Companies based in tax havens will ‘out-invest and ultimately out-trade us’, warns John Lewis boss as CBI anticipates a ‘very different’ tax landscape
Many owners of struggling small businesses are ‘very angry’ about ‘tax abuse’ by some multinationals, and ‘a lot of the subterfuge’ concerns royalty payments, Vince Cable has told the BBC.
The problem is a difficult one, the business secretary conceded, because ‘we need inward investment’. While companies are here, however, ‘they should pay tax on their profits’, he told Andrew Marr.
Cable’s warning came after Andy Street, managing director of the retail chain John Lewis, called on the government to examine the UK taxation of foreign multinationals, and the director-general of the CBI said the issue was one ‘whose time has come’.
Street told Jeff Randall on Sky News: ‘If you actually improve your business by investing, what that means is you have got less money to invest if you are giving 27% of your profits to the Exchequer than, clearly, if you are domiciled in a tax haven and you've got much more. So [companies domiciled in a tax haven] will out-invest and ultimately out-trade us and that means there will not be the tax base in the UK, so I do think it’s an issue that needs to be examined.’
Customers would expect Amazon and John Lewis to be treated in the same way for tax purposes, Street suggested. Asked whether HM Treasury ‘has to address the Amazon problem’, he said: ‘I think it should look at exactly what's happening, yes.’
► Multinationals given roasting by PAC |
Senior executives from Amazon, Starbucks and Google, appearing before the Commons Public Accounts Committee on 12 November, ‘repeatedly denied the accusation that they were engaged in aggressive tax avoidance but were met with derision from members of the committee’, The Guardian reported.
The Sunday Telegraph had quoted Lord Myners, the former City minister, as saying that the current system of corporation tax on multinationals’ profits was flawed. ‘Corporation tax for an MNC operating in the UK is close to being a voluntary payment. The problem is that the tax environment many MNCs are interested in is a zero tax environment,’ Myners said.
Cable told Andrew Marr yesterday: ‘There’s nothing more galling to small and medium sized companies than that they’re paying their taxes to the British government and we find these people dodging it … Our own tax authorities have got to be very tough on things like royalty payments, which is where a lot of the subterfuge takes place, but the big question is whether you can get wider global agreement. The chancellor has been talking to the Germans about getting a common approach to tax havens, and we’ve got to do that on a bigger scale.’
Marr suggested that for ‘lots’ of small businesses – many of whom ‘are on the edge of being put out of business by some of these multinationals [but] are paying their tax’ – it ‘does seem grotesque’.
Cable replied: ‘It does, and it’s completely unacceptable where there is systematic abuse taking place.’ But it was difficult to ‘drill down to what the problems are’.
He noted that Starbucks had claimed that it was making losses in the UK. ‘I don't know whether they’re not but you would need some pretty intensive investigation by the Inland Revenue to establish what exactly is going on, whether their transfer prices and their royalties are being fiddled or not.’
Action at an international level was needed, he said. Other countries were ‘just as angry as we are about the way the system is being fiddled’. The UK needed to ‘beef up’ its own capacity to ‘crack down on tax abuse here’.
Andy Street is understood to be the first leader of a large UK business to call for a review of the taxation of foreign multinationals, but his intervention was backed by Sebastian James, group chief executive at Dixons Retail, who wrote on Twitter: ‘I agree with Andy Street: retailers making profits in the UK should pay tax in the UK.’
Last Friday, Sky News reported that the head of Britain's biggest business organisation said the time had come ‘for foreign firms to pay their fair share of UK tax’.
John Cridland, director-general of the CBI, told Sky News that the challenge was to make companies’ tax payments more transparent.
‘I would be hugely surprised, in five years’ time, if the landscape wasn’t very very different,’ he said.
The Sun quoted Cridland as saying: ‘Companies have to be able to convince people they are talking to that they are paying a fair amount of tax. If it makes good revenues but doesn’t pay tax, it may be for business reasons. If it’s for non-business reasons it’s not something I would support.’
Launching a CBI campaign in April to bring ‘an informed voice’ to the debate about business taxes, Cridland said UK businesses needed to be competitive on the world stage and were ‘perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes’.
Today’s Financial Times reported that the European Commission is set to recommend that member states adopt a ‘common, tougher definition’ of what constitutes a tax haven – based on the EU’s code of conduct for business taxation – and scrap or suspend existing double taxation agreements with such countries so that ‘companies would no longer be able to use them to avoid taxes’.
The EC is also recommending that member states should include a ‘general anti-abuse’ clause in their national legislation and the modification of double tax agreements to prevent ‘double non-taxation’, the paper reported. The recommendations will be proposed by EU tax commissioner Algirdas Semeta on 5 December, and ‘must then be approved by a meeting of Europe’s finance ministers’.
The FT report noted that ‘pressure is mounting on companies which artificially shift profits to tax havens or low-tax jurisdictions, following months of revelations about the very low tax rates enjoyed by some groups at a time when cash-strapped governments across Europe are struggling to boost revenues’.
Several companies have emphasised in turn that they are acting within the law. Some critics of recent press reports have suggested that allegations of avoidance reflect an expectation gap, based on what the law ought to provide, rather than an actual tax gap by reference to the current legislation.
Companies based in tax havens will ‘out-invest and ultimately out-trade us’, warns John Lewis boss as CBI anticipates a ‘very different’ tax landscape
Many owners of struggling small businesses are ‘very angry’ about ‘tax abuse’ by some multinationals, and ‘a lot of the subterfuge’ concerns royalty payments, Vince Cable has told the BBC.
The problem is a difficult one, the business secretary conceded, because ‘we need inward investment’. While companies are here, however, ‘they should pay tax on their profits’, he told Andrew Marr.
Cable’s warning came after Andy Street, managing director of the retail chain John Lewis, called on the government to examine the UK taxation of foreign multinationals, and the director-general of the CBI said the issue was one ‘whose time has come’.
Street told Jeff Randall on Sky News: ‘If you actually improve your business by investing, what that means is you have got less money to invest if you are giving 27% of your profits to the Exchequer than, clearly, if you are domiciled in a tax haven and you've got much more. So [companies domiciled in a tax haven] will out-invest and ultimately out-trade us and that means there will not be the tax base in the UK, so I do think it’s an issue that needs to be examined.’
Customers would expect Amazon and John Lewis to be treated in the same way for tax purposes, Street suggested. Asked whether HM Treasury ‘has to address the Amazon problem’, he said: ‘I think it should look at exactly what's happening, yes.’
► Multinationals given roasting by PAC |
Senior executives from Amazon, Starbucks and Google, appearing before the Commons Public Accounts Committee on 12 November, ‘repeatedly denied the accusation that they were engaged in aggressive tax avoidance but were met with derision from members of the committee’, The Guardian reported.
The Sunday Telegraph had quoted Lord Myners, the former City minister, as saying that the current system of corporation tax on multinationals’ profits was flawed. ‘Corporation tax for an MNC operating in the UK is close to being a voluntary payment. The problem is that the tax environment many MNCs are interested in is a zero tax environment,’ Myners said.
Cable told Andrew Marr yesterday: ‘There’s nothing more galling to small and medium sized companies than that they’re paying their taxes to the British government and we find these people dodging it … Our own tax authorities have got to be very tough on things like royalty payments, which is where a lot of the subterfuge takes place, but the big question is whether you can get wider global agreement. The chancellor has been talking to the Germans about getting a common approach to tax havens, and we’ve got to do that on a bigger scale.’
Marr suggested that for ‘lots’ of small businesses – many of whom ‘are on the edge of being put out of business by some of these multinationals [but] are paying their tax’ – it ‘does seem grotesque’.
Cable replied: ‘It does, and it’s completely unacceptable where there is systematic abuse taking place.’ But it was difficult to ‘drill down to what the problems are’.
He noted that Starbucks had claimed that it was making losses in the UK. ‘I don't know whether they’re not but you would need some pretty intensive investigation by the Inland Revenue to establish what exactly is going on, whether their transfer prices and their royalties are being fiddled or not.’
Action at an international level was needed, he said. Other countries were ‘just as angry as we are about the way the system is being fiddled’. The UK needed to ‘beef up’ its own capacity to ‘crack down on tax abuse here’.
Andy Street is understood to be the first leader of a large UK business to call for a review of the taxation of foreign multinationals, but his intervention was backed by Sebastian James, group chief executive at Dixons Retail, who wrote on Twitter: ‘I agree with Andy Street: retailers making profits in the UK should pay tax in the UK.’
Last Friday, Sky News reported that the head of Britain's biggest business organisation said the time had come ‘for foreign firms to pay their fair share of UK tax’.
John Cridland, director-general of the CBI, told Sky News that the challenge was to make companies’ tax payments more transparent.
‘I would be hugely surprised, in five years’ time, if the landscape wasn’t very very different,’ he said.
The Sun quoted Cridland as saying: ‘Companies have to be able to convince people they are talking to that they are paying a fair amount of tax. If it makes good revenues but doesn’t pay tax, it may be for business reasons. If it’s for non-business reasons it’s not something I would support.’
Launching a CBI campaign in April to bring ‘an informed voice’ to the debate about business taxes, Cridland said UK businesses needed to be competitive on the world stage and were ‘perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes’.
Today’s Financial Times reported that the European Commission is set to recommend that member states adopt a ‘common, tougher definition’ of what constitutes a tax haven – based on the EU’s code of conduct for business taxation – and scrap or suspend existing double taxation agreements with such countries so that ‘companies would no longer be able to use them to avoid taxes’.
The EC is also recommending that member states should include a ‘general anti-abuse’ clause in their national legislation and the modification of double tax agreements to prevent ‘double non-taxation’, the paper reported. The recommendations will be proposed by EU tax commissioner Algirdas Semeta on 5 December, and ‘must then be approved by a meeting of Europe’s finance ministers’.
The FT report noted that ‘pressure is mounting on companies which artificially shift profits to tax havens or low-tax jurisdictions, following months of revelations about the very low tax rates enjoyed by some groups at a time when cash-strapped governments across Europe are struggling to boost revenues’.
Several companies have emphasised in turn that they are acting within the law. Some critics of recent press reports have suggested that allegations of avoidance reflect an expectation gap, based on what the law ought to provide, rather than an actual tax gap by reference to the current legislation.
