Tax Avoidance and Multinational Companies

Part of the debate – in the House of Commons at 4:31 pm on 3 February 2016.

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Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland 4:31, 3 February 2016

I am pleased to have the opportunity to take part in this extremely important debate. Clearly, a number of things have gone wrong in the case of Google, but I shall focus on one aspect: the tax treatment of intellectual property. This is a growing part of the economy and we need to get it right.

I draw a distinction between two extremes—on the one hand, a large pharmaceutical company that does a great deal of research and development and employs a large number of people to make a new drug, and, on the other, a company such as Starbucks, which registers its name in Luxembourg, seemingly purely as a tax avoidance device. Between those extremes there is a continuum and Google is somewhere in the middle. It has done some mathematics to make some algorithms, but it also has a brand that is extremely powerful. We need to tighten up on this.

What happens at present is that a name is registered in a low tax domain. That separate company charges a fee to this country, where the work is done. That wipes out the entire tax treatment. That is ridiculous. One thing that is wrong is that the company seems to be able to set the price itself. The Revenue is not auditing it and asking whether that is reasonable. Obviously, maintaining a brand involves some costs, but small costs—perhaps to repaint some signs or to train its marketing people. Those costs cannot be compared to the cost of research and development.