There is a growing crisis in the UK’s tax system, with ‘lurid stories of tax avoidance’ appearing almost every week, Liberal Democrat MP Ian Swales said as he opened last night’s House of Commons debate on corporate tax avoidance.
Private Eye deserved special mention for its exposure work, Swales said. Using parliamentary privilege, Swales claimed that ‘Vodafone, the Ritz hotel, bookmakers, water companies, care homes, professional services companies such as Accenture and CSC, and of course American behemoths including Apple, Google, Amazon, Microsoft, Facebook and Starbucks, are just a few of the examples’.
‘A threat to our political system’
Swales said: ‘The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the government will get revenue only from people stuck as employees on PAYE, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete.
‘A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.’
‘I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously.’Dave Gauke, exchequer secretary |
Twenty MPs, including 15 government members and five opposition MPs, contributed to the three hour debate scheduled by the Commons backbench business committee.
Richard Bacon, the Conservative MP and member of the public accounts committee, noted that Starbucks had ‘made the bizarre announcement that it would pay £10m in corporation tax in each of the next two years, whether or not it made a profit’.
The idea that companies should pay corporation tax ‘because the mob has turned on them, the spotlight is on them,’ was a ‘bizarre way of arranging our tax affairs’, he argued.
Frank Field, the Labour MP, asked him: ‘If governments are inactive on this front, what action does he propose taxpayers should take, other than that mob action?’ Bacon replied: ‘Governments should take notice when they see outside 100 Parliament Street, the headquarters of HMRC, large crowds of riot police – there are photographs to that effect, which can easily be found on the web. When governments see such a thing happening, they should sit up and take notice that the system is not working and that it is not fit for purpose.’
Government contracts
Conservative MP Charlie Elphicke, a former tax lawyer, said his own study of technology companies that benefit from government contracts had found that ‘Oracle, Xerox, Dell, CSC and Symantec paid no corporation tax whatsoever last year, despite earning more than £474m from government contracts and having a UK turnover of £7bn’.
Elphicke added: ‘Overall, my study of 10 technology companies in receipt of more than £1.8bn of taxpayers’ money found that they paid just £78m in taxes on UK earnings of just over £17.5bn of turnover (sic).
‘On the basis of group profitability – we are looking at the consolidated international group – these 10 technology companies would have made more than £3.3bn in profits in the UK, resulting in a tax liability of £879m. The UK tax actually paid was just £78m, so according to my research the tax gap was £801m.’
Allegations
Tax avoidance, unlike evasion, is legal. Elphicke’s estimates, and many others that have formed the basis of allegations made in the last year, appear to be based on a re-allocation to the UK of profits alleged to have been ‘shifted’ to low-tax jurisdictions by means of payments between group companies.
There is no suggestion that any of the named companies has broken any law, and some tax professionals have argued that campaigners should be calling for a change in the law rather than targeting individual companies.
However, it is widely accepted that any major change in the international tax system would take many years. Campaigners have called for greater transparency and sought to embarrass large multinationals into changing their tax arrangements.
Justin King, group chief executive at Sainsbury’s, has told the Conservative MP Stephen McPartland that developing a new international standard requiring country by country reporting would ‘take time’.
‘I strongly believe that consumers are best placed to encourage companies to pay a fair amount of tax in the UK,’ King said last November. McPartland had written to the chief executives of all FTSE 100 companies seeking their support for ‘corporate tax transparency’. He has now started to publish the responses on his website.
As Tax Journal reported last month, the big four firms of accountants have stressed ‘their global role and their requirement to respond to the needs of their clients’. Ernst & Young has told Tax Journal that the firm’s clients seek advice on ‘a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.
Concerns
David Gauke, the exchequer secretary, said: ‘We are determined to clamp down on the minority who engage in tax avoidance.’ Where HMRC finds tax avoidance, it takes action, he said. ‘Our intention is to have the most competitive tax system in the G20.’
But the government aimed to ensure that all businesses paid the right amount of tax by taking action ‘internationally and domestically’.
He continued: ‘Internationally, it is clear that our tax system, as with all other major economies, works within internationally agreed OECD guidelines … I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously.
‘Reform in this area will require concerted international action. This is an issue that all countries face. We need to work with others to develop the appropriate solutions. We are doing just that through the OECD, on the erosion of the tax base and the shifting of profits to lower-tax rate jurisdictions.
‘Two months ago the chancellor issued a joint statement with the German finance minister calling for concerted international co-operation to strengthen international tax standards. Following that statement, the UK, together with France, offered voluntary contributions, equivalent to €150,000 each, in order to make rapid progress in achieving concrete results. The OECD’s work is vital in helping to promote a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level, and it will be reporting to the G20 finance ministers on progress in February.’
There is a growing crisis in the UK’s tax system, with ‘lurid stories of tax avoidance’ appearing almost every week, Liberal Democrat MP Ian Swales said as he opened last night’s House of Commons debate on corporate tax avoidance.
Private Eye deserved special mention for its exposure work, Swales said. Using parliamentary privilege, Swales claimed that ‘Vodafone, the Ritz hotel, bookmakers, water companies, care homes, professional services companies such as Accenture and CSC, and of course American behemoths including Apple, Google, Amazon, Microsoft, Facebook and Starbucks, are just a few of the examples’.
‘A threat to our political system’
Swales said: ‘The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the government will get revenue only from people stuck as employees on PAYE, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete.
‘A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.’
‘I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously.’Dave Gauke, exchequer secretary |
Twenty MPs, including 15 government members and five opposition MPs, contributed to the three hour debate scheduled by the Commons backbench business committee.
Richard Bacon, the Conservative MP and member of the public accounts committee, noted that Starbucks had ‘made the bizarre announcement that it would pay £10m in corporation tax in each of the next two years, whether or not it made a profit’.
The idea that companies should pay corporation tax ‘because the mob has turned on them, the spotlight is on them,’ was a ‘bizarre way of arranging our tax affairs’, he argued.
Frank Field, the Labour MP, asked him: ‘If governments are inactive on this front, what action does he propose taxpayers should take, other than that mob action?’ Bacon replied: ‘Governments should take notice when they see outside 100 Parliament Street, the headquarters of HMRC, large crowds of riot police – there are photographs to that effect, which can easily be found on the web. When governments see such a thing happening, they should sit up and take notice that the system is not working and that it is not fit for purpose.’
Government contracts
Conservative MP Charlie Elphicke, a former tax lawyer, said his own study of technology companies that benefit from government contracts had found that ‘Oracle, Xerox, Dell, CSC and Symantec paid no corporation tax whatsoever last year, despite earning more than £474m from government contracts and having a UK turnover of £7bn’.
Elphicke added: ‘Overall, my study of 10 technology companies in receipt of more than £1.8bn of taxpayers’ money found that they paid just £78m in taxes on UK earnings of just over £17.5bn of turnover (sic).
‘On the basis of group profitability – we are looking at the consolidated international group – these 10 technology companies would have made more than £3.3bn in profits in the UK, resulting in a tax liability of £879m. The UK tax actually paid was just £78m, so according to my research the tax gap was £801m.’
Allegations
Tax avoidance, unlike evasion, is legal. Elphicke’s estimates, and many others that have formed the basis of allegations made in the last year, appear to be based on a re-allocation to the UK of profits alleged to have been ‘shifted’ to low-tax jurisdictions by means of payments between group companies.
There is no suggestion that any of the named companies has broken any law, and some tax professionals have argued that campaigners should be calling for a change in the law rather than targeting individual companies.
However, it is widely accepted that any major change in the international tax system would take many years. Campaigners have called for greater transparency and sought to embarrass large multinationals into changing their tax arrangements.
Justin King, group chief executive at Sainsbury’s, has told the Conservative MP Stephen McPartland that developing a new international standard requiring country by country reporting would ‘take time’.
‘I strongly believe that consumers are best placed to encourage companies to pay a fair amount of tax in the UK,’ King said last November. McPartland had written to the chief executives of all FTSE 100 companies seeking their support for ‘corporate tax transparency’. He has now started to publish the responses on his website.
As Tax Journal reported last month, the big four firms of accountants have stressed ‘their global role and their requirement to respond to the needs of their clients’. Ernst & Young has told Tax Journal that the firm’s clients seek advice on ‘a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.
Concerns
David Gauke, the exchequer secretary, said: ‘We are determined to clamp down on the minority who engage in tax avoidance.’ Where HMRC finds tax avoidance, it takes action, he said. ‘Our intention is to have the most competitive tax system in the G20.’
But the government aimed to ensure that all businesses paid the right amount of tax by taking action ‘internationally and domestically’.
He continued: ‘Internationally, it is clear that our tax system, as with all other major economies, works within internationally agreed OECD guidelines … I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously.
‘Reform in this area will require concerted international action. This is an issue that all countries face. We need to work with others to develop the appropriate solutions. We are doing just that through the OECD, on the erosion of the tax base and the shifting of profits to lower-tax rate jurisdictions.
‘Two months ago the chancellor issued a joint statement with the German finance minister calling for concerted international co-operation to strengthen international tax standards. Following that statement, the UK, together with France, offered voluntary contributions, equivalent to €150,000 each, in order to make rapid progress in achieving concrete results. The OECD’s work is vital in helping to promote a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level, and it will be reporting to the G20 finance ministers on progress in February.’
