Tackling Corporate Tax Avoidance: EAC Report

Lord Leigh of Hurley Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is with great pleasure that I rise for the first time, to speak on this important issue of tackling corporate tax avoidance in a global economy, in the same debate as my noble friend Lord Lawson whom I have admired for so many years, for reasons connected to this debate, which I will come on to shortly.

I want to start by thanking the many people here who have helped me in so many ways, particularly since my introduction. This includes those who work here, for what seems to be very long hours, and who have guided me through the past few weeks. I am very grateful to my supporters, my noble friends Lord Feldman of Elstree and Lord Fink, who have been close personal friends for some time, and with whom I have had the honour to work in my role as a treasurer of the Conservative Party.

I understand that it is customary in a maiden speech to make a few remarks about oneself. Members of my family first arrived in this country in 1780, whereas other scions arrived here later in the 1880s. My ancestors probably left the Middle East some 2,000 years ago. I suspect that in that time, during their itinerant travels, no country has treated my family better than this one.

I hope to contribute to this House in a number of areas, not least because some 25 years ago I started my own business with one partner and one assistant and it has grown to become well established in its field of expertise. Accordingly, I have spent the last 25 years advising businesses, principally entrepreneur-owned small and medium-sized enterprises, and have some understanding of the issues that SME businesses face, partly as I started one and still have an interest in one, and partly from talking to those entrepreneurs on a daily basis. I hope that my daily interaction with these businesses, together with my activities within my other communities, will enable me to contribute to the House.

My early career started in chartered accountancy at a large multinational firm where I specialised in tax. In addition to serving on the council of Institute of Chartered Accountants I qualified as a fellow of the Chartered Institute of Taxation some 30 years ago, before moving to my current specialist field of mergers and acquisitions. Accordingly, although it might seem a little early for me to make my maiden speech so soon after my introduction, I was keen to have the opportunity to speak in this debate on tax matters.

I congratulate my noble friend Lord MacGregor and his colleagues on this excellent report. Reflecting upon my time as a tax adviser, albeit nearly 30 years ago, it is interesting to see how much has stayed the same and how much has changed. Equity financing as opposed to debt financing was an issue, as every inward investment had to have an agreed structure negotiated in advance. At that time, some 30 years ago, the mood was changing dramatically and suddenly the United Kingdom became an attractive place to invest after years where businesses had felt that there would be no point in coming here, either because they were not going to make a profit, or simply because they felt unloved. We need to ensure that we never go back to those very dark days.

This takes me back to my earlier reference to my noble friend Lord Lawson, who did so much to change the climate of taxation in this country, taking bold and imaginative steps dramatically to reduce both the legislative and fiscal burdens, which helped us to have a boom for the subsequent 25 years. It is with that in mind that I am nervous to read about proposed fiscal steps that might make multinationals feel less than encouraged to come to the UK, either because there is a feeling that this country might become anti-business or because there is uncertainty about how their tax affairs will be treated.

As the OECD report on base erosion and profit shifting notes, in the past 30 years there has been a huge change in the way multinational corporations arrange their finances. They are now perfectly able to choose in which country they want to invest, where their profits arise and, frankly, where to pay taxation.

The rules that I had to work with then, and many are still extant, are not fit for purpose as domestic tax regimes fail to interact globally, sometimes leaving gaps but sometimes doubling up. As a result, an enormous amount of legislation is being churned out to plug holes, which may work but frequently just creates other inequalities. For example, the aforementioned worldwide debt cap, which HMRC introduced some five years ago to limit the total tax deduction for interest that the UK part of a corporate group can claim as a fair deduction, has in fact produced an absolute bonanza—but only for the firms of accountants that have charged millions in fees trying to calculate this elusive proportion.

Accordingly, a wider holistic approach to this problem is needed. The UK has a track record in leading the way. Our approach to CFCs is regarded as the best in class worldwide. I welcome the Government’s decision to contribute a further €400,000 to the OECD to establish a global solution to these issues. This is important, as there is nothing so frustrating and annoying to hardworking entrepreneurs in the SMEs than the belief that a large multinational competitor is somehow avoiding paying its fair share of tax to the community from which it derives its income.

There are of course other organisations that benefit from a reduction in tax by the use of debt finance, whose activities are entirely based in the UK but whose use of offshore tax havens to shelter interest payments—and thus, of course, profits—may need further investigation.

I could comment much more on the report, particularly on my concerns over the regulation of tax advisers and the very good points made about the secondment of staff to HMRC, but my Whip, my noble friend Lady Jenkin, has given me excellent advice on many matters, particularly timing, for which I am grateful. So this time—it is the first and it may be the last—I will abide by her instructions and resume my seat, with thanks to her and to many others in this House.