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Tax Avoidance: Base Erosion and Profit Shifting

Volume 807: debated on Monday 2 November 2020


Asked by

To ask Her Majesty’s Government what steps they are taking in their discussions relating to the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting 2.0 Project to prioritise a fairer settlement for those less economically developed countries who lose income as a result of tax avoidance by multinational corporations.

My Lords, the UK remains committed to the OECD’s base erosion and profit shifting 2.0 project. We robustly support the discussions being taken forward in the OECD’s inclusive framework group. That includes more than 100 jurisdictions and ensures that less economically developed countries have an equal say in developing international solutions. The UK continues to champion international initiatives that build capacity in developing countries.

I thank the Minister for her answer. As she will know, low-income countries lose more of their income than do middle-income ones—some 9% as opposed to 3%—as a result of profit shifting by multinational companies. In the light of this, will Her Majesty’s Government prioritise the needs of low-income countries with a view to finding a process that will help them better than those presently on offer? I note that the Tax Justice Network is equipped and ready to take on this task if commissioned to do so.

The UK is committed to BEPS 2.0 being an inclusive process. Capacity building and technical assistance remain key priorities for the UK as they empower developing countries to draw on more of their own resources as key enablers of the sustainable development goals. This includes a £47 million package from the UK to support developing countries’ tax and public finance systems, including the OECD’s work on international tax standards to tackle evasion and avoidance.

My Lords, I underline what the noble and right reverend Lord, Lord Harries, has brought into focus. The loss of corporate tax—about 3% from high-income economies compared with 9% for low-income ones—further exacerbates the impact of coronavirus on trade and tourism. For example, sub-Saharan Africa currently faces its first recession in 25 years, with up to 14 million people driven into extreme poverty. Can the Minister assure the House that Her Majesty’s Government will urgently offer the OECD technical support in the form of revenue analysis along with support for legislative and policy measures so that countries that wish to implement unilateral tax reforms will have the wherewithal and advice to do so in the best way?

My Lords, I can make that commitment. By their very nature, these proposals will benefit low-income countries by expanding their tax rights and reducing the incentive to shift profits away from such jurisdictions. As I outlined in my previous answer, the Government are also committed to putting resources behind capacity building to ensure that low-income countries can also benefit from these measures.

My Lords, I welcome this extremely important Question. We have discussed pillar 1 before in this Chamber. My noble friend is aware of my views that the digital services tax is not working. The pillar 2 blueprint was published a few weeks ago. Although it is complex, it has four concrete proposals to ensure that international companies pay the minimum level of tax. One of these, the subject to tax rule, looks the most effective, as it encourages withholding tax. Can the Minister assure the House that the Government will support this?

My Lords, I assure my noble friend that pillar 1 remains the UK’s number one focus, partly so that we can achieve a multilateral agreement to replace the digital services tax, which was intended to be only temporary. We also recognise that a global solution will need to include outputs on pillar 2. We are working to ensure that these proposals, including the one referred to by my noble friend, are balanced and appropriately targeted, and have the support of all those involved in the negotiations.

My Lords, I draw attention to my entry in the register of interests: I am an unpaid senior adviser to the Tax Justice Network. The OECD has released aggregate country-by-country data from 26 countries including the US, China, Japan, France and India. This suggests that there is considerable international consensus around transparency. The UK has blocked the OECD from releasing its aggregate data. It would be helpful to know why. Furthermore, the analysis of the OECD’s data shows that Bermuda, a British Overseas Territory, is responsible for $10.9 billion of tax avoidance and evasion. This is particularly hitting low-income countries. Why do the UK Government continue to indulge these fiddle factories?

I am not aware of the particular issue that the noble Lord raises, but I will look into it and write to him. The UK is committed to progress on this initiative, which we started back in 2013 when we hosted the G20.

My Lords, the UN Conference on Trade and Development estimates that developing countries lose up to $200 billion every year in fiscal revenues due to a lack of in-country tax take. Why does CDC, the UK’s FDI, regularly use tax havens, which results in less money for health and education, the undermining of good governance and the consolidation of conditions in which corruption can flourish?

I do not recognise the picture that the noble Baroness painted. The UK stands behind the international action being undertaken through the OECD and the progress being made in tackling tax avoidance and evasion. Since 2010 the UK has invested more than £2 billion extra in HMRC to tackle evasion. This has brought dividends in narrowing the tax gap, which is at a near record low.

My Lords, I suggest that there is a lack of consensus, especially relating to the new proposed OECD framework. In view of that, what progress has been made on action 14—the peer review process, which ends in 2021—to improve dispute resolution between jurisdictions?

My noble friend is right. These negotiations are complicated, and they involve more than 100 jurisdictions. Although it is difficult, I welcome the progress that we manage to make. My noble friend is also right about action 14: the peer review process is under way. More than 45 jurisdictions have been reviewed so far and around 990 recommendations issued as a result of that process.

The noble Lord, Lord Kirkhope, is right: there is no consensus. When we in this country condemn companies that do not pay tax—we even have the digital tax—everyone is supportive, but developing countries are a different kettle of fish. We must win the argument for ensuring that the “taxing country” principle applies to developing countries. Will the Government make sure that supportive measures are taken not only within the OECD but within the United Nations to ensure that developing countries get their fair share of tax?

The noble Lord is right that this is not only an issue for developed countries but is essential for developing countries and their tax take. The UK believes that the OECD should be the primary standard-setting body for international tax standards, but we are absolutely committed to ensuring that the voices of developing countries continue to be central to those discussions. This is why we have been keen to build on the progress the OECD has made in integrating the interests of developing countries. The inclusive framework has over 100 non-OECD member states and 66 from less economically developed countries, to ensure that those voices are front and centre of these discussions.

My Lords, can the Minister comment on the progress of any of the 15 actions that are aiming to tackle tax avoidance and improve international tax rule coherence, and to ensure that profits are taxed where economic activity and value creation occur? Are the Government focusing on any specific areas, and has the pandemic had an impact on global co-operation in this area?

I am pleased to tell my noble friend that progress is still being made on these actions, despite the global pandemic. On 12 October, the OECD published its Reports on the Pillar One and Pillar Two Blueprints, regarding the new work going forward. The UK is working with the OECD to support multilateral implementation, having supported and implemented all the key components itself. The OECD published a progress report this year on actions taken.

Sitting suspended.