Multinational Enterprises (Financial Transparency) — House of Commons, 2016-03-15
Topic: Macroeconomics
Caroline Louise Flint (Labour, Centre-left): I beg to move, That leave be given to bring in a Bill to require certain multinational enterprises to include, within their annual financial reporting, specified information prepared in accordance with the Organisation for Economic Cooperation and Development’s requirements for Country-by-Country reporting; and for connected purposes I thank you, Mr Speaker, for the opportunity to present this modest Bill, which seeks to move with the grain of Government policy in tackling tax avoidance, but which takes that policy one step further—one small step for this House, but a huge step forward for those who believe in tax justice, fairness and transparency in the UK and globally My Bill will ensure that important information about large companies’ revenues and tax planning is published via Companies House—information that, by UK law, such companies have to provide to Her Majesty’s Revenue and Customs from 1 January this year. I am delighted that it has received cross-party support and is being backed by the Tax Justice Network, Fair Tax Mark, Oxfam, Christian Aid, the Catholic Agency for Overseas Development and ActionAid We all share concerns at the way in which multinational companies shift profits to low-tax dominions, sometimes even when the number of their employees there is zero. The headlines caused by the recent Google tax deal reflected public consternation. How could a company with thousands of UK employees, five offices and a new £1 billion headquarters to be built near King’s Cross, and whose UK business is second only to its US business in terms of revenues, pay only £130 million in tax after six years’ investigation into a tax period of 10 years? We should bear it in mind that its global revenues for 2015 were $74 billion. I and my colleagues on the Public Accounts Committee questioned Google and HMRC, but we are still unclear whether the £130 million represented a good deal I do understand the need to protect tax privacy, especially when it comes to individuals, but we live in a world where multinationals use transfer pricing and shell companies to shift profits from one country to another, usually to a low or no-tax country. Is not it extraordinary that, in 2010, Bermuda had total reported corporate profits equivalent to 1,643% of its GDP? Could that be because Bermuda has a zero rate of corporation tax? Is not it extraordinary that Google sales staff in the UK sell an advert to a company in the UK, yet the transaction is confirmed online via Ireland, where the prevailing corporate tax rate is 12.5%, as opposed to 20% in the UK? The problem is not confined to Google or even to online businesses. What coffee chains, oil companies, drinks companies and pharmaceuticals all have in common is that they are multinationals The impact of the entirely lawful manipulation of different countries’ tax rules is that countries find their corporate tax base is undermined and profits are shifted, not through any real economic activity, but through arbitrary internal charges between different units of the same company. As the OECD has rightly pointed out in its work on base erosion and profit shifting, that creates unfair competition, providing a competitive advantage over, say, a domestic UK rival paying 20% tax on its profits It is such strange arrangements that enabled Facebook to pay just £4,327 in corporation tax in 2014—the same year it paid £35 million in bonuses to UK-based staff. That is a very strange form of performance pay. AstraZeneca paid no UK corporation tax in 2014-15, yet "2014 was a remarkable year for AstraZeneca", according to its chief executive officer—it did, after all, have full-year revenues of more than $26 billion. I could also mention Vodafone and British American Tobacco—the list of corporate giants with light UK tax bills goes on It is because of that that I fully support the Chancellor’s legislation to require financial reporting to HMRC from UK-based multinationals with revenues in excess of approximately £600 million, and from the UK units of such companies, where the parent company is based in a country that does not yet agree to country-by-country reporting. Such reporting, in accordance with OECD guidelines, would require multinationals to show, for each tax jurisdiction in which they do business, their revenue, their profit before income tax and the income tax paid and accrued, as well as their total employment, capital, retained earnings and tangible assets. They will also be required to identify each entity in the group that is doing business in a particular tax jurisdiction and to provide an indication of the business activities in a selection of broad areas that each entity is engaged in The Government’s proposals would make about 400 companies share information on some or all of their activity worldwide, but we can do more. By requiring the information to be published, not only will HMRC see the bigger picture, but so will we. Publication is one way to persuade these companies to come clean and to explain their tax planning, but also to restore their tarnished reputations. I believe it would deter them from using tax havens and shell companies Publication would also send a strong signal to developing countries, which are often short-changed by corporates that have huge undertakings there, but that pay little or no tax to support their developing economies. Charities say that developing countries lose more in potential revenue each year because of corporate tax dodging than the amount given annually in overseas aid by all the richer countries. That made me stop and think about how much more we could do through measures such as my Bill to enable developing countries to prosper and be more self-sufficient. Aid is vital for poorer nations, but it is just as important that we provide a hand up, not just a handout, and that will not happen unless we force these companies to come clean I wrote to the Chancellor last week seeking support for my Bill, and who knows, I may be on to a winner when the Budget is announced tomorrow. In my letter, I reminded him that this Bill is in keeping with his own sentiments, given that he told an international meeting of Finance Ministers in February: "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 agree with the Chancellor, but I say to him: why wait? The tide is turning against secrecy, with business-led organisations such as Fair Tax Mark encouraging firms to be open about their taxes and not to use tax havens. In tomorrow’s Budget, or in the Finance Bill that follows, the Government can adopt this measure and be at the front of the pack—leading and setting a new standard in multinational financial transparency We all want successful companies in the UK, as do our constituents, but we want them to pay fair tax. Too many multinational companies seem to be choosing the tax they want to pay, using complicated international arrangements, rather than paying the tax they should pay The winners from public reporting are the Government, HMRC, businesses and taxpayers already paying fair taxes, and developing countries that are losing out. Multinationals should see this not as a threat, but as an opportunity to restore the reputation of their brand. They can be winners too My Bill has received support from right hon. and hon. Members across the House. I am also delighted to have received support from 10 of my colleagues, reflecting all the political parties, on the Public Accounts Committee. Members from five separate parties—Labour, Conservative, Liberal Democrat, Scottish National party, and Social Democratic and Labour party—have agreed to sponsor the Bill, and I thank them for that It is time for multinational corporations to come clean and play fair with Governments and the public—and we can start with the UK. In the interests of social justice, fairness, and yes, good business, I commend the Bill to the House Question put and agreed to. Ordered, That Caroline Flint, Meg Hillier, Karin Smyth, Mrs Anne-Marie Trevelyan, John Pugh, Nigel Mills, Dame Margaret Hodge, Stephen Kinnock, Catherine McKinnell, Jeremy Lefroy, Dr Philippa Whitford and Mark Durkan present the Bill Caroline Flint accordingly presented the Bill Bill read the First time; to be read a Second time on Friday 22 April and to be printed (Bill 152).