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Tax Transparency and International Development

Volume 594: debated on Wednesday 25 March 2015

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to require country by country public reporting for all multinational companies; to strengthen controlled foreign company rules and overseas bond rules; to establish a public register of beneficial ownership, including in the Crown Dependencies and Overseas Territories; to introduce a penalty regime for the General Anti-Abuse Rule; to measure the impact of tax regimes on developing countries; to establish a commitment to use the international aid budget to strengthen tax systems in developing countries; and for connected purposes.

It has been a great privilege over the past three years to serve as a member of the International Development Committee and to see with my own eyes the difference that UK aid is making in the poorest countries around the world. That is something that we should be all be proud to champion during the general election campaign. Not only is eradicating poverty a worthwhile ambition in itself, it is also the best route to reducing conflict in an unstable world.

When I joined the Committee, it was considering its report on tax in developing countries. The introduction to the report begins with the following words:

“Tax is an issue of fundamental importance for development. If developing countries are to escape from aid dependency, and from poverty more broadly, it is imperative that their revenue authorities are able to collect taxes effectively. Tax revenues represent a more predictable and sustainable source of revenue than aid flows ever can.”

This Bill seeks to empower developing countries at a time when they are vulnerable to companies seeking to exploit their natural resources and economic development potential. The citizens of these countries should benefit from those resources and that economic growth so that they can shape the future of their own nation and of generations to come who can grow up free from poverty if we act to ensure fairness and transparency and to prevent this wealth from flowing to nameless beneficiaries.

This is not just an issue that exercises people in this place. Tax avoidance has become a hot topic. A ComRes survey last year found that 85% of the public believe that corporate tax avoidance is morally wrong even when legal. Outside Parliament, a collective of international development charities and many of my constituents have called on the UK Government to introduce an anti-tax dodging Bill early in the next Parliament. The charities say that such a Bill could raise an additional £3.6 billion for the Treasury, as well as help developing countries to improve their revenue collection and national income. They say that developing countries currently lose $160 billion a year in potential revenue owing to corporate tax dodging, which is more than the amount given annually in overseas aid by all rich countries. I should like to put on record my thanks to those charities for their work, especially Christian Aid and ActionAid.

Not only does tax dodging remove revenue from developing countries that could help them to create infrastructure and growth, but it takes money from public services and undermines the social contract between citizens and the state. The current Government have not done enough to tackle tax avoidance. The amount of uncollected tax has risen year on year, increasing to £34 billion in 2012-13. I am proud that my party—the Labour party—has committed to tackling tax avoidance in its first Finance Bill if it wins, or rather when it wins, the general election.

The Tax Transparency and International Development Bill seeks, by closing loopholes and imposing penalties, to ensure that multinational companies do not receive unjustified tax breaks, and that our tax rules do not incentivise companies to avoid tax in developing countries. It also seeks to make our tax system more transparent.

While leading the G8 at Lough Erne in 2013, the Prime Minister said that the agenda for the world’s most powerful nations should focus on trade, tax and transparency, and made it clear that that should be to the benefit of developing countries, and yet, reporting to the House in autumn last year following the G20 meeting in Brisbane, he did not mention developing countries once. He mentioned tax avoidance in his statement—he reported that an additional $37 billion had been taken from big companies as a result of steps taken by the G20—but when I asked him how much of that revenue had benefited developing countries, he did not know the answer.

Tackling avoidance is key to tackling global poverty and inequality and it cannot therefore be an afterthought. That is why the Bill is crucial. With that in mind, let me describe the specifics of the Bill. The Government introduced the general anti-abuse rule, which aims to catch those who set up abusive schemes, but there is currently no penalty scheme, so the rule lacks teeth.

The Bill calls for tough penalties to ensure that companies cannot avoid paying their fair share. I welcome the fact that the Government have committed to introducing a diverted profits tax, commonly known as a Google tax, from April 2015, which aims to impose a 25% tax rate on profits that companies have diverted out of the UK. That policy is flawed because it does not apply to loan arrangements, which allow multinationals to give loans to their subsidiaries in higher tax countries, the interest on which is deductible against tax, giving the subsidiaries a tax break while the interest payments end up overseas in a tax haven. Closing that loan loophole for exemptions could mean that by 2017-18 we will raise even more than the £350 million that is estimated in the Budget Red Book.

Similarly, in the 1980s, the controlled foreign companies rules were introduced to deter British companies from shifting profits to tax havens by stipulating that profits could still be taxed at their full UK rate. CFCs not only helped us to maintain our tax base, but they helped other countries, including developing countries, to raise decent taxes. In 2013, the Government altered the rules so that they applied only to profits shifted out of the UK, and not to profits shifted out of other countries. In effect, the coalition gave a green light to avoidance by multinationals based in the UK. In contrast, the Bill would reverse the revisions and strengthen the rules, which the Treasury has said cost UK taxpayers £900 million a year.

The altered controlled foreign companies rules highlight the need for the UK Government to carry out spillover analysis. However, we need to go further by assessing whether there are any adverse consequences on the ability of developing countries to collect tax. The Netherlands and Ireland have already done so. Given that the UK has led on so many aspects of development policy, we should not allow ourselves to lag behind on that.

While the UK Government are beginning to work on strengthening tax systems, we need to ensure that more is done, and that aid is targeted on it. Prosecution is only one deterrent against avoidance; public pressure is another. That is why we need to ensure that we know how money is being raised and spent, and we must push for country-by-country reporting for all multinationals.

Although the G20, OECD and the UK Government support country-by-country reporting—with the Government stating in their Budget Red Book that reporting will bring in £10 million of additional tax by 2018-19—they have not agreed to make the information public. That means that people in developing countries will not be able to access the information. The work of the Public Accounts Committee on corporate tax avoidance illustrates the importance of public engagement with these issues.

In line with the 2013 G8 declaration, which stated:

“Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily”,

the UK has introduced the first register of beneficial ownership in not only the UK, but the world. We should be proud of that, but we need to do more to make sure that the overseas territories and Crown dependencies have public registers, too. To date, none of those countries has committed to a public register.

Following the Prime Minister’s statement to the House on the G7 meeting in Brussels last June, I asked him what progress had been made. He replied that

“we should commend them for the work that they have done to bring their arrangements up to date. I had this conversation with them almost exactly this time...They have made huge steps forward, and we should commend them for that and encourage them to go further.”—[Official Report, 11 June 2014; Vol. 582, c. 555.]

However, that is simply not the case. When I raised the issue with the Business Secretary, he confirmed that we have not used our influence effectively.

We must continue to push this issue, and that is why it is central to this Bill. Despite the Government’s warm words, four of the overseas territories and Crown dependencies have so far ruled out a public register and none has committed to one. We must do more to deliver on the Lough Erne leaders’ communiqué signed off by our Prime Minister.

This Bill will ensure that multinational companies do not receive unjustified tax breaks, by closing loopholes and imposing penalties. It will give a fairer deal, do more to tackle poverty and give transparency to our tax system. The developing countries of this world deserve no less. I commend this Bill to the House.

Question put and agreed to.


That Fiona O’Donnell, Dame Anne McGuire, Anas Sarwar, Steve Rotheram, Ann McKechin, Jeremy Lefroy, Sheila Gilmore, Valerie Vaz and Fabian Hamilton present the Bill.

Fiona O’Donnell accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 27 March, and to be printed (Bill 196).