Public Country-by-Country Reporting

– in Westminster Hall at 4:30 pm on 22nd November 2017.

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Photo of Nigel Mills Nigel Mills Conservative, Amber Valley 4:30 pm, 22nd November 2017

I beg to move,

That this House
has considered public country-by-country reporting.

I thank the Minister for being here. Today is a busy day for the Treasury, so I am grateful that he has found the time to respond to the debate. I also thank him for some of the measures that we heard earlier in the Budget, especially on the challenge that the digital economy and large companies pose to our tax system and the further measures to try to ensure that they pay all their VAT. We have been asking for those measures and it is great to see some progress. It shows that we all share the same goal: we want the largest companies to pay their fair share of tax in all the countries in which they operate. Any measures we can bring into force to do that will be greatly welcomed and that is exactly what we are trying to achieve here.

We are pressing the case for the largest companies operating in the UK to publish the country-by-country reporting that they are already required by the Government to do privately for HMRC, so that we can all see exactly where they are making their profits, where they have employees, where they have sales revenues and what tax they are paying on a territory-by-territory basis in all the key territories in which they operate. I strongly believe that the only way we will make real progress on these issues is to make companies publicly accountable so that they have to publish what they are doing and where, so that we can all see it and challenge them. If there are no adequate explanations for why they are reporting large profits in territories with very few employees, very low revenue and very few assets, perhaps we will have to conclude that they are doing that just to avoid paying their fair share of tax. We can all make a sensible buying decision on whether we wish to use those companies at all.

We will not achieve the solution that we want—everyone paying their fair share—by expecting HMRC to do all the compliance work and to challenge every company that is out there operating in the UK. We have to find a way to change the behaviour of the largest companies and to show that we do not believe that the use of aggressive tax avoidance, artificial structures or territories in which they have no substance is an acceptable way to behave. If we can achieve that behaviour shift, it will be far easier for us to collect the taxes that we want. I do not think there is any disagreement on that between hon. Members here who campaign on this subject and the Government; it is what we all want to see. The Government have followed exactly that approach in recent years.

This year, the Government are requiring very large businesses to publish their tax strategy and set out their approach to tax risk, tax compliance and tax planning. The reason for that was not to put an exciting document out there for tax professionals to argue about, but to make the highest levels of management at those companies think through their tax policy and their relationship with HMRC and set those out in a public document that we can all read and challenge. The aim was to improve their behaviour on the basis that the more sunlight we can shine on such issues, the more likely it is that we can change behaviour. We are not asking for a quantum shift from the Government’s existing approach, or for a huge amount of extra work on behalf of those companies, or for companies to put incredibly sensitive commercial data in the public domain. We are asking for an extension of the existing process, so that it includes this most important information: exactly how much money they are making in each territory and how much tax they are paying there.

Photo of David Drew David Drew Shadow Minister (Environment, Food and Rural Affairs)

The hon. Gentleman makes a compelling case. I asked two parliamentary questions last month about the Government’s strategy on country-by-country reporting. In both answers, the Government referred to the fact that they are making deliberations within ECOFIN, which is fine while we are members of the EU. Does he know what the Government’s strategy might be when we are no longer members?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

That might be slightly above my pay grade, but I am grateful for the hon. Gentleman’s questioning of that situation. That is the challenge we put to the Minister today.

The Government have already imposed a requirement on the largest companies operating in the UK to give that information to HMRC. Two years ago, they accepted an amendment from Caroline Flint to take the power to make that information public. Today, we ask the Government to set the date by which they will start to require that information to be in the public domain, maybe as a backstop so that if EU discussions on doing it multilaterally have not worked by—I do not know—the middle of 2019, we will require UK companies to start doing it and we will take the lead in that situation. That would be consistent with the timing of our departure from the EU.

I think we all agree that the ideal situation would be multinational and multilateral—preferably an OECD or a G20 requirement—so that most of the developed world was doing it. If we cannot have that, we would like the EU to do it. We would like the EU proposal to do something similar to what we want, but it does not entirely do that because it includes disclosures only for EU countries and countries it prescribes as tax havens. We would like a proper territory-by-territory disclosure of all the countries that are material to a company’s operations. That EU proposal is stuck, however; it is not happening any time soon. We want the UK to set an example and show the EU and the world that we are prepared to lead on this. We are the largest financial centre. We have huge numbers of very large companies listed on our stock exchange. It is right that we set an example and say, “This is the kind of transparency we expect if you want to operate in the UK and be listed on our stock exchange.”

The Minister and his predecessors have argued that public reporting could be a bad thing for the UK for various reasons, such as that it would make us less competitive. I am not convinced by those arguments. I will run through some of the disclosures that we already expect from our largest companies. Under international financial reporting standard 8 on operating segments, large companies must produce in their financial accounts an analysis by the key operating segments of their revenues, profits and all manner of other things. I am sure that before that standard came in they would have argued that that was incredibly sensitive commercial information, which they should not have to produce—but they do. Paragraph 33 of IFRS 8 sets out that companies need to provide,

“analyses of revenues and certain non-current assets by geographical area—with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments”.

There is already a rule out there for very large companies, especially those listed on the stock exchanges that use IFRS, that they have to publish that information in some form. We are not expecting them to do something dramatically different, but to publish that in a coherent format where we can see and understand it.

I would go further and say that over the last few years, we have so increased the requirements for what we expect large companies to disclose that that level of information by territory would not be a significant increase. In 2013, statutory instrument No. 1970 introduced a requirement for companies to produce a strategic report that has to include,

“a fair review of the company’s business, and…a description of the principal risks and uncertainties facing the company.”

It must be,

“a balanced and comprehensive analysis of…the development and performance of the company’s business during the financial year”.

It must also set out,

“key performance indicators, including information relating to environmental matters and employee matters.”

To expect companies to come out and say what their KPIs are, how they performed against them, and set out the key risks facing them—they are quite wide-ranging disclosures. It shows that we have moved ever onwards in expecting companies to report on their corporate social responsibility, hence all the requirements that we have imposed on companies such as giving details of their employees and the gender pay gap, commenting on their environmental performance, and the transparency requirements about corruption, bribery and anti-modern slavery. I do not think that most of our constituents regard tax as different from corporate social responsibility; they see paying a fair share of tax as part of a company’s responsibility. If we require companies to report on so many other worthwhile things, why not require them to report how much tax they pay in each territory? If they are paying the right amount, they can show that transparently; if not, they can explain why not.

The concern that requiring public country-by-country reporting would dramatically disadvantage UK companies or scare them off from having head offices here is an overreaction. In fact, it would be a sensible extension of existing requirements, including those for segmental reporting or for a tax note that explains the difference between the rate paid and the statutory rate. The information currently published is so limited, hard to understand, condensed and—some might say—twisted that no one can make any sense of what companies are doing. In cases where a company operates in a jurisdiction with an average effective rate of 25% but pays 3%, that information is not readily available to us.

The advantage of requiring public country-by-country reporting is not only that it would change companies’ behaviour, but that it would restore people’s confidence that our tax system is fair, that companies are paying the right amount of tax, and that we are doing all we can to collect it. If we imposed such a requirement on the large companies that are sheltering their profits in places where they have no real presence, I suspect they would stop doing it. That would boost confidence by allowing us to see from companies’ disclosures whether they have been caught by the rules and required to pay extra tax. It would also show us the exact scale of aggressive tax-abusive behaviour. Most multinational companies are probably not engaging in such behaviour; they probably just want to know the right amount of tax to pay per territory and get on with running and growing their business.

Restoring confidence and belief in our tax system is extremely important, particularly to the UK as an outgoing, exporting, global economy with a lot of intellectual property assets and a commitment to science and research. We do not want the world to move to an aggressive tax that attempts to clobber companies on turnover without looking at their real profits per territory. Our UK businesses will lose if we do not get the level of confidence right. If we cannot find a way of enforcing our rules, changing behaviour and restoring public confidence, Governments around the world will have to take other action to recover revenue. In the long run, it is absolutely in our interests to get this right, which we can achieve only with sunlight and transparency.

I commend the Government for the position paper they published today on the challenge to our tax regime posed by the digital economy. It includes some sensible ideas, such as charging tax on royalties paid offshore. Its second paragraph points out that the Government have taken,

“bold unilateral action where needed” to tackle the issue. That is exactly what we need on transparency: bold unilateral action. If we cannot agree on an EU-wide approach within a sensible timeframe, let us set a date for taking the lead and setting an example. I am not fixated on any particular date—if we need until 2019 or 2020 for negotiations, I accept that—but will the Minister tell us the Government’s backstop date for getting a multilateral deal? If they cannot get such a deal, when will they act, unilaterally if necessary, to impose this policy in the UK?

Photo of Caroline Flint Caroline Flint Labour, Don Valley 4:44 pm, 22nd November 2017

I am delighted to serve under your chairmanship, Mrs Main. I thank Nigel Mills, my colleague and friend, for securing and introducing this debate. I will focus on the case that investors are now making for public country-by-country reporting; an interesting development is that more and more investors are concerned about the behaviour of the companies they invest in, including whether they are paying their fair share of tax on their economic activity around the world.

Principles for Responsible Investment is a United Nations -backed organisation with more than 1,860 signatories —asset owners, investment managers and service providers. It is trying to develop a dialogue with firms about responsible tax strategies. Its website defines its mission as follows:

“Responsible investment is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.”

Its guidance for dialogue with firms includes the following observation:

“An aggressive corporate approach to tax planning should be a concern to investors as it can create earnings risk and lead to governance problems;
damage reputation and brand value;
cause macroeconomic and societal distortions.”

Under the subheading “Why now?”, it further observes:

“Stronger enforcement around the world and increased media and civil society scrutiny have made multinational companies much more vulnerable to unexpected tax assessments and increases in tax liability and reputational damage.”

In a section headed “Transparency on tax strategies, tax-related risks and country-by-country activities”, PRI’s working group on tax disclosure makes the following recommendation:

“Detailed reporting would provide an overview of…country-by-country reporting details, including a list of all subsidiaries and their business nature…as required by the appropriate OECD-BEPS templates”.

That would be helpful. The welcome dialogue encouraged by PRI is a sign that awareness of the implications of aggressive tax avoidance is growing and that investors want to know more about company tax strategies.

Last night, I was at a dinner organised by Fair Tax Mark and SSE to discuss approaches to tax transparency with other companies, including investment organisations. It was interesting to hear from a number of firms that increased openness about how much tax they pay and why has become an important part of boards’ discussions and has benefited how boards approach the issues. A number of representatives also pointed out how positively their own workforce had responded to increased openness, because it made them feel good about what their employers were doing—not only creating jobs, but putting something back for the wider good of the communities where they work and create wealth.

As MPs, we often receive information from companies in our constituencies and elsewhere about how much they contribute to the public good in the United Kingdom. They should be praised not only for the jobs and wealth they create, but for what they put back into communities. Firms put money into the environment, encourage their employees to be volunteers, and make efforts in many important areas; a number of children’s football teams local to me have benefited from football strips funded by corporate concerns. However, what I want to hear more than anything else from companies in my constituency and multinational companies in London or our big cities is how transparent they are about the tax they pay. That needs to be the headline, because any doubt that they are paying their fair share of tax undermines all their good work for the public and the community.

I believe the world is moving towards greater transparency. I would be interested to hear the Minister explain, when he replies to this debate, why companies in the extractive and financial sectors already have to put this information into the public domain and why they do not see that as a risk in terms of competition. They have accepted that it is something they have to do. Why is it okay for the companies in those sectors to provide this information, but somehow there is a barrier to other companies in other sectors joining forces and providing this information?

When the Minister sums up, I would love to know what level of multilateral co-operation is necessary. How many other countries does it take to form a critical mass and enable the UK to move forward? Should this be through the EU or through the UN? It would be really interesting to know what threshold we are working towards to bring into being the enabling power already contained in the Finance Act 2016—because the Government adopted my amendment, which was a cross-party amendment—to introduce country-by-country reporting.

I really believe that the world is moving towards greater transparency, and the Government have a choice, as my friend the hon. Member for Amber Valley said. Is the UK going to be a leader or will we just follow the pack?

Photo of Anne Main Anne Main Conservative, St Albans

Before I call the next hon. Member, let me say that there are three Members who wish to speak, and I will begin calling the Front Benchers at 5.10 pm.

Photo of Luke Graham Luke Graham Conservative, Ochil and South Perthshire 4:51 pm, 22nd November 2017

It is a pleasure, Mrs Main, to serve under your chairmanship—sorry, chairship. Or is stewardship the right phrase? Apologies.

I will try to keep my comments brief. I commend my hon. Friend Nigel Mills for securing this debate. As an accountant—I refer people to my entry in the Register of Members’ Financial Interests––I am genuinely delighted to speak in this debate. In the light of the Paradise papers, it has become increasingly clear that this issue needs to be addressed. Currently, multinational enterprises are not required to publish the details about the amount of tax they pay in each country that they have operations in, as hon. Members have already mentioned.

As we have heard, the Government have a strong record of closing tax gaps, increasing some of the tax revenue and bringing down the tax gap in our country. Proposals put forward in 2016 introduced provisions requiring multinationals to provide Her Majesty’s Revenue and Customs with an annual country-by-country report, showing how much revenue and profit they earn, how much corporate income tax they pay, and their total employment, capital, retained earnings and tangible assets. That will help HMRC, but that information will not be made public, which will not promote the trust and transparency that other hon. Members have called for.

The debate has therefore shifted, quite rightly, to whether we introduce the public country-by-country reports, and whether we should do so unilaterally or on a multilateral basis. Although acting unilaterally would obviously give us some thought leadership, it could put us at a competitive disadvantage, especially going into the era of uncertainty over Brexit movements.

The UK Government have a strong record of leading tax reporting and combatting tax evasion efforts internationally. They have established quite a comprehensive and effective model, and they initiated some of the country-by-country reporting during Britain’s G8 presidency in 2013. The UK was also the first country to commit to implementing the OECD model for country-by-country reporting, with the provisions in the Finance Act 2016, which have already been referred to.

This is not just a British problem. I am sure that hon. Members have read plenty of reports from our cousins in the United States, where it is estimated that $1 trillion in commercial returns is being held overseas rather than being repatriated to America. That money could go towards restoring half the infrastructure across the entire United States, so there are real gains for countries if they sign up and help with some of the thought leadership on this topic.

This is a timely debate, because in our increasingly connected world—both physically and digitally—transparency becomes more and more important. It is important to my constituents, including business-owners, in ensuring real trust in who they are doing business with and how they are doing business, not only in the United Kingdom but elsewhere around the world.

In a previous life, I had the pleasure to work with His Royal Highness the Prince’s Accounting for Sustainability Project, which champions increased reporting requirements, mostly on environmental and social measures. It also champions examples of best practice internationally, to ensure that companies are reporting in the most transparent way and to the highest standards of international practice. Its sister organisation, the International Integrated Reporting Council, has led the way in setting international standards and bringing companies, Governments and other public bodies together to champion and share best practice and to show some of the real returns for investors and customers alike.

As we have seen our economy change, intangibles have become increasingly valuable to companies and investors. I was working on a project just two years ago, and it was estimated that around 80% of the value of the Standard & Poor’s 500 was being held as intangibles rather than as tangible assets. When we start to consider the consequence of these intangibles, it becomes increasingly important that around the world companies need to be as transparent as possible, not only about the physical capital they hold but about their human and social capital.

Clearly, the best approach is to continue pursuing this as an international goal. The Government are right to seek international support—I will support my hon. Friends whenever I can to gain that support—to ensure a comprehensive and effective model for public country-by-country reporting. To that end, I was pleased to note that the European Commission has proposed public country-by-country reporting at EU level, which I know the Government support, and I hope that, regardless of the outcome of Brexit, we will continue to work together to achieve that with the EU and other international organisations worldwide.

Photo of Margaret Hodge Margaret Hodge Labour, Barking 4:56 pm, 22nd November 2017

It is a pleasure to speak before you this afternoon, Mrs Main. I join others in congratulating Nigel Mills on securing this debate. I also congratulate my right hon. Friend Caroline Flint on actually getting this practice on to the statute book in 2016.

I will just add, very briefly, to what has been said so far. It is great that there is consensus this afternoon across the parties, and that kind of consensus is what I have encountered in many of the discussions that I have had on these issues. I hope that the Government will listen and act on that consensus in a way that would win support among the vast majority of Members of this House and outside this House. My only quarrel with the hon. Member for Amber Valley is that I do not think that would be taking unilateral action; I think we would be showing bold leadership if we were the first to act in this area.

I want to make three brief points. First, one issue arising from the Paradise papers that has not been raised, and for which country-by-country reporting would be an important part of the answer, is that corporations and companies were revealed to be seeking locations for their business in a way that would create artificial financial structures that existed simply for the purpose of avoiding tax. Apple received some coverage in the papers, but it is utterly awful that all Apple’s activity outside the USA is now housed, I think, in Jersey and is worth, according to what we can uncover, £252 billion. It is very difficult to find what Apple’s rate of tax is, but one of its companies—according to the European Union, I think; no doubt my hon. Friend Anneliese Dodds will make this clear from the Front Bench—ended up paying a rate of tax of 0.005% on its earnings here.

It is clear from the Paradise papers that Apple sought to find a financial structure that would allow it to avoid paying tax in those jurisdictions outside America where it carried out its economic activity and secured its profits. One of the purposes of transparency in country-by-country reporting would be to see where Apple was undertaking its economic activity and therefore where it should be taxed. Over half of Apple’s business is outside the USA; it is simply not getting taxed in the places that it should be.

The other company is Nike. Anyone who buys a pair of Nike trainers in any UK shop would think that the tax was paid here, but it is not. It used to go to Holland and it then ended up, in a complicated way, in Bermuda. Since then, a new structure has been invented: Nike Innovate C.V. It is a virtual entity; it does not have a location. It is not based anywhere. That structure enables Nike to avoid paying the tax that it should in the jurisdictions where it carries out its business and makes its profits. The big corporations would not be able to carry out their business in the way they currently do, as revealed most recently through the Paradise papers, if we had transparent, open, public country-by-country reporting.

The second thing I want to talk about is collecting money from tax avoidance. I hope the Minister will give us a bit of information in his response, as I am rather tired of hearing from the Prime Minister, the Chancellor and the Minister about how brilliantly this Government are doing at collecting that money.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

The Minister is nodding his head, but the Government should be honest with us. The figure of £160 billion that is currently used—I have heard it used time and time again—is simply an HMRC estimate of the money due from tax avoidance that it has uncovered. It does not tell us how much has been collected or how much has been added to the coffers.

Since the Minister used the figure in a debate last week, I have tried to identify how much we have actually got in. I have asked everybody. I have asked the National Audit Office and the Library. I have tabled questions to the Minister, to which he has yet to reply—perhaps he will reply this afternoon. No one actually tells one how much has been collected in tax avoidance. My guess is that it is a tiny, minute amount of that £160 billion that the Government claim they have got in. Please be honest with us. A little bit of honesty will enable us to have a proper debate.

The final point I want to make, adding to what others have said, is that if the Minister showed the bold leadership we want him to show by having public registers of beneficial ownership, he would be incredibly popular. I would have thought that there could not be a better time than now for Conservative Members to try to gain some popularity. I will give three examples of what has happened recently. After the release of the Paradise papers, the Tax Justice Network launched a petition that gained more than 200,000 signatures. It has now presented that petition to Downing Street. Oxfam did some polling that showed that eight out of 10 members of the public think that multinationals with UK headquarters should publish information publicly about the size of their profits, where they are made, what taxes are paid and the countries in which they operate. Some 70% of Conservative voters believe that the Government should be more active in tackling tax avoidance by companies. Some 80% of Conservative voters are in favour of tougher transparency rules for companies.

The final survey I wanted to refer to was of the FTSE 100. Four out of every five of the top 100 FTSE companies would not oppose the introduction of a legal requirement to make their country-by-country reports public. In fact, a large number would support it. The hon. Member for Amber Valley eloquently made the point that the reporting requirements in other legislation to date are pretty open. Why not put this requirement into the mix? It is supported by the analysis.

This is the fourth debate on these issues in the past month that I have participated in, and I will carry on holding such debates time and time again. I am sorry if the Minister feels it is not the best use of his time, but we will carry on doing this. This is a campaign we are absolutely determined to win, and part of that campaign is public country-by-country reporting.

Photo of Anne Main Anne Main Conservative, St Albans

I remind Members that I will call the Front-Bench spokesman for the Scottish National party at 5.10 pm.

Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton 5:04 pm, 22nd November 2017

I congratulate Nigel Mills, my trusty co-chair on the all-party parliamentary group on anti-corruption, on securing this highly relevant and timely debate, given that it is Budget day. I also congratulate him on his thoughtful opening speech.

With last year’s Panama papers and then the Paradise papers the other week, there is a sense that systems of international finance and taxation seem to be working for the benefit of individuals with access to vast wealth and an army of lawyers, rather than—to coin a phrase—for the many, not the few. We are in the grip of a culture of secrecy and silence in our overseas territories and Crown dependencies, enabling tax avoidance and evasion on an industrial scale. It looks suspiciously like there is one rule for the super-rich and another for the rest of us.

Lord Sugar has blamed “bad advice” for the fact that these sitcom celebrities, sports stars, pop stars, the Duchy of Lancaster and all those other people have been caught up in the latest whirlwind. Lord Sugar said that tax avoidance is un-British and that we are blessed to be

“in a country that has a police force, a National Health Service, an army…and all the good things we get here.”

To the delight of Transparency International, Christian Aid and Global Witness, we were promised Government action by David Cameron in the flurry of the 2016 anti-corruption summit, but the Government seem to have fallen disappointingly short. Country-by-country reporting, which we are addressing in particular today, is an issue that I first came across as a candidate in 2015. Before I was elected, I experienced my first mass email petition from potential constituents. It was called, “What will you do to crack down on tax dodging?” I assured them I would insist that multinational companies are required to publish details of the amounts of tax they pay in their countries of operation.

As soon as I was elected, I was happy to back the “show us the money” amendment tabled by my right hon. Friend Caroline Flint. When the Criminal Finances Bill came before the House, I spoke from the Opposition Front Bench on the need for public registers of beneficial ownership. Then we had the snap election and the legislative provisions were swirled into the vortex of wash-up. For this Government, “could do better” is perhaps an understatement. In 2012, David Cameron declared that organisations investing in complicated schemes

“to just minimise their tax rates is not morally acceptable. Some of these schemes…are quite frankly morally wrong.”

Even if he acted within the letter of the law, the behaviour of Bono of U2 was close to the edge.

Financial secrecy feeds into legal and illegal approaches to not paying a fair share. Last year the Conservative Government said that all countries needed to reach a gold standard of public registers of beneficial ownership, yet there has been a palpable rowing back. Now the Foreign Office only expects UK tax havens to go down that road when it becomes a global standard. Montserrat has already committed to put in place a public register. We have a duty to justify our claims to be a global leader on transparency and anti-corruption by facilitating that, rather than ducking the challenge in a dereliction of duty. The tax abuse in the Paradise papers and the corruption in the Panama papers are two sides of the same coin of financial secrecy. In both cases the Government’s stated intentions are undermined by their willingness to tolerate offshore financial secrecy.

The Cameron Government at least made the right noises. I have to see the detail of what was announced in the Budget statement, but I am cheered by the idea of extending offshore time limits. Until now, however, the Prime Minister—who is often responding to events rather than mastering them, being in office but not in power, and all that stuff—seems to have had a comparatively lackadaisical attitude—

Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton

I will not, because I only have a couple of seconds left and I have more to say.

We were promised an anti-corruption strategy by 2016, and now we are hearing it will be 2018. The other day, in one of the many debates of my right hon. Friend Dame Margaret Hodge, a question was asked about the anti-corruption tsar. It used to be Eric Pickles, but the Government seem to have forgotten that the post even exists.

As a London MP, I am acutely aware of the housing crisis in our capital. The UK property market seems to be skewed by the apparently uncontrolled flow of anonymous and potentially laundered money from those secrecy jurisdictions. I know a stamp duty exemption has been announced, but the Office for Budget Responsibility is already saying that it will only inflate prices rather than address the real problem.

Mandatory disclosure of payments and operations on a country-by-country basis mitigates political, legal and reputational risks and generates timely, disaggregated and easily comparable data. Companies should ensure high levels of corporate transparency since that also allows citizens to hold them accountable for the impact that they have on communities. One international tax avoidance scandal might look careless; two starts to look like something of a habit.

Rather than hiding behind the jargon of the written answers we have had up to now, the Minister must tell us today what is being done concretely by the international community to reach agreements on multinational firms filing public reports on their dealings, country by country. When does he expect to reach a multilateral agreement under which the UK may adopt public country-by-country reporting? I thank the media for exposing this stuff by shining a light into murky corners—not necessarily leaking, but turning on the tap in this instance. Warm words are not enough; we need action now.

Photo of Deidre Brock Deidre Brock Shadow SNP Spokesperson (Devolved Government Relations), Shadow SNP Spokesperson (Fair Work and Employment), Shadow SNP Spokesperson (Northern Ireland) 5:09 pm, 22nd November 2017

It is a pleasure to serve under your chairship, Mrs Main. I commend my former colleague on the Public Accounts Committee, Nigel Mills, for securing this debate and adding his voice to calls for—I think this was his phrase—the clear sunlight of transparency, for territory-by-territory reporting, and for the UK to show the world that it leads on this issue by example. I particularly noted his comments on how companies already have significantly greater requirements nowadays to comply with duties such as corporate social responsibility, and his questioning of how those responsibilities differ from their responsibilities to pay tax.

It is also important to recognise the contribution made by Caroline Flint over the past few years. She, too, has done much to make sure that the issue has stayed front and centre. I particularly note the concessions that she squeezed out of the Treasury last year, including the amendment to the Finance Bill that paved the way for more transparency. I also recognise Dame Margaret Hodge and all the work that she did in her time as Chair of the Public Accounts Committee.

The right hon. Member for Don Valley spoke of the increasing number of investors calling for companies to come clean over the amounts of tax they pay, and of the significant reputational damage that they can suffer if found wanting. That is a really important point. She also asked how many countries need to sign up to greater transparency before the crest of the wave is high enough to force real action. The right hon. Member for Barking noted and welcomed the cross-party nature of the support for these proposals that has been a distinguishing feature of all the debates around this issue. She called for leadership and a real willingness to step up as the first country to really take on these measures.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

Does the hon. Lady agree that it is essential that multinational companies simply do the right thing and pay what they owe for the benefit of the nation—something that small and medium-sized businesses do throughout this nation every day of the week. Such payments allow them to have the freedom to trade and make money. There is a moral obligation to deliver those payments, and they should.

Photo of Deidre Brock Deidre Brock Shadow SNP Spokesperson (Devolved Government Relations), Shadow SNP Spokesperson (Fair Work and Employment), Shadow SNP Spokesperson (Northern Ireland)

I echo the hon. Gentleman’s call, and agree that there is a moral obligation. We clearly need rigorous regulation, to create a tax system that is fair and works for everyone. Dr Huq spoke of offshore financial transparency, or lack thereof. She referenced the Paradise and Panama papers, and called for the long-awaited anti-corruption strategy to be instated as soon as possible. It will be interesting to hear the Minister respond to that point.

It is also appropriate to note the action—small, but welcome—announced by the Chancellor today about assessing the activities of firms trading here. It is not enough, but it is a start. Profit-shifters—the shape-shifters of the corporate world—seem only too glad to accept the benefits that come from operating in our communities, such as policing, road maintenance, street lighting, and so on, but seem far more reluctant to pay their share of the costs. I appreciate that there are people—some of whom are, or have been, legislators in this Parliament—who also stash cash offshore or use interesting, tortuous schemes to avoid paying tax. Successive Governments have not done enough to stop them. However, corporations that routinely play the three-card trick with their profits are truly appalling. As the right hon. Member for Barking mentioned, the excuses that are routinely offered by Apple, Starbucks, Google, Amazon, and the rest—that they abide by the letter of the law and pay what is demanded of them—stink. Legal or not, the behaviours that they exhibit are immoral; they should be willing to pay for the services they receive.

Paying taxes is the price of getting society’s benefits. Companies should be willing to pay, and Governments should be forcing them to pay. Enforcement has to get harder, and investigations have to be tougher. Instead of having so many civil servants chasing down benefits claimants, for example, the Government really must invest more time in the pursuit of tax-dodgers. It is just not good enough that there only 522 officers in Her Majesty’s Revenue and Customs’ high net-worth unit, and only 518 in the affluent unit. That, of course, measures up against the more than 4,000 officers that the Department for Work and Pensions has, chasing those on benefits for a few pennies here and there. That is not only immoral, but not even good value for money.

Individuals and corporations that dodge tax need to be brought to book, and Governments need to be hunting them. We need international co-operation to get better results—we could have done with staying in the EU for that, of course—but Governments can and should act now, by starting to force the issue and taxing them properly. Billions of pounds in lost revenue is a huge gap that needs to be closed.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury) 5:15 pm, 22nd November 2017

Thank you, Mrs Main, for your stewardship of this debate. I welcome the debate, and congratulate Nigel Mills on securing it, and thank him for his considerable work promoting tax transparency, building on his experience professionally before entering this place. Of course, I also want to hail the work of others in promoting public country-by-country reporting, not least that of my right hon. Friend Caroline Flint, who has strenuously promoted it many times, and that of my right hon. Friend Dame Margaret Hodge, who has ensured that this matter has been promoted consistently by the all-party parliamentary group on responsible tax and many others. I also commend my hon. Friend Dr Huq, who importantly drew our attention to the fact that this is about not only tax transparency, but trying to deal with corruption and money laundering.

I will try to keep my remarks succinct, but I want to first say how pleased I am that we are having this debate, because of the huge amount of public concern around tax matters, as highlighted by other hon. Members. My right hon. Friend the Member for Barking has already referred to public opinion polling that shows that there is enormous support for more transparency around taxation matters, particularly for multinational enterprises. That is particularly important, because public country-by-country reporting enables us to focus on profit-shifting activities. Often when we talk about aggressive tax-avoidance in this place we hear the Government claim that the tax gap is reducing—of course, there is a debate and discussion around that—but their own figures for the tax gap do not cover profit-shifting by multinational enterprises. That is becoming an increasingly large problem, especially with issues around digitisation, which my right hon. Friend rightly referred to.

I remember having a discussion with representatives of Facebook when I was in the European Parliament, before I joined this place. Information about the amount of tax it was paying and how much it paid its staff had been leaked—Facebook had not made it public—and it appeared to be paying incredibly low levels of tax. A representative of Facebook said to me, “Oh, you just don’t understand.” I said, “No, I do understand; I have the figures. I just don’t agree with them—that’s where the difference lies.” I think everyone should be able to have those figures, so they can properly assess them.

As has already been mentioned, in February 2016 the Government required multinational companies to provide their tax details, as well as other details relating to revenue, total employment and so on, to the Exchequer, which was obviously a good first step. Then, in the Budget, the Chancellor maintained that he had introduced new measures to improve large business compliance, including the publication of tax strategies. On that point, we have not seen the level of publication of tax strategies that some of us might have hoped for—I hope that will be coming soon.

None the less, that hook at least enabled my right hon. Friend the Member for Don Valley to table an amendment to the Finance Bill to include public country-by-country reporting. I remind Members of what she said of her amendment, which was passed by this House. She said that it

“will enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate.”—[Official Report, 5 September 2016;
Vol. 614, c. 136.]

That statement includes no qualification that it should happen only when there is multinational agreement on that principle. Rather, my right hon. Friend stated that it should be introduced when the time is most appropriate. I believe that the time is appropriate now, and other hon. Members have articulated very strongly why that is the case.

It is right for the Government to aim to take a lead on this issue. As was mentioned, there is a blockage at EU level at the moment. The European Parliament supports public country-by-country reporting, but there is disagreement in the Council. That is partly because this issue is now bundled in with debates at EU level about having a blacklist of tax havens run by the EU, which is a contentious issue. As a result, we have an opportunity to make a clear statement and push other countries in the right direction by setting an example. In fact, I know the UK has been arguing for disaggregation of figures at EU level. I am pleased to see that, but we now need to show an example. Above all, we need to show how this kind of activity need not lead to comparative disadvantages for our nation—quite the opposite. There is a good deal of existing evidence about the impact of public—

Photo of Anne Main Anne Main Conservative, St Albans

Order. I ask the hon. Lady to bring her remarks to a close.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

I beg your pardon, Mrs Main; I certainly will do. There is lots of evidence already about country-by-country reporting in extractive industries and in banking. Reports from PwC, for example, have shown it to be very successful for companies; it has not been negative for them. We have the examples of SSE, Pearson and others. It has made business sense, and it would make business sense for the UK as well.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General 5:20 pm, 22nd November 2017

It is a pleasure to serve under your chairmanship, Mrs Main, and I thank my hon. Friend Nigel Mills for having secured what I think we all accept is an extremely important debate. I also thank him for the advice he has been able to give me over the months and years on matters as exciting as corporate taxation.

I also welcome my hon. Friend’s support for some of the measures in today’s Budget—this is not an area of Government policy that we are going to be neglecting anytime soon; we are going to be all over this space in a very significant manner. He specifically raised measures relating to VAT and the collection of VAT from those who use digital platforms. We are indeed introducing joint and several liability to make sure that we step up the clampdown on, in that instance, VAT fraud.

Dame Margaret Hodge suggested that our figures were not durable and questioned the veracity of our numbers. We have secured £160 billion through clamping down on tax evasion and non-compliance, and that figure appears in HMRC’s annual report and accounts, which are of course audited by the National Audit Office.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

That is not secured money; it is money to which HMRC feels it is entitled, but has yet to secure. My experience from the Swiss Falciani leak suggests that intentions do not become reality.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

I do not think the right hon. Lady and I are going to agree on that particular point. One point we might agree on is the tax gap, which is 6%—the lowest in our history. That is the difference between that which we should be collecting and that which we are collecting. It is a world-beating figure, also audited by the NAO. According to the International Monetary Fund, it sets a world standard in terms of robustness.

As you will know, Mrs Main, we have done a great deal over the years in clamping down on tax avoidance and evasion. In the Finance (No. 2) Act 2017, which has just gone through Parliament, we introduced corporate interest restrictions to stop companies shifting profits around by the ingenious use of intra-company loans. We had the diverted profits tax in 2015, which addresses a number of the examples we heard in the debate today. We have been in the vanguard of the base erosion and profit shifting project at the OECD. We are benefiting now from the common reporting standards across 50 countries—rising to 100—so account information is available to HMRC in real time. We are engaged with the EU on mandatory disclosure rules to make sure that we can clamp down on schemes, through those who are party to them.

Caroline Flint raised the issue of the information required from the extraction sector and the financial sector in comparison with the ask on country-by-country reporting. Those are of course different sets of information. In the case of the extraction sector and the financial sector, the information required is significantly less exhaustive than would be the case in country-by-country reporting.

The right hon. Lady also asked a very important and pertinent question about how many countries would need to say yes for us to feel that we could go ahead on a multilateral basis. I suppose that gives rise to other questions, such as which countries and what mix of countries. She can rest assured that as and when, as we hope, we reach the point when sufficient countries say they will sign up, we will be pleased to do so. I add my congratulations to her for the hard work that she did, particularly around the Finance Act 2016, to ensure that her amendment reached the statute book.

My hon. Friend Luke Graham spoke about the importance of international standards. He also raised the issue of intangible assets, which is one of the common threads running through the issues of companies shifting profits around. If there is clearly economic activity in a particular place, it is much easier to pin the profits to where that activity is occurring than if there are, for example, digital companies that are selling substantially into the United Kingdom but basing their operations elsewhere. That can be through royalty payments on intellectual property charges between companies; it is quite possible to avoid tax as a consequence. That is why we announced in the Budget today that we will be looking at introducing the withholding of taxes in respect of royalty payments for IP, where they relate to movements of income between ourselves and very low-tax jurisdictions. We will be looking into that whole area by way of consultation.

I was tickled by the suggestion from the right hon. Member for Barking that she could feed me ideas that would make me more popular within my own party. I look forward to hearing as many of those as she cares to pass my way, because I am very interested in being so popular.

Dr Huq raised the issue of registers of beneficial ownership across, particularly, Crown dependencies and overseas territories. We have those; they are not public, but they are accessible in real time by HMRC and we have a good record in tracking down people who try to stash money away in, for example, overseas trusts. We have raised £2.8 billion in that respect since 2010. I was pleased that the hon. Lady welcomed the measures in today’s Budget that extend to 12 years the time period in which we can go after individuals who have been involved in just that kind of activity.

In my final couple of minutes, I want to focus on the principal arguments. We are not against country-by-country reporting. We welcome the opportunity to move to exactly that situation, but to do so unilaterally will not work, for at least three reasons. It would certainly make the UK less competitive than other tax jurisdictions. I see no reason why any particular business should want to go to a country with that in place as strongly as they would want to go where it is not in place. If it were just us alone, we would also be in the position of not being able to get public disclosure if a UK company had associated non-UK companies in other jurisdictions, not under that company’s control. The big advantage of going multilaterally is the standardisation of the standards that we set and the rules and regulations around each particular step.

The Government will continue to work towards bringing in not just country-by-country reporting as we have at the moment, but public country-by-country reporting. I am grateful to my hon. Friend the Member for Amber Valley and all those who have contributed to the debate for helping to inform that discussion.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley 5:28 pm, 22nd November 2017

I thank you, Mrs Main, and all those who have participated in another interesting debate on this issue. Yes, we are all disappointed that we have not managed to move the Government to at least set a backstop date; I suspect that is something that we will have to come back to. Until somebody takes the lead, I suspect this will never happen. We have set an example—we have taken unilateral action on this issue in various other areas. It could be asked, why would a company come and operate in this country if it had to pay a whole new tax that did not apply anywhere else? Well, we have set that example. We probably have a bit of a case to make. We hear the Minister’s arguments and we will keep making our counter-arguments, and I suspect we will be talking about this again sometime soon.

Question put and agreed to.

Resolved,

That this House
has considered public country-by-country reporting.

Sitting adjourned.