Tax Transparency (FTSE 100)

Stephen McPartland Excerpts

Wednesday 6th February 2013 Westminster Hall

[Stephen McPartland (Stevenage) (Con)]

It is a pleasure to serve under your chairmanship, Mr Betts.

Many Members over many years have spoken eloquently in this House about the differences between tax avoidance and tax evasion and how the lines between them have become blurred. Tax evasion is clearly wrong, illegal and unfair to the rest of society, because 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 many Members are very much in favour of the positive contributions that large FTSE 100 companies make to the larger overall tax take.

Just before Christmas, there was an explosion of public interest after the Public Accounts Committee named and shamed some well known companies that use transfer pricing to offset their tax liabilities in the UK—basically, to avoid paying tax. I am aware of the strong argument that UK tax authorities 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 that the general anti-avoidance rule that will be introduced might be too severe and end up penalising sole traders and small and medium-sized enterprises more than larger companies.

[John Stevenson (Carlisle) (Con)]

I am grateful to my hon. Friend for securing this important and topical debate. Does he agree that it is incumbent on us as legislators to ensure that tax legislation is robust but fair?

[Stephen McPartland]

My hon. Friend makes a valuable point, which has been put to me in the more than 60 responses I have received from FTSE 100 companies. I agree that we need to get the legislation right, but later in my speech I shall explain how there are more companies registered in Jersey than in the whole of China, despite tens of billions of pounds of trade with that country.

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 visited Stevenage. The tax justice campaigners believe that tax dodging by international companies costs the UK about £35 billion and developing countries an estimated $160 billion a year. Many of the FTSE 100 companies that replied to me questioned the figures, but, in reality, the figures are large, irrespective of the measure used. Imagine for a moment the dramatic difference such a huge sum of money would make, if it were available to invest in public services, infrastructure and other services essential for economic growth both at home and abroad.

There is growing anger and concern about 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 for the UK; it is worldwide, and it does the greatest damage to poor and developing countries that cannot stand up to massive corporations. ActionAid told of a lady selling beer in Ghana who paid more in tax than the large brewer in the facility next door. That large brewer’s parent company in the UK declared profits of £2 billion. Governments all around the world will agree with the sentiment of greater tax transparency—I know that the Minister agrees with it—but they will struggle to introduce it, because every nation competes in the global race.

I welcome the Prime Minister’s initiative to make tackling tax avoidance a priority when the UK takes over the presidency of the G8. He made strong references to a particular company needing to

“wake up and smell the coffee”.

I must be one of the few Members who does not have any such coffee chains in my constituency. The Chancellor, with whom I do not see eye to eye on many issues, has also agreed that aggressive tax avoidance is “morally wrong” and “abhorrent”. We have had the words; it is now time for action.

My first question to the Minister is, what plans do the Prime Minister or Chancellor have to convene a cross-Whitehall meeting with tax justice experts and campaigners to identify what a tax transparency policy would look like in practice? There is real concern and feeling that transfer pricing is at the heart of the problem, so what measures will the draft finance Bill include to create enforcement in respect of transfer pricing and put a stop to it?

As I mentioned, ActionAid commissioned interesting research in October 2011 into the use of tax havens by FTSE 100 companies. It found that the FTSE 100 companies at that time had 34,216 subsidiary companies, joint ventures and associates and that 38% of their overseas companies were located in tax havens. Ninety-eight groups had declared tax haven companies; only two groups, Fresnillo and Hargreaves Lansdown, did not. There were 623 companies registered in Jersey—a tiny island just off our shores—and despite our tens of billions of pounds of trade, only 551 are registered in China. ActionAid struggled to get the research and, like me, would like to see Companies House enforce sections 409 and 410 of the Companies Act 2006, so that information on UK-registered multinationals is more accessible to the public.

The Minister and Government have the best of intentions, but in the end, it will be up to the companies themselves to lead the way, and they will do so only if their customers—the British public—drag them kicking and screaming towards tax transparency and a fairer tax system for all. With that in mind, last 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 require multinational companies to report accounts on a global consolidated basis only, which makes it incredibly difficult to know where taxable economic activities are occurring and where profits are declared. I gave the example a few moments ago of a lady in Ghana paying more in tax than a massive, multi-billion dollar, multinational company. 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.

I am not saying that FTSE 100 companies are engaged in tax avoidance or aggressive tax planning; the point I am trying to make is that whether it is tax avoidance or tax evasion, illegal or immoral, the British public and most Members believe that it is wrong and should be stopped.

A recent inquiry by the Select Committee on International Development called for

“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…of its fixed assets in each country, and details of its gross and net assets in each country.”

Some of the FTSE 100 companies that replied to my letters believe that there could be greater tax transparency. All agree that they are as transparent as they possibly could be and that people would not like them to be even more transparent because it would make their accounts more unwieldy.

I look at the extractive industries, the work coming out of America on the Dodd–Frank Wall Street Reform and Consumer Protection Act and the proposals for EU directives on transparency and accounting, and I wonder whether such legislation could be used for our multinationals. The extractive industries are being forced down a line of country-by-country reporting with more focus on transparency, because it has been felt over many years that they have not been as clear as they should have been. Do we need a more even playing field?

The only way to resolve the problem is to introduce greater transparency. Members will be pleased to learn that, in the interests of transparency, I have published all the responses that I have received on a website: www.taxchallenge.co.uk. The responses from over half the companies are online. With the responses, I have given people an opportunity to sign a petition to demand greater tax transparency.

The responses from the FTSE 100 companies have been wide-ranging, but generally disappointing. HSBC offered to help design a tax transparency standard. BT and others welcomed the transparency initiative, but not the new accounting standard. Hargreaves Lansdown, which we now know was one of the few FTSE 100 companies not to have tax havens at the time, questioned the value that it receives for the taxes that it pays.

More positively, the chief executive of Sainsbury’s agreed that consumers are best placed to encourage companies to pay the tax that they are supposed to pay, as they can vote with their wallets if they do not think that the company is making a fair contribution to society. Capita stated that it was both interested in and supportive of the establishment of a new international accounting standard. Morrisons suggested that the Government should force all companies to disclose their corporation tax payments in the UK. Does the Treasury have any plans to do that? The refreshingly honest response from Aggreko summed up what many other companies felt—that they pay lots of tax and probably more than is needed, but that greater tax transparency is “a lousy idea”.

[John Stevenson]

I understand my hon. Friend’s arguments on transparency, but does he believe that the Government should also look at how we tax companies?

[Stephen McPartland]

I agree. My hon. Friend makes a valuable point, and has a wonderful legal mind. Many of the companies believe that they have a responsibility to their shareholders, but shareholders, to push up their returns, are interested only in the overall amount of tax that they have to pay globally. In their responses, some companies claimed that their overall tax rate is more than 45%, while others claim that it is about 25% to 28%. Although they all believe that they are as transparent as possible, it is perfectly clear that they are not being as transparent as the general public would like to see and understand.

We must move to a simpler tax system, in which it is much easier to see what is going on, and what companies have to pay in tax. I do not want this debate to appear to be anti-business or anti-FTSE 100. I am a Conservative Member of Parliament who is going to end up in the Morning Star as a result of this debate—probably the first one to do so—but the reality is that FTSE 100 companies make a huge contribution to Britain, including through the whole range of taxes that they pay. I understand that the FTSE 100 are responsible for almost 10% of the tax take in the UK, including the income tax and employer’s national insurance contributions that they collect on behalf of the Treasury.

The FTSE 100 are therefore massively good companies for the UK, and I am delighted that we have them in our country, but I want them to be a little more transparent, so that we can all have a bit more faith. As I have said, I believe that we have to lead the way in forcing them to accept the idea of tax transparency. Aggreko has said that it pays lots of tax and probably more than is needed, but that greater tax transparency was “a lousy idea” because it sees that as 500 new pages of the tax code and a great load of regulations that it does not want.

I could go on about the responses—I will if hon. Members wish—but the general thrust is pretty simple: the biggest companies in Britain believe that they all pay their taxes honestly and make a huge contribution to the economy by employing people who pay taxes. So far, most responses clearly show that they are not prepared to be proactive, and will comply only with current laws. Unfortunately, fancy corporate lawyers can blur the lines between tax avoidance and tax evasion, but that is clearly wrong, illegal and unfair to the rest of society, as I have mentioned.

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. We must start thinking about tax and tax transparency as a measure of corporate social responsibility.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I apologise for missing the first few sentences of my hon. Friend’s speech, but he knows that I am very much with him in this campaign. Has he thought of using his website to encourage shareholders of each of the top companies to raise the issue at their annual meetings and to force the issue internally, in the way that many green and environmental issues have been raised from within as well as through pressure from outside?

[Stephen McPartland]

My right hon. Friend makes a wonderful point, as he often does about tax transparency. I genuinely believe that that is an excellent way of moving forward. Many of the companies have offered to meet me, and I know that they have meetings with Christian Aid and ActionAid. Those companies are huge organisations that struggle to understand the complexity of what is going on within them.

I had a very positive response from the chief executive officer of AstraZeneca, who explained in great detail how he holds each member of his staff personally responsible for conducting its business, how he considers them to be ambassadors, and how he wants to help in any way he can to create tax transparency. There is, however, a fear that greater tax transparency will lead to greater regulation. He believes that many of the issues we are raising are already covered in the company’s accounting reports—the information is already collected—and that the question is how to go about demonstrating and sharing that information.

If we can demonstrate that there is great political will, shareholders will show great will to move the idea forward, saying, “Yes, this is important to us. It is like being green. Tax is part of our corporate social responsibility.” We will then be able to make progress. I very much take on board my right hon. Friend’s suggestion and will try to promote it.

The companies that I was referring to have a very devolved and developed sense of corporate social responsibility. British customers, employees and consumers want them to create greater tax transparency. There has been a huge hoo-hah about some large, non-British companies moving their profits overseas. Those companies have had difficulty in interacting with their own customers, and one of them has volunteered to pay tax. It should not be a voluntary option; it should be a legal requirement.

My new website—www.taxchallenge.co.uk—gives hon. 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 for that 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.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Betts. I congratulate my hon. Friend the Member for Stevenage (Stephen McPartland) on securing this debate and setting out his case so clearly. In recent months, he has shown great tenacity on the issue, including by raising it on the Floor of the House a few weeks ago.

I want again to put on the record the Government’s view that companies must pay tax in accordance with the law, and it is crucial that they are seen to do so. Many businesses help their cause by releasing data or other information relating to their tax payments, and I very much welcome greater transparency from businesses about their tax affairs. As a Minister, I have said for some years that businesses need to do much more to explain the taxes that they pay and how they comply with their obligations. Such transparency can go a long way towards building greater trust between them and their customers, and might end up having commercial benefits.

Of course, Her Majesty’s Revenue and Customs, as the tax collector in the UK, has a statutory duty of confidentiality that protects the tax affairs of all taxpayers, and it is important that it continues to honour that duty. I make that point because that is one of the reasons why it is difficult for Ministers to engage in individual cases, some of which have been very high profile, because we do not of course see any information that is not in the public domain.

I want to focus on what we in this country can do to assist developing countries in collecting the tax that is due, which is at the heart of my hon. Friend’s concerns. We are committed to supporting developing countries to access sustainable sources of revenue, while balancing action in this area against costs to Government and industry. To achieve that, our priorities, which I will set out before turning to my hon. Friend’s specific questions, are capacity building; improving exchange of tax information and assisting developing countries in accessing the benefits from that; and increasing transparency, particularly in the extractives sector, to address corruption.

On capacity building, it is of course up to individual jurisdictions to make decisions on how best to run their tax systems, but the Government are committed to supporting developing countries to access sustainable sources of revenue and to collect the tax that is due. The most effective way of doing that is to provide the technical support to their tax administrations that will help them maintain sustainable domestic taxation systems.

The Government’s work with the Ethiopian Revenues and Customs Authority, for example, has helped strengthen the accountability and efficiency of revenue collection in Ethiopia. As a result, tax collection in Ethiopia in 2011 was seven times higher than it was in 2002. Furthermore, Ethiopian customs clearance times for low-risk imports have been reduced from seven days to 10 minutes. The UK will also continue to work with international organisations such as the African tax administration forum, the World Bank and the OECD to support other capacity-building projects in developing countries.

There is increasing recognition that strong institutions are important for a country’s development. In the light of that recognition, the success or otherwise of the revenue-raising authorities in a developing country is absolutely crucial. We want to do everything we can to assist them.

[Stephen McPartland]

The Minister will be delighted to know that many FTSE 100 companies see capacity building, revenue building and the secondment of HMRC civil servants to developing countries as positive steps towards helping create that tax base. Many have offered to help, so I would be delighted to pass on those names to him.

[Mr Gauke]

I am grateful for my hon. Friend’s constructive point. It is recognised that effective tax authorities are important. That feeds into political benefits as well, because a broad base of revenue raising will result in stronger political institutions that will be held accountable by the people of that developing country. I welcome his remarks and I know that he welcomes the measures that we are taking in this area.

Related to strengthening capacity building is ensuring that information is available to tax authorities around the world. The international tax transparency agenda, and the tax information exchange in particular, is a key tool in tackling offshore tax evasion, and we are actively promoting that agenda. Through the G20, we are providing leadership and direction in increasing tax transparency and the exchange of tax information. Through the global forum on tax transparency, we are ensuring that jurisdictions meet the international standard on tax transparency. Through the expansion of the multilateral convention on mutual administrative assistance to more jurisdictions, we are providing a mechanism to access the benefits of tax transparency, which is particularly suited to developing countries. Furthermore, our direct assistance to Ghana ensured that it was in a position to join the convention and access the benefits of exchange of information, and we look to build on that. I am confident that the sensible, considered conversations that we are having internationally, and the exchanges of information coming from them, will have a real impact on the overall tax landscape.

Extractive industries is the third area of international action that I want to highlight. This sector and the fears of corruption in it are of great concern to not only this debate, but the wider global community. My hon. Friend will therefore be pleased to hear that we are committed to greater extractives transparency through the accounting directive, which addresses civil society accountability without imposing unnecessary burdens on business. Not only do we support EU proposals to improve transparency in the extractives and forestry sectors, but we have extensively consulted representatives from civil society groups and industry to reach a position of reporting in greater detail that is proportionate with existing burdens upon industry.

I want to address my hon. Friend’s concerns about country-by-country reporting, which is a somewhat broader approach than the one that we have been taking on extractives and forestry. The country-by-country reporting model is currently being considered in the proposed amendments to the EU accounting and transparency directives. The UK supports EU requirements for extractives companies to ensure that they disclose the payments that they make to Governments—as I said, corruption is a particular concern in this sector—and that proposal will have an immediate impact on reducing potential corruption by allowing citizens of resource-rich countries to hold their Governments to account for their use of the extractives revenue received. However, we are not yet convinced of the merits of the wider model of country-by-country reporting proposed by some and neither is the OECD. We do not believe that the case has been made in terms of the costs and benefits of extending the proposals for EU mandatory requirements to report payments to Governments beyond the extractives sector and forestry. We will of course keep the matter under review, and it will be interesting to see how the experience of greater extractives transparency plays out.

On profit shifting, there are international concerns over whether the current international tax rules manage properly to capture the profits generated by multinational companies. It is an issue that all countries face, and we need to work together to develop the appropriate solutions. As with most major economies, the tax system in the UK is based on the internationally agreed OECD guidelines that mean that a multinational company pays corporation tax where it carries out the economic activity that generates its profits and not on its sales. We have already reaffirmed our support for the OECD work to address profit shifting by multinationals and erosion of the corporate tax base at the global level. At the G20 meeting of Finance Ministers last November, the Chancellor of the Exchequer issued a joint statement with his German equivalent calling for concerted international co-operation to strengthen international tax standards as a first step to promoting a better way of dealing with profit shifting and base erosion of corporate tax at the global level. To back that up, the UK, alongside France and Germany, has offered additional resources to the OECD to speed up progress. We will hear of that progress at the G20 meeting later this month.

My hon. Friend asked specifically what we are doing in the UK on the matter. The problem is essentially international, because the UK complies with the OECD rules, as do all other major economies. We are, however, strengthening HMRC’s capacity in the area. In the autumn statement last year, additional funding for HMRC was announced, much of which is to be focused on strengthening the transfer pricing capacity of HMRC, challenging multinationals to ensure that their arrangements are compliant with the rules that currently exist, and ensuring that tax is paid in the jurisdiction where economic activity occurs. I do not want to be drawn into individual cases, but it is clearly not acceptable for multinationals artificially to inflate the costs apparently incurred in a low-tax jurisdiction, resulting in tax not being paid on profits that should, in truth, be attributed to other jurisdictions. We are determined to give HMRC the capacity to deal with that. It is worth pointing out that HMRC’s activity on transfer pricing over the past four years, for example, has brought in some £4.1 billion. Last month, I visited one of the transfer pricing teams in HMRC and we should recognise the good work that is being done, but we want to build on that, which is why we are strengthening HMRC’s capability in this area, which my hon. Friend will support.

I hope that the Government’s actions, both domestically and internationally, also have my hon. Friend’s support. We have taken steps to address concerns and we are clearly moving to a climate of greater international tax transparency. The Government do not necessarily accept all the numbers that are cited on the loss to developing countries, but we want to strengthen developing countries’ capacity, and we are at the forefront of ensuring that we do precisely that.