UK Lords Committee Hears Views On Taxing Multinationals
11 June 2013
Posted by: Author: Amanda Banks
Author: Amanda Banks
The House of Lords Economics Affairs Committee has heard conflicting views on the taxation of multinationals, with tax lawyers warning against an "aggressive" approach by HM Revenue and Customs and Margaret Hodge MP urging the body to be more assertive.
Steve Edge, a Partner in Slaughter and May, praised what he described as a different relationship between government and business than in the past, with HMRC now trying to understand business needs and regarding taxpayers as "customers." Dismissing the suggestion that HMRC as a result may have gone "native," he said that in his experience he had not seen "cosy deals," and that a business will be the first to complain if a competitor gets a better deal. Ashley Greenbank of Macfarlanes added that one attraction of Britain for businesses was certainty under the law, and that changes to the law would be better than a more aggressive approach.
Labor MP Hodge, who chairs the Public Accounts Committee (PAC), spoke following the tax experts, and expressed strong disagreement. She explained that in 2011-12 HMRC had raised an extra GBP4.5bn than was the case in the year before, but GBP6.3bn less in corporation tax, even though this was ahead of a cut in the corporation tax rate. She added that HMRC says that 25 percent of the tax gap is due to corporation tax, and that her committee had not been convinced by claims from the National Audit Office that controversial deals reached with big firms had been better value for money than litigation.
Further, Hodge claimed that that SMEs feel that HMRC pursues them in a "regressive" way, while not taking an assertive approach with bigger companies. The law is not black and white, she argued, but a spectrum, and she noted that tax advisors offered tax arrangements which they judged had only a 50 percent chance of success.
On issues of disclosure, Edge cautioned against imposing more transparency, which he said would increase administrative costs and could lead to businesses being forced to reveal confidential information. In contrast, Hodge called for the tax details of FTSE 100 companies to be made public as a first step, and she suggested that there could be a private committee to look at tax issues, like the Intelligence and Security Committee.
However, there was slightly more common ground on the need to revise tax laws. Gary Richards of Berwin Leighton Paisner observed that tax laws were not designed for the modern economy, which is characterized by intangibles and by globalization in trade. He commended the arms-length pricing rules laid out by the OECD, but the lawyers were agreed that a formulaic apportionment system would not work. Hodge, meanwhile, called for the tax code to be simplified.
Hodge also complained about the use of tax reliefs to promote economic growth. Lord Lawson, a member of the Economics Affairs Committee who was formerly Chancellor in the 1980s, observed that he had always preferred lower rates over reliefs, as these were always exploited to avoid tax. Hodge suggested a grants regime, although she acknowledged this would be "bureaucratic."