Tax Avoidance and Multinational Companies

Stephen Timms Excerpts

Wednesday 3rd February 2016 Commons Chamber

[Mr Gauke]

I will come on to transparency, but let me first return to this Government’s record on changing domestic law and leading the way in updating the international system.

This Government have led internationally on the G20 and OECD base erosion and profit-shifting project, making the international tax rules fit for the 21st century. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer, in particular, took on highly prominent roles in initiating those discussions and taking them forward through the G20 and the OECD. The outcome will be to level the playing field among businesses, give tax authorities more effective tools to tackle aggressive planning, and help us better align the location of taxable profits with the location of economic activities and value creation. This is a major step forward in addressing the underlying causes of aggressive tax avoidance.

We have been at the forefront of implementing this agenda, acting swiftly to change the rules on hybrid mismatches and country-by-country reporting. Because we consider it important not to rely solely on international rules, we have also legislated domestically to introduce a world-leading measure to address the contrived shifting of profit from this country—the diverted profits tax. The diverted profits tax targets companies that divert profits from the UK, principally those with substantial activities in the UK who are trying to avoid creating a UK permanent establishment. Under our rules, those companies either declare the correct amount of profits in the UK and pay the full amount of corporation tax on them, or risk being charged a higher amount of diverted profits tax at a rate of 25%. By the end of this Parliament, the diverted profits tax will raise an extra £1.3 billion, both directly and as a result of associated behavioural changes. The tax is already having that effect, and multinationals will pay more corporation tax as a result.

[Stephen Timms (East Ham) (Lab)]

Of course, the diverted profits tax was referred to as the Google tax. My hon. Friend the shadow Chancellor has alleged that under the terms of the deal Google will not pay a penny. Is he right about that?

[Mr Gauke]

The purpose of the diverted profits tax, which came into effect in April, is to ensure that companies stop diverting their profits and pay corporation tax like everybody else. I repeat that I cannot talk about the Google case beyond information that is in the public domain, but if this tax is effective in driving companies to stop diverting their profits, it is a success.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

I am highly enamoured of the record of the last Labour Government, and particularly enamoured of their Treasury policies.

I am grateful to my hon. Friend the Member for Hayes and Harlington (John McDonnell) for drawing attention to an assessment by the Financial Times of the comparative records of the Labour Government between 1997 and 2010 and subsequent Governments. The article, written by Vanessa Houlder in February last year, made three very important points to set the record straight. First, it stated that the current Chancellor

“has raised much less income than the last Labour government from reforms to tackle corporate tax avoidance”.

The second point was referred to by my hon. Friend in his introductory remarks. The article stated:

“Measures put in place by Labour during its 13 years in power to counter corporate tax avoidance are projected to raise ten times as much over the next four years as those introduced by the…coalition government.”

Thirdly and importantly, the article stated that the coalition

“eased laws aimed at stopping companies using tax havens, which had been repeatedly tightened under Labour.”

That is the difference between the record of the Government when I was a Treasury Minister and the current Government. Labour in government did the heavy lifting on corporate tax avoidance. The new Government, when elected, had different priorities, as they were entitled to have, but they cannot claim to have maintained the progress Labour made, because they have not.

I welcome the Government’s seeming support for country-by-country reporting, but those close to the process find it difficult to recognise that the Government have led on it since 2010, as they have claimed. We certainly led on it prior to 2010. The original idea was devised, I think, by Richard Murphy, about whom we have heard a good deal more in the last couple of years, but it was first brought to me, when I occupied the Minister’s office, by Christian Aid. I pay tribute to its work on this. It came to see me in early 2009. We had a series of international meetings in Berlin, Paris and elsewhere in 2009, at which I put the issue on the agenda, and that culminated in the first joint meeting of the OECD tax and development committee in January 2010 in Paris. That kicked off the process that I am delighted the Government are now swinging behind. But Labour in government started this off and Labour is entitled to the credit for that.