Corporate Tax Avoidance

Earlier this month Parliament debated corporate tax avoidance and measures that we could take to build on the Chancellor’s hard efforts to clamp down on it. As a former tax accountant, I was pleased to offer my contributions on this matter – it’s only fair that large businesses pay their fair share of tax, just as the rest of us do.

During the debate I proposed that the Government makes it compulsory for corporations to publish their profit levels with their tax returns. Here’s what I said:

“… One thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House[.] Then, from their accounts, we could all see their taxable profits and how they got them.”

We are of course an international economy, and we want to encourage businesses to invest and spend here, as well as exporting to other countries, so we need to keep our tax regime competitive while ensuring that it’s fair. One of the ways we could do better in this respect would be to require the disclosure of cross-border transactions of large businesses with related parties, which would enable us to see what is real cost and what is real profit. This in turn would help HMRC in the collection of the right amount of tax from these businesses. Here’s what I said about that:

“This is an important issue, and the debate is about corporate tax avoidance, not just corporation tax avoidance. We can sometimes drift into focusing on tax on profits and miss out on the avoidance of VAT or payroll tax, which we could more readily do something about…

“… We ought to require large corporates to file their tax returns with their annual accounts. People might say, ‘We have taxpayer confidentiality,’ and yes, for individuals we do have that. However, we make companies file accounts and show what their profits are. What is the harm in making them show how they got to their taxable profit and the tax they paid?

“… We could go so far as to say that all multinationals had to disclose all their cross-border transactions with related parties. A lot of companies used to do that in their accounts. They would list the royalties that they had paid to the US, for example, and the management fees that they had paid to Japan. We could get back to that. It would not be too difficult for a company to say that it had paid a royalty of 6% on sales to the United States. That would aid disclosure.”

“… A lot of the avoidance we have been talking about involves transfer pricing. We are an international economy and we want to remain one. One of the things we are focused on is trying to encourage exports—we want people to invent and design things here, and then export and license them and get royalties and sales back. However, we will not win if we start an international war to see who can clobber royalties the most or put up the biggest barriers to trade. That would be a suicidally stupid thing to do.

“… There are practical measures that we could take to improve the situation without ending up with some kind of awful taxation baseball-bat regime that would put people off investing here at all.”

You can view my full contribution here.