Transparency will make it ‘harder for companies to do the wrong thing’
Labour will review the rules underpinning the taxation of multinationals, shadow chancellor Ed Balls said yesterday after Ed Miliband told the BBC that his party would ‘end tax secrecy’. The Tax Justice Network, which advocates a system of unitary taxation, said a commitment to ‘improve’ transfer pricing rules would not be enough. But analysis published in today’s Financial Times included a warning that a unitary approach was ‘likely to lead to a proliferation of formulas’.
Miliband, the Labour leader, was speaking on the BBC’s Andrew Marr Show yesterday. ‘Many British companies and many individuals are paying their fair share of tax, and they look in horror at a system where some multinational companies from other countries can make huge profits in Britain and not pay taxes in Britain,’ he said. ‘This is scandalous, it’s got to change. The next Labour government will change it.’
‘An insult to hard-working taxpayers’
Miliband added: ‘We’ll end the tax secrecy because we can’t have a situation where we don’t know how much people are paying against how much profit they’re making. I’m serving notice that we will take action. We will end this situation where people can get away with making big profits in Britain and, for no reason at all and with no justification, not paying any tax. It’s wrong. Frankly it’s an insult to hard-working taxpayers in this country.’
James Landale, standing in for Marr, pointed out that the companies under scrutiny in recent weeks were not breaking the law. He asked Miliband what he would do to change the tax system itself.
Miliband said David Cameron was right to seek international action. The PM should push for greater transparency internationally. But he should also ‘say that if it doesn’t happen internationally we will make sure, working with business, that it happens here at home’.
Miliband added: ‘We’ve got to know how much tax people are paying … That will make it much harder for companies to do the wrong thing. Secondly, we’ve got to look at the rules on how companies can distribute their profits … There are other countries like Denmark that have a much tougher approach. We will act on this issue … we cannot have a situation where companies feel that they can get away without paying their proper fair share.'
Ed Balls said last November that there was an urgent need to ‘to look at how the wider corporate tax system needs to change to reflect the changing nature of the UK and global economy’.
Writing in The Huffington Post yesterday, Balls said: ‘Recent cases of companies who have manipulated the tax rules to reduce the tax they pay in UK to virtually nothing have rightly outraged all those people and businesses who pay their fair share of tax. They ask why some seem to think the rules not apply to them. This is not only unfair and also undermines companies who do pay their tax expecting there is a level playing field.
‘Sometimes there will be good reasons why companies pay little tax – some companies invest large sums in research and development, assets and infrastructure, which we should celebrate. But we also need to know when companies are stripping their profits out of the UK through artificial schemes.’
Balls said the UK government was not coming forward with concrete proposals. It was, however, ‘undermining’ the ability of HMRC to administer and collect tax, by cutting the department’s resources ‘too far and too fast’.
A single figure for UK tax
Balls outlined two key proposals. ‘First on ending tax secrecy, multinational groups should have to publish a simple, single figure for the amount of corporation tax they pay in the UK. At the moment it is too easy to set up complex networks of companies within a group, some of which can be based in tax havens, and move profits between them. This can make it very difficult to assess the overall amount of tax paid. Multinational groups can and should be able to structure however they wish, but they should have to produce a single figure for their UK tax.’
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'No tax bad, some tax good' The Times reported last week that Chuka Umunna, the shadow business secretary, wanted HMRC to publish ‘details of all companies’ tax contributions’. But while Ed Balls recognised that tax bills may be reduced for ‘good reasons’, the prospect of a league table of corporation tax payers will concern some tax professionals and business leaders. A report in yesterday’s Sunday Times described the set-off of a company’s trading losses against future profits as ‘a legitimate accounting manoeuvre’. Interest on borrowings had ‘eliminated tax liabilities’, it said, beneath a headline suggesting that the company had given HMRC the slip. But deductions for interest and the mandatory offset of trading losses incurred in earlier years are well-established features of corporation tax law. Paul Walsh, chief executive officer at Diageo plc, has warned of a risk that the tax debate ‘could almost become Orwellian’. ‘It’s “no tax bad, some tax good”, he said last month. ‘‘What about the company that’s investing billions and will get appropriate [deductible] tax losses and capital allowances? They’re creating a lot of jobs. Be very careful that we don’t get so simplified in our approach that it conspires against what this nation is trying to do – create jobs.’ |
The government should put concrete proposals on the table for the G8 to deliver internationally agreed action on tax transparency, Balls said, but in the meantime Labour would be talking to British business about how to deliver ‘transparency of revenues, profits, and taxes paid’ if international agreement takes time.
David Whiscombe, director of tax services at Berg Kaprow Lewis, said the complex tax profile of a multinational company could not be reduced to a single figure. Such a figure would be ‘about as meaningful and reliable as a politician’s soundbite’, he said in a press release issued by the UK200Group of independent accountancy and law firms.
Consultation
Balls added: ‘[Second,] we're going to have to reform the current rules that allow companies to make profits in Britain but pay no tax. That means reform of our corporation tax system. In the 21st century value is now often in brands, intellectual property, customer loyalty and ideas which can be traded globally between different parts of a company group. The rules need to be clearer, tighter and properly enforced.
‘That is why, as part of the policy review, we will also be looking at the rules underpinning the taxation of multinationals. We will examine international lessons on how we can improve transfer pricing rules, learning from countries where rules are more strictly applied. Shadow exchequer secretary Catherine McKinnell and I will be publishing a consultation document in the coming weeks and we will gather evidence from experts across the corporation tax field.’
Intangibles
The Tax Justice Network claimed that the international tax system was ‘completely broken’, and Balls had committed his party to ‘tinkering at the margins of the system’.
It added: ‘It is time to abolish transfer pricing rules and move to a unitary system. If Labour are saying that they want only to “improve transfer pricing rules” – rules that cannot adequately be enforced – then they are committing themselves to failure. It really is as simple as that.’
It has become ‘increasingly meaningless’ to talk about where many big companies earn their profits, the Financial Times reported today. ‘Companies can game the system by moving intangibles – the intellectual property, brands and knowhow that make up much of their value – to low-tax countries. The current rules policing the system are often hard to enforce.’
However, the FT added, critics say that ‘a move to a unitary approach would tend to suck revenues into countries with expensive real estate and high salaries, cause damaging uncertainty, offer new opportunities for gaming the system and intensify conflict’.
‘Think long and hard’
Sky News reported that David Cameron has warned company bosses to ‘think long and hard about their tax contributions to the Treasury’. City editor Mark Kleinman said some of the executives at a ‘private’ breakfast meeting at 10 Downing Street had ‘complained privately that they are operating on an unlevel playing field following the emergence of ultra-low UK corporation taxes paid by online retailers such as Amazon’.
Kleinman quoted a Downing Street source as saying the prime minister was ‘clear that corporation tax is being cut to make the UK even more competitive, and with such a competitive rate, companies need to make sure that they pay it’.
Transparency will make it ‘harder for companies to do the wrong thing’
Labour will review the rules underpinning the taxation of multinationals, shadow chancellor Ed Balls said yesterday after Ed Miliband told the BBC that his party would ‘end tax secrecy’. The Tax Justice Network, which advocates a system of unitary taxation, said a commitment to ‘improve’ transfer pricing rules would not be enough. But analysis published in today’s Financial Times included a warning that a unitary approach was ‘likely to lead to a proliferation of formulas’.
Miliband, the Labour leader, was speaking on the BBC’s Andrew Marr Show yesterday. ‘Many British companies and many individuals are paying their fair share of tax, and they look in horror at a system where some multinational companies from other countries can make huge profits in Britain and not pay taxes in Britain,’ he said. ‘This is scandalous, it’s got to change. The next Labour government will change it.’
‘An insult to hard-working taxpayers’
Miliband added: ‘We’ll end the tax secrecy because we can’t have a situation where we don’t know how much people are paying against how much profit they’re making. I’m serving notice that we will take action. We will end this situation where people can get away with making big profits in Britain and, for no reason at all and with no justification, not paying any tax. It’s wrong. Frankly it’s an insult to hard-working taxpayers in this country.’
James Landale, standing in for Marr, pointed out that the companies under scrutiny in recent weeks were not breaking the law. He asked Miliband what he would do to change the tax system itself.
Miliband said David Cameron was right to seek international action. The PM should push for greater transparency internationally. But he should also ‘say that if it doesn’t happen internationally we will make sure, working with business, that it happens here at home’.
Miliband added: ‘We’ve got to know how much tax people are paying … That will make it much harder for companies to do the wrong thing. Secondly, we’ve got to look at the rules on how companies can distribute their profits … There are other countries like Denmark that have a much tougher approach. We will act on this issue … we cannot have a situation where companies feel that they can get away without paying their proper fair share.'
Ed Balls said last November that there was an urgent need to ‘to look at how the wider corporate tax system needs to change to reflect the changing nature of the UK and global economy’.
Writing in The Huffington Post yesterday, Balls said: ‘Recent cases of companies who have manipulated the tax rules to reduce the tax they pay in UK to virtually nothing have rightly outraged all those people and businesses who pay their fair share of tax. They ask why some seem to think the rules not apply to them. This is not only unfair and also undermines companies who do pay their tax expecting there is a level playing field.
‘Sometimes there will be good reasons why companies pay little tax – some companies invest large sums in research and development, assets and infrastructure, which we should celebrate. But we also need to know when companies are stripping their profits out of the UK through artificial schemes.’
Balls said the UK government was not coming forward with concrete proposals. It was, however, ‘undermining’ the ability of HMRC to administer and collect tax, by cutting the department’s resources ‘too far and too fast’.
A single figure for UK tax
Balls outlined two key proposals. ‘First on ending tax secrecy, multinational groups should have to publish a simple, single figure for the amount of corporation tax they pay in the UK. At the moment it is too easy to set up complex networks of companies within a group, some of which can be based in tax havens, and move profits between them. This can make it very difficult to assess the overall amount of tax paid. Multinational groups can and should be able to structure however they wish, but they should have to produce a single figure for their UK tax.’
|
'No tax bad, some tax good' The Times reported last week that Chuka Umunna, the shadow business secretary, wanted HMRC to publish ‘details of all companies’ tax contributions’. But while Ed Balls recognised that tax bills may be reduced for ‘good reasons’, the prospect of a league table of corporation tax payers will concern some tax professionals and business leaders. A report in yesterday’s Sunday Times described the set-off of a company’s trading losses against future profits as ‘a legitimate accounting manoeuvre’. Interest on borrowings had ‘eliminated tax liabilities’, it said, beneath a headline suggesting that the company had given HMRC the slip. But deductions for interest and the mandatory offset of trading losses incurred in earlier years are well-established features of corporation tax law. Paul Walsh, chief executive officer at Diageo plc, has warned of a risk that the tax debate ‘could almost become Orwellian’. ‘It’s “no tax bad, some tax good”, he said last month. ‘‘What about the company that’s investing billions and will get appropriate [deductible] tax losses and capital allowances? They’re creating a lot of jobs. Be very careful that we don’t get so simplified in our approach that it conspires against what this nation is trying to do – create jobs.’ |
The government should put concrete proposals on the table for the G8 to deliver internationally agreed action on tax transparency, Balls said, but in the meantime Labour would be talking to British business about how to deliver ‘transparency of revenues, profits, and taxes paid’ if international agreement takes time.
David Whiscombe, director of tax services at Berg Kaprow Lewis, said the complex tax profile of a multinational company could not be reduced to a single figure. Such a figure would be ‘about as meaningful and reliable as a politician’s soundbite’, he said in a press release issued by the UK200Group of independent accountancy and law firms.
Consultation
Balls added: ‘[Second,] we're going to have to reform the current rules that allow companies to make profits in Britain but pay no tax. That means reform of our corporation tax system. In the 21st century value is now often in brands, intellectual property, customer loyalty and ideas which can be traded globally between different parts of a company group. The rules need to be clearer, tighter and properly enforced.
‘That is why, as part of the policy review, we will also be looking at the rules underpinning the taxation of multinationals. We will examine international lessons on how we can improve transfer pricing rules, learning from countries where rules are more strictly applied. Shadow exchequer secretary Catherine McKinnell and I will be publishing a consultation document in the coming weeks and we will gather evidence from experts across the corporation tax field.’
Intangibles
The Tax Justice Network claimed that the international tax system was ‘completely broken’, and Balls had committed his party to ‘tinkering at the margins of the system’.
It added: ‘It is time to abolish transfer pricing rules and move to a unitary system. If Labour are saying that they want only to “improve transfer pricing rules” – rules that cannot adequately be enforced – then they are committing themselves to failure. It really is as simple as that.’
It has become ‘increasingly meaningless’ to talk about where many big companies earn their profits, the Financial Times reported today. ‘Companies can game the system by moving intangibles – the intellectual property, brands and knowhow that make up much of their value – to low-tax countries. The current rules policing the system are often hard to enforce.’
However, the FT added, critics say that ‘a move to a unitary approach would tend to suck revenues into countries with expensive real estate and high salaries, cause damaging uncertainty, offer new opportunities for gaming the system and intensify conflict’.
‘Think long and hard’
Sky News reported that David Cameron has warned company bosses to ‘think long and hard about their tax contributions to the Treasury’. City editor Mark Kleinman said some of the executives at a ‘private’ breakfast meeting at 10 Downing Street had ‘complained privately that they are operating on an unlevel playing field following the emergence of ultra-low UK corporation taxes paid by online retailers such as Amazon’.
Kleinman quoted a Downing Street source as saying the prime minister was ‘clear that corporation tax is being cut to make the UK even more competitive, and with such a competitive rate, companies need to make sure that they pay it’.
