Tax Avoidance and Multinational Companies

Chris Philp Excerpts

Wednesday 3rd February 2016 Commons Chamber

[John McDonnell]

I am going to press on.

We all supported the changes to public procurement rules that enabled the Government to prevent public contracts from being awarded to companies found to be engaged in tax avoidance schemes. Staggeringly, it is understood that no company has been denied a public contract on those grounds and that, even though its tax affairs were under such lengthy investigation by HMRC, Google was awarded public contracts to supply services—who to?—to HMRC.

[Chris Philp (Croydon South) (Con)]

On the point about international agreements, the United Kingdom Government have been at the forefront of the base erosion and profit shifting initiative. Richard Murphy, who describes himself as the author of Corbynomics, told the Treasury Committee yesterday that he was “pleased and very surprised” by the progress the Government have made since 2010.

[John McDonnell]

I support the Government in that action, but this deal flies in the face of that action and undermines the agreements that we are trying to make.

Over the weekend we also heard from Mr Jones, the Google whistleblower. In his view, HMRC ignored his exposure of Google’s tax avoidance methods. That evidence was received by the Treasury Committee on a cross-party basis.

We all accept that the existence of tax havens and the complexity of national tax systems present an ongoing challenge to national Governments. As a result, we have all supported the negotiation of international agreements on tax collection. The UK is a signatory to some of these. As the hon. Member for Croydon South (Chris Philp) said, the Government have agreed in successive steps to abide by the base erosion and profit shifting programme under the auspices of the OECD. We supported that.

--- Later in debate ---

[Mr Gauke]

I want to make a little progress, but let me give way to my hon. Friend the Member for Croydon South (Chris Philp).

[Chris Philp]

Does the Minister agree that the reason why this announcement is welcome is that we collected £130 million of tax from Google, while Labour collected nothing?

[Mr Gauke]

It certainly appears that next to nothing was collected in that case.

--- Later in debate ---

[Chris Philp (Croydon South) (Con)]

In preparing for this debate, I was keen to see some facts about the Government’s record, so I turned to a study published by the Oxford University Centre for Business Taxation, probably the most academically reputable institution in the area of corporation tax. The report it published in February of last year identifies 42 separate measures that the Government have taken since 2010 to clamp down on corporation tax avoidance and evasion. They are forecast to raise £34 billion. I strongly welcome the measures that the Financial Secretary and his colleagues have taken in this area, which include the diverted profits tax and the general anti-abuse rule. The Government have also increased capital gains tax from 18% to 26%, dealing with a loophole that was being widely exploited by some hedge funds to end up paying rates of tax below that of their cleaners. The Government’s record in this area does bear scrutiny. Indeed, Richard Murphy, who describes himself as the “father of Corbynomics” declared himself pleased and surprised at the progress made in this area since 2010, which includes the BEPS initiative, which the UK Government have been strongly pushing.

I noted with interest that the shadow Chancellor did not repeat a claim he has made in the past about £93 billion of what he has called “corporate welfare”, implying that there is some sort of evasion or avoidance going on. Richard Murphy said yesterday, before the Treasury Committee, that he would question whether that figure was correct, as it includes things such as capital allowances, and research and development tax credits, which of course support companies that are investing in productivity, a topic that we all care about very much.

On Google, I said in an intervention that this Government have collected £130 million of tax more than the last Labour Government, who collected precisely zero. As such, we are talking about a welcome step in the right direction. The 3% tax rate has been mentioned but, as some Conservative Members have pointed out, such an analysis completely ignores the fact that Google’s staff headcount and intellectual property reside disproportionately in the United States. Were we to adopt the approach being suggested, UK companies, particularly those in the music, pharmaceutical and other industries, would suffer greatly.

That is not to say that there is not more that can be done—more can be done. I particularly suggest to the Financial Secretary that we should look carefully at how things such as transfer pricing rules are applied. Two or three years ago, Starbucks successfully levied a 6% brand fee from an offshore jurisdiction into the UK which almost completely extinguished its UK profits. Any brand levy that results in a zero profit is, almost by definition, too high, so I ask him to give guidance to HMRC on that topic, but I support the Government’s initiatives and hope they go further.