Finance Bill

Nigel Mills Excerpts

Tuesday 28th June 2016 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

I hope that the Minister will be willing to channel the leadership and enthusiasm that the UK showed in relation to the diverted profits tax, when we chose to go out alone and not wait for international agreements on base erosion and profit shifting. We introduced a whole new tax, with compliance burdens and penalties, and I suspect that that was a far bigger deal than requiring companies simply to disclose what they are already disclosing but in a slightly different format. I think that that was the right way to go.

[Mr Gauke]

My hon. Friend is right to mention the fact that we went ahead with the diverted profits tax, although doing so was clearly consistent with the direction of the base erosion and profit shifting process. That tax also brought in significant revenue to the UK, which has been very helpful.

If we want to achieve greater transparency, as I believe we all do, it is right that we focus on driving forward international efforts on public country-by-country reporting. In order to get full information on foreign multinational entities’ global activities, multilateral agreement will be required to enable countries to introduce comprehensive rules with the widest possible scope. This will allow for a comprehensive multilateral approach that applies consistently across UK and foreign multinational entities. We must get this right so that, when it is introduced into UK law, it is effective and enforceable. We will continue to support and drive this multilateral change forward following the result of the referendum, and I share the determination of the Members supporting this amendment not to move at the pace of the slowest.

--- Later in debate ---

[Caroline Flint]

I hope that the companies that we are talking about would be big enough to have a website; if not, we might get an opportunity to discuss that later. My goodness, in terms of their reputation, if they do not have a website, they are on a hiding to nothing.

The Minister tried to suggest that the amendment would relate only to UK companies, but it is in line with HMRC guidance that already affects the reporting strategies that the whole House has supported and includes multinational enterprises over a certain turnover. In that sense, we are working with the grain of how the Government have proceeded in these important areas.

There is widespread concern in the House, across all parties, that multinationals operate by different rules from the majority of hard-working, tax-paying businesses, large and small, in the UK. The greatest weapon of multinational enterprises is that their tax arrangements are shrouded in secrecy. The problem is that, in today’s world, as leaks emerge and information comes out, it is death by 1,000 cuts, whereas the amendment is about getting businesses and their reputations back on track. Not only would this be good for business, but it would ensure that those businesses that are playing fair have a chance to set out their claim and what they are doing in a very public way.

Governments across the world face a particular problem with multinationals. The common factor is that revenues are shifted to countries with poor governance, poor monitoring and low or no corporate tax rates. Why in 2010 did Bermuda have total reported corporate profits that were the equivalent of 1,643% of its actual GDP? Could that be because that country has a zero rate of corporation tax? Is there not something odd about a company—let us say, Google—that has huge numbers of sale staff in one country, but all the revenues reportedly received in another? It would surprise no one to find that the revenues are recorded in a country that has a corporate tax rate of 12.5%, as opposed to the UK’s 20%.

The House can take a stand against this entirely lawful but—I think we would all agree—unethical manipulation of different countries’ tax rules. As the OECD has rightly pointed out in its work on base erosion and profit shifting, the impact is to create unfair competition. Multinational enterprises that transfer profits to low-tax dominions gain a competitive advantage over, say, a UK rival, which pays 20% tax on its profits. We can seek to level that playing field today.

The whole House supported the Chancellor’s legislation to require financial reporting to HMRC from UK-based multinationals with revenues in excess of approximately £600 million and UK units of such companies where the parent company is based in a country that does not yet agree to country-by-country reporting. That reporting, in accordance with the guidelines that I have mentioned, would include showing for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued, and their total employment, capital, retained earnings and tangible assets. They would be required to identify each entity within the group doing business in a tax jurisdiction and to provide an indication of business activities within a selection of broad areas in which each entity engages. That information must already be provided to HMRC. We are saying, “Let’s go public.” I want the HMRC to be armed with all the necessary information to secure fair tax contributions from these companies, based on their UK activity, but we need more than the HMRC to have a confidential look; we all deserve to see the bigger picture, and by publishing, we will see that.

Publishing is one way to persuade some of these companies to restore their corporate reputations. Was it because of the extraordinary focus on Google that Facebook announced a welcome change to the recording of its profits in the UK? I believe so. If a company is reporting profits in tax havens where they have only a PO box and a name plate but no apparent staff or activity, do we not want to know that? Let us follow our convictions; let us do what we know to be right. Let us shine a light on the activities of these large multinationals which—let us be honest—run rings around revenue and customs authorities around the world. Let us not flinch, play for time, and hope that some international agreement will eventually be reached by the EU or the OECD.

I remind Members that so often during the referendum on the UK’s EU membership, we heard a lot from both sides about our Parliament’s sovereignty and our power to make laws and to tackle issues big and small. Well, this is the test. Is Britain still a leader or are we followers? This amendment is a pro-business measure. If we adopted it, Parliament would be saying that every business big and small must play by the same set of rules. The tide of opinion is changing in the business world. I am delighted that this week I have received support from SSE for the principle of public country-by-country reporting. I am delighted when major firms such as the cosmetics company Lush, which operates in 49 countries, sign up to the Fair Tax Mark and pledge never to use tax havens. I welcome the fact that since 2014, a quarter of the FTSE 100 companies have published information about their tax arrangements, with long-standing British firms such as Barclays foremost among them.

I commend the Minister for the steps that have been taken in the past six years to improve the level of transparency and for the clampdown on the secretive tax deals that have thwarted fair taxation for so long. In our hearts, do we not all know what the Googles of this world will be hoping? They will hope that we sidestep this issue and duck the opportunity for Britain to set a standard, to lead and to demand more openness. This House knows what those who want fair taxes from large and small businesses alike will want. Every right hon. and hon. Member knows what their constituents would say about these firms shifting their profits to low-tax and no-tax dominions. Let us spare a thought, importantly, for the developing countries, which reportedly lose as much in lost tax revenues as they receive in aid each year. That cannot be right.

Finally, in February, the Chancellor told an international meeting of Finance Ministers:

“I think we should be moving to more public country-by-country reporting. This is something which the UK will seek to promote internationally.”

I hear what the Minister says, but there comes a point when we have to show leadership. Much of our tax rules and other rules affecting companies are not applied worldwide. They are British home-grown rules that seek to provide fairness as well as competition.

I welcome the EU’s activities in this area, although I am not sure where we will fit in. We might have to accept whatever the EU says if we are part of the single market. That is a debate for another day. Unfortunately, the present state of the EU’s negotiations does not tackle the problems of those developing countries that lose out. As I understand it, some of the European discussions have not included the publishing of information on the activities of EU-based companies in developing countries. That does not go as far as what we require from companies reporting to our own tax authority, which we are asking to be put in the public domain.

The change that I am calling for would be part of the Minister’s and the Chancellor’s legacy—a chance to lead where other countries are sure to follow. Let us ensure that the age of secrecy is gone. Let us force the multinationals into the light. I humbly request a Division on this amendment, and I urge the Minister and Conservative Members to join right hon. and hon. Members from nine parties in the Lobby with me today to make a historic change. In years to come, we will ask ourselves why we did not do this earlier. Today is the day. Let us stand up for fairness. Today is a day for lions, not lambs. Let us see the British Parliament roar. I urge the Committee to support this amendment.

[Nigel Mills]

It is a pleasure to follow the right hon. Member for Don Valley (Caroline Flint) and to support her amendment. I shall not repeat the arguments that she made so eloquently, but I shall make a few separate points.

Those of us who regard the UK as a great place to do business, and who want to attract international investment here and encourage our businesses to expand overseas and to export, recognise that we need a business climate that inspires confidence, where firms feel that they can compete fairly and that we have a respected financial system, tax system and market in which those operating here are seen to be behaving properly. Over the past few years we have found out from a series of leaks that large multinational companies have been misbehaving. Those companies are hauled through the press and parliamentary Committees, such as the Public Accounts Committee, on which I serve. That is not the right way to boost our business climate.

We need to move on from that and show the people of the UK and people around the world that companies that are based here and operate here follow the rules, and those that do not follow the rules will be caught and dealt with, and will be strongly encouraged, if not forced, to change their behaviour. That is the way to move the debate forward. Running and hiding and waiting for others to do that will not help. It is we who have taken the lead, taken action publicly against those companies and made them change their behaviour. For us to resile from that and say, “We’ve done our bit. Let someone else go first” will not work.

We are one of the main global financial centres. Companies come here to list on our stock market that were not founded here and are not headquartered or based here. We need to set an example and say, “If you want to come and be based here, you need to follow the highest standards. We want you to behave ethically.” I have no problem with UK-based companies trading in low-tax jurisdictions. If they are trading there commercially, if they have assets there, if they have employees there, that is their right, but they should publish a report so we can see that what they are reporting is commensurate with their activities there, and that they are not simply hiding profit there that was not earned there. I welcome the increased transparency that the amendment would provide.

I do not believe the bleak competition warnings. It is not as though every small company would be required to provide such a report. The requirement would apply only to companies with turnover of more than €750 million. I would not like to guess what that is in sterling. I am sure it will gradually go up as the economy strengthens, now that we have left the EU. I would be surprised if many companies of that size have major trading activities in developed countries without having a subsidiary there that is making the sales. If those companies do have such a subsidiary, they will have to file statutory accounts in those territories. I suspect that in most regimes those will be public, so people will know the turnover of those big corporations in those regimes, and they will know what tax is due. Companies filing for UK tax have to provide a segmental analysis that shows where they are operating in the world and breaks down turnover and profit. We are not creating a new set of disclosures that do not already exist; we are trying to enhance the ones that we have and make them work.

I checked some major multinational accounts this morning and found one segment that said, “UK, US and international”. That is of no use to us. The idea of segmental reporting in financial accounts was to provide some disclosure so that we knew who was operating where, how much they were making and what they were doing. I do not believe that for the vast majority of very large companies that are trading ethically and not trying to avoid tax the requirement will be a great hardship. Yes, it may put a little more in the public domain, but it will put that into one document where people can read and understand it, see it transparently and clearly, and get a full picture of what the company is doing.

Everyone will understand that there is no reason why a company based in the UK that happens to make a few sales in France but has no people or assets there should pay French corporation tax. Similarly, there is no reason why a French company selling into the UK would pay UK corporation tax. We can make that clear. What we want to know about is those companies that have a large turnover and very few assets and employees in a very low-tax jurisdiction, so that we can work out whether they are acting legally.

Perhaps they are—perhaps some guy sitting in Guernsey on his own happened to invent a great product and has been receiving royalties. That is fair enough. He is entitled to do that. If he is based in Guernsey, that is rightly his income. I suspect that there are not many such cases, compared with the scale of business activity in those overseas jurisdictions. At least when such activity is transparent the businesses concerned will be able to explain it and defend themselves, or we will all know that those companies are misbehaving and we will be able to choose whether to buy from them or not. The amendment would help us to achieve that. As with all Back-Bench amendments, it is not perfect. The report should be provided in a company’s financial statement so that there is some assurance from the audit process that the data provided are accurate. I urge the Government to bring forward a Bill which would do that, so that the information would be provided in the right place.

It is not perfect for the reporting requirement to be in a tax policy statement that applies only to the UK and without any audit requirement. It may not provide assurance that all the disclosures are absolutely right and that no territories have been omitted or data combined in a way that we cannot understand. I suspect that there will be penalties for failing to publish the whole statement, but no scrutiny of what is published. Perhaps if the same information is provided to HMRC, there will be greater transparency. HMRC may notice that what is in the public domain is not quite the same as the information submitted to it. We could therefore make the proposal better.

It would probably be better if we tackled this issue EU-wide. I am perhaps the only person in the Chamber who welcomes the fact that we shall be making these laws ourselves, rather than having the EU make them for us—tax was always meant to be a member state competency—but if we want to wait a short period to have these things done in a consistent format across the whole of Europe, I would not mind if publication were in 2018 rather than 2017. However, we could at least have a clause that says that we will do these things from 2018 unless the EU has done something that applies here before then, in which case we could repeal that clause.

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[Rob Marris]

I will not go too far down that route, but this Chancellor—in this sense and this sense only—has been saved by the Brexit vote. He was never going to meet his forecasts for getting the deficit down in the lifetime of this Parliament. He also completely failed when he forecast in the previous Parliament that the deficit would be down to zero by 2015. He then forecast that it would be down to zero by 2020. That was never going to happen. We predicted that and I am sad that it was the case.

Now, with the Brexit vote, as my hon. Friend the Member for Coventry South (Mr Cunningham) says, the forecast will be nowhere near right, but no doubt the Chancellor will then use the vote as an excuse. The Brexit vote has revealed some of the underlying problems in the British economy that just about every serious economist has been pointing out for the last five years. Cutting corporation tax in this circumstance is a bad idea, and I urge all hon. and right hon. Members to vote against clause 42.

[Nigel Mills]

It is a pleasure to follow the hon. Member for Wolverhampton South West (Rob Marris). I want to say a few words about clause 42, because although I clearly welcome the planned reduction in corporation tax by 2020, following the welcome vote last week, it may now need to be part of the picture of how we change our business tax regime over that period. Unlike earlier, there are now a few more of us present who thought the vote was welcome.

For us to capitalise on the opportunities of leaving the European Union, we will have to make our country even more attractive to outside investment to stimulate growth, a key part of which is our corporation tax system. As the Minister is planning ahead that far and as we now have the special group in the Cabinet Office under the Chancellor of the Duchy of Lancaster, I urge careful thought about what our tax system should look like by the time we leave the European Union, what signals we are giving and how we can further improve it and make it more attractive. Perhaps we could look at an even lower rate to send out a signal that we are positive about business activity and that we want more investment and will reward it further.

Perhaps we could look again at how we do capital allowances, especially for infrastructure investment and manufacturing items, for example. Perhaps we could re-examine how we give tax relief for the building of new factories. This country is not actually that generous and does not give tax relief for any industrial building, which is not a clever way of encouraging manufacturing. In fact, we are one of the least attractive tax regimes for various infrastructure investment activity because of our lack of relief for structures. Perhaps now that we have the need and the time to review that, we should ask whether it is clever to structure our tax system in a way that is not as attractive as possible for industrial building and infrastructure activity, especially as we will need a lot of investment as we go forward.