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UK treasury minister sticks up for HMRC in Google tax row

They do a good job of getting money out of multinationals, really

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Treasury minister David Gauke assured MPs that HMRC was doing a good job of collecting all the corporation tax that multinational firms like Amazon and Google owe in the UK during a debate in the Commons yesterday.

MPs including the leader of the Public Accounts Committee Labour minister Margaret Hodge and Conservative MP for Warwick and Leamington Chris White said during the debate that the tax agency needed to do more to hold major companies to account.

But Gauke protested that HMRC was getting more money into the Exchequer.

“I should explain that HMRC works, with regard to large businesses, by putting in place CRMs — customer relationship managers. Their role is essentially to man-mark the most complex and high-risk taxpayers. In recent years that approach has proved to be effective in getting money in,” he insisted.

“HMRC secured £8bn of additional compliance yield from large businesses in 2012-13, and more than £23bn in the past three years. It is an approach that has been endorsed by the OECD.”

When challenged by Hodge to answer why HMRC hadn’t launched any cases against internet companies like Amazon and Google, Gauke said that there was “no way to know what action HMRC has taken with regard to individual companies”.

“One of the difficulties that HMRC has is that it is bound by taxpayer confidentiality. It cannot give a running commentary to this House on the action that it takes, but the numbers demonstrate that HMRC is effective in getting money in,” he said.

“What we do know is that it has got billions of pounds in additional yield as a consequence of the action that it takes with large businesses as a whole. With reference to HMRC’s performance across the board, additional yield is being achieved year after year, and this Government have provided resources to increase the yield on evasion and avoidance.”

But he admitted that the tax agency could only chase companies for the tax they owe under the law, tacitly acknowledging that firms could avoid taxes perfectly legally by the kind of innovative tax planning that the Public Accounts Committee has called “immoral”.

He reiterated statements previously made by Prime Minister David Cameron that the UK would use its leadership of the G8 to try to make changes in tax transparency and global tax rules.

“There is an issue here because very often the law that applies to large businesses encompasses international law, OECD arrangements and what is set out in double taxation agreements,” he said.

“The point was raised about the definition of “permanent establishment” [where a company is legally based in regard to tax]. That is set out not just in domestic legislation, but in international law.

“We have led the way in encouraging the OECD to look at what needs to be done to improve the international situation, to make sure that the base erosion and profit-shifting work can ensure that the tax rules are all up to date for the internet world.”

Ministers at the backbench debate were pushing for reform not just of international law, but of UK corporation tax regulations as well. Charlie Elphicke, the Conservative MP for Dover, said he was concerned about other companies aside from internet firms.

“I have done a study of nine water companies, which, collectively, have a turnover of £28bn and operating profits of £10bn a year, yet they paid just £541m in tax, an effective tax rate of 5 per cent, which goes down to about 3 per cent if we take into account those who have been declaring tax losses,” he said.

“Let us take the example of Southern Water, which covers the area I represent. Over the three most recent years for which figures are available, it generated more than £2bn in turnover, operating profits of £767m and paid a net tax charge of £45.9mn. That is an effective tax rate of 6 per cent.”

He called on regulators to look into water companies and electricity firms like EDF and RWE npower and to change tax law so that interest payments made from one group company to another were no longer tax-deductible.

The Labour MP for North Ayrshire and Arran Katy Clark said that the simple fact was that the UK wasn’t collecting the taxes it needs to pay for the services it wants to provide.

“The estimates of how much is lost to the British economy through tax avoidance in its many forms go up to in the region of £120bn,” she said.

“One of the problems in the debate is that for a long time the leaderships of the parties have not had the political courage to take on the multinationals.

“These companies are household names. They are not the kinds of companies that would move out of Britain. To suggest that Starbucks, Amazon, Vodafone, npower, Google or HSBC will pack up their bags, move away and stop making profits out of our constituents is ludicrous.” ®

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