Tax Avoidance and Multinational Companies

Roger Mullin Excerpts

Wednesday 3rd February 2016 Commons Chamber

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

This is, undoubtedly, an important debate for all the people outside the House who have commented on the subject, which is of great concern. We are talking about a complex matter, which may require, in the longer run, fundamental reform and international co-operation. There are no easy fixes. The deal with Google needs to be scrutinised, for the sake of all who are concerned that it might be described as a sweetheart deal. That is why I fully supported my hon. Friend the Member for Dundee East (Stewart Hosie) in taking the initiative and being the first person to write to the European Commission to seek an independent examination of the settlement. There is a lack of transparency in the deal, but these are difficult matters, and we may have to look at changing some of the rules in the longer run.

To many people, the recent agreement between Google and HMRC is very obscure and opaque, and gives the appearance of being very generous to a large multinational corporation. It contrasts sharply with the experience of many local SMEs. I would be astonished if I were the only Member of the House who has received comments from innumerable small businesses about what they perceive as the unfairness of the deal. I want to quote the views of two SMEs in my constituency. First:

“It is galling that my business pays its taxes on time and in full, but huge corporations like Google do not and seem to be able to avoid doing so for years”,

says Jim Cruickshank of Cruickshank Glaziers. Secondly:

“It seems there are stringent rules for small domestic businesses but another much easier world for major companies. This often gives unfair competitive advantage to the large companies”,

says Stewart Murray of the Farm Shop, Kirkcaldy. That is a concern of many of our domestic businesses. Because of the complexity of their tax affairs and of how they can operate, many of the largest corporations find that they have—in many cases, legitimately, in this system—a major competitive advantage over domestic businesses.

[Andrew Gwynne]

Does that not show how SMEs across the United Kingdom feel they have been treated? Their impression is that there is one tax law for them and another for large multinational companies. Does it not also provide a contrast between the British approach and the approach of some of our European colleagues to the very same issues? They are holding out for a much better deal for their taxpayers.

[Roger Mullin]

Many people throughout Britain will think that the hon. Gentleman has made a very fair point. That is why I have been arguing that we must have a proper investigation and why, perhaps in the longer run, we need to do something about greater transparency. It will be very difficult for us to bring a proper critique to bear if we do not get such clarification.

It must, of course, be admitted that this is not a new phenomenon. I first became aware of concerns about multinationals paying their fair share of UK taxes back in the early 1970s, when I briefly worked for the multinational IBM, and I am aware of concerns predating that. This has not been going on for just one or two years; Governments have not been able to resolve this issue satisfactorily for decades, which emphasises its complexity. The issue has been around for a long time, regardless of whether this country had a Labour or Tory Government and regardless of which parties formed Governments in many other countries.

I remember that the concerns back in the early 1970s were about what was called “transfer pricing”. For example, a company could buy a handle from a parent company in another country and charge an exorbitant fee for it, which allowed them easily to transfer profits from one area to another. I would be the first to admit that there have been moves to tighten up many such matters since the 1970s, but it remains a fundamental problem to this day. Corporation tax seems to be very susceptible to avoidance by multinational corporations because of the way in which they can, quite legally, operate.

[Mr Bacon]

The Public Accounts Committee found that HMRC as a whole had only 65 specialists in transfer pricing, which was about the same as each of the big four accounting firms. Does the hon. Gentleman welcome this Government’s introduction of more transfer pricing specialists in HMRC?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. May I say to hon. Members who wish to speak but are now making interventions that I assume they will not mind if they go to the bottom of the list because they have almost used up their time?

[Roger Mullin]

I thank the hon. Gentleman for his intervention, because I must admit I was not aware that only 65 staff were involved in transfer pricing. That seems to me to be remarkably few, given the challenges they face. I would welcome anything that can be done to strengthen their numbers.

Times have changed. Back in the 1970s, it was never envisaged that huge multinational corporations could quickly arise as a result of operating in the world of the internet. The tax system, which has been built up over many years—as the hon. Member for Warrington South (David Mowat) mentioned, part of it dates from the 1920s or thereabouts—is singularly unable to deal with some of the types of international corporations, such as Facebook and Google, that there are today.

The world has changed fast in other regards. I am old enough to remember being able to go into a café and just ask for a coffee.

[Rob Marris (Wolverhampton South West) (Lab)]

Surely not!

[Roger Mullin]

I am. Nowadays, I am delighted to say that I know about cappuccinos and other things.

[Rob Marris]

In your constituency?

[Roger Mullin]

Yes, throughout my constituency. There is wonderful cappuccino in Cowdenbeath, I have to say. The likes of Starbucks were not present years ago. The internationalisation of what seem to be simple products is a comparatively new phenomenon.

We must not lose sight of the fact that many more traditional players, not merely internet companies, are engaging in practices that may be legal, but create major challenges internationally. If I were to ask in a local pub quiz, which of course I rarely go to—

[Rob Marris]

Because you’re drinking coffee!

[Roger Mullin]

Quite. If I were to ask, “What is the biggest charity in the world?”, many people would say the Gates Foundation, which The Economist has estimated is worth about $37 billion. Few would say that the answer is, as The Economist pointed out a few years ago, the Stichting INGKA Foundation—a charitable body whose aims include

“the advancement of architecture and interior design”.

This charitable foundation owns INGKA Holding, which owns the IKEA group.

That set-up, which is admittedly much more complex than I have just described, operates and moves money across territories such as the Netherlands, Luxembourg, Switzerland and so on. The money is not even tracked within that foundation. The IKEA trademark is owned by another private company, Inter IKEA Systems. Just to operate IKEA’s stores, of which there are approximately 290 in the world, the charity has to make substantial yearly payments. Eventually, the trail is thought to lead back to the owning family. When there is such complexity—and it is even more complex than I have summarised—we can see the kind of international challenge there is. That is why I believe the current tax regimes to be ill-equipped to cope and why we need fundamental reform.

Let me give a glimpse of another tactic that is used—the offshoring of companies. There are approximately 19,000 businesses registered at a single address in the Cayman Islands. That must be a pretty big hoose, as we would say in Scotland.

[Rob Marris]

Full of IKEA furniture!

[Roger Mullin]

Yes, full of IKEA furniture.

It has been claimed by Oxfam, although I have not checked this out, that 98 of the FTSE 100 companies have subsidiaries in tax havens. There is a wider ethical question to address. This is not merely about how international corporations may evade UK tax. Some countries are much more vulnerable than the UK. There are considerable concerns, as the hon. Member for Foyle (Mark Durkan) said, in the developing world. Some 30% of Africa’s wealth is held offshore. Research by the International Monetary Fund has found that developing countries lose $200 billion a year to tax avoidance—more than they get in all forms of foreign aid.

The UK needs to take a lead. Hopefully we will see that when the Prime Minister hosts the anti-corruption summit in May 2016, because the UK remains at the centre of a global network.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

It is three years since the Prime Minister promised to clamp down on tax evasion and to publish the details of UK-based companies and people in the overseas territories. Does the hon. Gentleman agree that the Prime Minister should fulfil his obligation? This is a manifesto commitment that he has failed to fulfil.

[Roger Mullin]

I agree with the hon. Lady, and hopefully the Prime Minister will fulfil that obligation in the conference that he will chair shortly. We shall wait and see.

I shall conclude with one other example that is close to the heart of the Scottish people: our historical links with Malawi. This week, ActionAid launched a new campaign, calling for the UK to negotiate a fairer tax treaty with Malawi. Every constituency in Scotland has strong historical links with Malawi. The UK tax treaty with Malawi was signed in 1955 when Malawi was under British colonial rule, and it limits the ability of the Malawi Government to collect tax revenue from UK firms that operate there, thereby preventing that poor country from raising money that it desperately needs.

It is right to hold a thorough investigation into the Google settlement, and we should press for greater transparency. We should also press the UK to take an international lead in addressing the corrupt tax avoidance practices of the many, and not just the few. Getting our own house in order would be a fine start.