THE BLOG

We Don't Need To Tolerate Tax Avoidance That Costs Britain Billions Every Year

13/07/2017 10:45
Suzanne Plunkett / Reuters

It is over a year ago that a row erupted over the amount of tax Google agreed to pay the UK tax authority, HMRC.

We have had a change of Chancellor, a general election and a change in law since - but the issue is not resolved.

In September, I successfully amended the Finance Bill to give the government the power to require multinationals to publish tax information in all countries where they operate, known as Public Country-By-Country Reporting.

This openness would help all of us, taxpayers, NGOs, as well as Government, to see where large companies pay their tax, and discourage tax avoidance. Despite the government supporting the amendment, it has yet to use this power.

Today British multinational RB, manufacturer of household items such as Dettol and Vanish, has backed a public campaign for tougher tax laws after an Oxfam investigation suggested that poor countries are losing valuable revenue needed to tackle poverty as a result of its tax practices.

I welcome RB's support for greater transparency and tighter rules to help prevent the widespread problem of corporate tax avoidance that costs developing and developed countries billions each year. We need other companies to follow suit. And we need to know what profits are made and taxes paid by companies like RB in all countries where they operate.

Oxfam's new report suggests that RB may have avoided paying as much as £200million globally in the last three tax years. Researchers estimate that £60million of this should have been paid in what RB terms 'developing markets,' mostly countries with large numbers of people living in poverty.

There is no suggestion of illegal activity. Rather, Oxfam's research finds that creating regional hubs in three corporate tax havens - the Netherlands, Singapore and Dubai - in 2012 and 2014, enabled RB to significantly reduce its global tax rate.

It's clear that companies with a mandate to deliver a return to shareholders and investors will feel pressure to find ways to legally cut their tax bills. That's why governments have a duty to make sure their domestic tax laws are as watertight as possible, to receive the tax they're rightfully owed. But multinational companies can easily move revenues beyond the reach of one Government.

Corporate tax avoidance is not only unfair, it damages economies and societies. At home and overseas it means less money for stretched public services. In poor countries, the lost revenue is crippling. The UN estimates that developing countries lose at least $100billion every year; enough to educate the 12million children, currently missing schooling, and healthcare that could save the lives of six million children.

If the public suspect that companies they use every day, Google, Facebook, Apple, are not paying their fair share, it undermines the social contract we all have as taxpayers with governments. I want to live in a country where we all play by the same set of rules. We all pay a fair tax contribution, so Governments can fund everything from NHS, police, defence, local services and even aid.

Paying tax responsibly is an issue of right and wrong. If those with accountants and lawyers seek to avoid this; preferring a world of hidden havens and shell corporations; trust breaks down - and in the end - we all lose out.

Last June, the former Treasury Minister David Gauke, told me in the Commons that while the government was keen for there to be a multilateral deal introducing country by country reporting 'that if we have not made progress by this time next year on reaching a multilateral agreement, we will need to look carefully at the issue once again'

Well, a year later, we're waiting. A multilateral deal is being developed in the EU. Unfortunately the proposal is flawed. Multinational companies may ask for reporting exemptions for operations in countries where they have concerns about disclosing commercially sensitive information. Of course, 'commercially sensitive' is not defined. This loophole could allow companies to keep hidden details of possible tax avoidance.

As the scope for a multilateral deal becomes less certain, the government can either use this as their get out; or use it to assert their leadership as champions of tax transparency. At times of international crises, the UN sometimes falls back on a "coalition of the willing". Perhaps the Government needs to have the courage of its conviction, implement reporting requirements without any 'get out' clauses; and then seek to build a coalition of the willing.

It has done this before when it introduced the world's first public register of the real owners and controllers of companies to help end the use of shell companies for the funnelling of illicit financial flows, including dodged tax.

The tide of opinion is with us. More investors back greater transparency. Two of RB's largest shareholders, Norway's Norges Bank Investment Management and Legal & General Investment Management, have called for companies to become more transparent and to adopt public reporting.

Theresa May says it's time to be bold. Well here's the first bold step. Commit to introduce Public Country-By-Country Reporting by the end of 2019. Transparency is the one sure way to rebuild trust in the tax system. Good businesses will get on board. We don't need to tolerate tax avoidance. We can end it.

Caroline Flint is the Labour MP for Don Valley

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