and industries, but if so much tax is not being paid in those countries, they will probably end up not making the progress that they need to make and we might end up having to give them further aid. Those developing countries also need us to act.