Multi nationals

HMRC has admitted that they are currently unable to prevent big multinational corporations from declaring their profits in foreign countries with lower tax rates on profits made in the UK.

Lin Homer, Permanent Secretary of HMRC and other senior tax officials were questioned by MPs on Monday at the Public Accounts Committee over its ability to tackle tax avoidance by multinational corporations. The MPs accused HMRC of failing to put enough effort into making big companies pay their fair share, while small businesses and ordinary people were hassled over bills.

Although individual cases were not meant to be discussed at the meeting, MPs, Margret Hodge and Richard Bacon repeatedly bought up the recent revelations of multinationals such as Starbucks and Amazon avoiding tax in the UK. The MPs accused HMRC of being gentle on multinationals for the sake of remaining attractive to global businesses.

Homer refuted this by saying that HMRC does it’s best to achieve its first priority – which is to ‘collect the taxes due’. However the Permanent Secretary admitted that there are challenges and barriers which prevent a harder line on tax avoidance in such circumstances.

Homer said, “all HMRC can do is to apply the laws and what I am acknowledging is that in an international setting multinational businesses can choose to some extent where some parts of their business are based and they can choose where some of their profits are based.

“Many people, including quite a lot of finance ministers, would think that a situation where some countries offer a very, very low tax base is a challenge to all of us. That is different from saying that I have reservations about our expertise in enforcing the rules as they currently are.”

Richard Bacon, deputy chair of the PAC, said most people would be outraged that multinational companies with a large presence in the UK could legally avoid paying the same rate of corporation tax as a smaller company that could not move its tax offshore. Undoubtedly referring to Starbucks he said, “It smells and it doesn’t smell of coffee. It smells bad”.

Homer responded that the issues cannot be simplified so easily and that they don’t know the ‘ins and outs of the business’. She also warned that they cannot just make up laws to tackle tax avoidance in such circumstances so easily and must take into account how such laws may affect UK businesses. Ultimately, Homer said that such practices were outside the scope of HMRC’s powers and would require a coordinated international effort to tackle.

In what appears to be ‘perfect timing’, Chancellor Osborne announced on Monday that the UK will be working with Germany to address multinational tax evasion.

He said both counties would raise the issue at the G20 meeting in Mexico this weekend with the aim of introducing new OECD rules to outlaw the practice

Osborne said, “We want competitive taxes that say Britain is open for business and that attract global companies to invest in and bring jobs to our country, but we also want global companies to pay those taxes.

“The best way to achieve that is through international action that ensures strong standards, without pricing ourselves out of the global market. “

Next week senior executives from Starbucks are expected to appear before MPs at PAC for questioning over its tax affairs in the UK. Starbuck has been accused of only paying only £8.5 million in corporation tax through a complex series of offshore arrangements, despite racking up £3bn in sales in the UK in the last decade.