Opposition Day — [18th Allotted Day] — Tax Avoidance and Multinational Companies

Part of the debate – in the House of Commons at 4:53 pm on 3rd February 2016.

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Photo of Damian Hinds Damian Hinds The Exchequer Secretary 4:53 pm, 3rd February 2016

The budget deficit that we inherited from the previous Labour Government was £153 billion. That is equivalent to nearly £6,000 for every household in the country. When a Government inherit such a deficit, one of the first things that they go after is the money that is supposed to be coming in, but is not. As my hon. Friend the Financial Secretary set out comprehensively at the start of the debate, no Government have done more than we have to crack down on tax evasion and aggressive tax avoidance.

The Government crackdown, led by my right hon. Friends the Prime Minister and the Chancellor, has resulted in more than 40 changes to tax law to close loopholes that Labour left in place. Among those changes was the world-leading diverted profits tax, which stops multinational companies shifting their UK profits to other countries. That policy alone will bring in an extra £1.3 billion from multinational corporations by the end of the Parliament, some directly but some, more importantly, as a result of its deterrent behavioural impact. I believe that the Government can be proud of that record, but we need to continue to do more and we are doing so. Tax avoidance is a global problem and it calls for global solutions.

To be clear, corporation tax is not a tax on the sales that happen in this country, or even a tax on the profits that derive from the sales that happen in this country. The system that operates internationally is that profits should be allocated on the basis of what is called “economic activity” in each country. Economic activity is not just about sales, but about where research and development takes place, where the various stages of production take place and so on. In short, that was a simpler formula to work out in the 1920s, when the world tax system came into being, as Roger Mullin, in his entertaining style, reminded us. Since then, there has been a move from manufactures to services, from the tangible to the intangible, and from the mechanical and the edible to the digital.

This Government have embarked on a programme to tighten the rules and the definitions. Domestically, we have acted to prevent companies trying to take advantage of ambiguities. Internationally, we are working to plug gaps and address loopholes.