On Wednesday 18th March, I was called to serve on a Delegate Legislation Committee, where we consider detailed changes to the law made under powers from an existing Act of Parliament. We were called to consider the Draft Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015.
These regulations look to complete the UK’s transposition of the new EU accounting directive 2013/34. They apply to all companies required by company law to produce financial reports. The directive updates and consolidates a substantial body of existing EU legislation for statutory annual reports and accounts. It helps to deliver comparable information on company performance across EU member states.
I welcome these measures as I believe we need greater disclosure of companies account to ensure that they are paying the tax they owe. I raised a point about abuse of transfer pricing which allows companies to use non-market rate transactions, I believe we could increase transparency if a company declared in its accounts that is pays fees in excess of the market rate.
Many of you have quite rightly contacted me in the past to raise concerns about tax avoidance and evasion. I raised this whilst we were discussing these measures and you can read the full text of my question and the Minister’s response below:
Nigel Mills MP: I am sure she will be aware of the concern about multinationals abusing transfer pricing by having non-market rate transactions. Is there a way of having more disclosure of accounts where companies know they are paying fees overseas that are very different from the market rate for those fees? There is still an exemption in the provisions for wholly owned subsidiaries. Where a company is paying an excessive fee to their American payee, I do not think it has to disclose that. Surely, it would much more transparent and easier for Her Majesty’s Revenue and Customs if a company had to say in its accounts, “We are paying fees that are in excess of the market rate.”
Parliamentary Under-Secretary of State for Business, Innovation and Skills, Jo Swinson MP: I certainly agree that transparency is important. Companies that are part of a group do not benefit from the reduced reporting for small companies, in a sense for the very reason my hon. Friend outlines. That would not aid transparency. On the audit exemption, 7,400 companies benefit from that lighter-touch regime—a smaller number than the total number of companies that would benefit from the reporting regime. Accounts still have to be true and fair. In preparing the accounts, the 13 notes that have to be added are not a maximum: if other additional notes need to be added for the accounts to be properly understood, that responsibility will still exist. I hope that reassures my hon. Friend. The Government are taking many measures separately to improve transparency—from the extractive industries transparency initiative to chapter 10 of the directive, although we are discussing chapters one to nine today. I commend the regulations to the Committee.
You can read the full text of the Delegated Legislation Committee here.