Revenue & Customs is not doing enough to tackle tax avoidance by multinational companies and needs to be more ‘aggressive and assertive’, MPs said today.
In a report examining the department’s 2011/12 annual report and accounts, the Public Accounts Committee found large companies are able to exploit national and international tax regimes to reduce tax bills in the UK.Methods used include so-called ‘transfer pricing’ between different arms of the same company, such as UK businesses paying royalties and intellectual property fees to parent companies or other subsidiaries. This can reduce profits registered in this country, and on which corporation tax should be paid.
The outcome of this ‘widespread’ practice is that some firms ‘do not pay their fair share’, the MPs concluded, adding that this undermines public confidence in the tax system.
The HM Revenue & Customs: annual report and accounts 2011/12 report said R&C has not taken ‘sufficiently aggressive action to assess and collect the appropriate amount of corporation tax from these multinationals’.
Tax collectors ‘need to be seen to challenge’ these practices, and should be far more determined in interrogating what the report called ‘artificial arrangements’.
For example, the PAC said it was ‘perplexing’ that R&C would consider a royalty fee as high as 6% to be competitive if the company consistently makes a loss on its UK operations.
‘We expect R&C to prosecute multinational companies who do not pay the tax due in the UK,’ the committee concluded.
‘While we recognise that it will always be an unequal fight between R&C and multinational companies, R&C should not be so accepting of failure and should set ambitious targets to reduce it as soon as possible.’
The committee took evidence from online retailer Amazon, internet giant Google and coffee shop chain Starbucks in its inquiry. It added that it did not wish to ‘single out’ these firms.
However, evidence from multinational companies and R&C was ‘unconvincing, and in some cases evasive’, the report stated. ‘We are concerned that multinationals have an unfair competitive advantage over British businesses which have no choice but to pay their corporation tax.’
PAC chair Margaret Hodge said the ‘inescapable conclusion’ is that multinationals are using corporate structures to move profits generated by economic activity in the UK, and on which tax should be paid, offshore.
She added: ‘This is outrageous and an insult to British businesses and individuals who pay their fair share.
‘Corporation tax revenues have fallen at a time when securing proper income from taxes is more vital than ever.R&C should be challenging this but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what R&C does.It must be more aggressive and assertive in confronting corporate tax avoidance.’
Responding to the report, an R&C spokesman said that it ‘ensures that multinationals pay the tax due in accordance with UK tax law’.
He added: ‘We have been very successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last 6 years, including £4.1bn in the last 4 years from transfer pricing enquiries alone. These figures speak for themselves.’
