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Margaret Hodge, PAC are scaring off new biz: Treasury source

Claims firms are put off by icy touch of multinational tax probes

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The UK's Treasury Department is said to be ticked off by the Public Accounts Committee and its vocal chair MP Margaret Hodge for scaring companies off Blighty with their investigations into multinationals' corporation taxes.

Sources in the department told the BBC and the Daily Mail that senior ministers had been warned by businesses that new firms were put off setting up their headquarters in the country because they were afraid they'd be hauled in front of the committee and subjected to the kind of public humiliation companies like Amazon, Google and Starbucks were put through.

"Companies looking at Britain are being put off the idea of moving their headquarters here because they fear the level of public exposure for behaving perfectly legally," they said.

"There is no doubt it is having an impact. We are trying to show we have one of the most competitive corporate tax regimes in the world, but the message is being sent out if you come here you will be exposed to this sort of criticism from Margaret Hodge and her committee.

"The head of a company looking to move here would see the way other people have been hauled in front of MPs and subjected to criticism and will think: 'I'm not doing that.' The likes of Starbucks and Amazon will always be here, but other companies looking at Britain are being put off the idea of moving their headquarters here."

But Hodge dismissed the idea that companies looking to invest in Blighty would be put off by tax issues, pointing out that a number of other factors contributed to decisions on where companies based their offices and that it would be unfair on British firms if multinationals could get away with paying less tax than they do.

"The skills of the workforce, the timezone we're in and the quality of the public services they would rely on are just as important and those public services need to be paid for," she said.

"To assume you can entice companies purely by a race to the bottom on tax is mistaken."

Margaret Hodge and her committee have quizzed a number of firms about the apparent exploitation of legal tax loopholes by multinationals in the last couple of years. The sessions were filmed and publicly available and featured some choice phrasing from Hodge and other MPs on the committee about the companies' aggressive tax management.

At various points, for example, Hodge told Google that it was "immoral", that although it professed to do no evil "you do do evil" and that its tax arrangements were "highly contrived". The PAC also told Amazon that its answers to questions about its taxes were "evasive" and "ridiculous", while MP Austin Mitchell was sarcastically withering to Starbucks' claims that it didn't turn a profit in the UK:

I'll have to run out right now to Victoria Street and buy a double caramel macchiato, you're doing so badly. You're either running the business very badly or there's some fiddle on.

The government has consistently said that getting businesses to invest in the country was a priority of foreign policy and that doing so would help the country out of the recession. However, to begin with, the coalition seemed to support public outrage over how little tax was being paid by international companies in the UK. Now the tide seems to be turning. Prime Minister David Cameron will give a speech today at the World Economic Forum in Davos where he will once more tout Britain as a low-tax business paradise.

"What we urgently need in Europe is an aggressive, pan-continental drive to unleash enterprise," he's expected to say. "At home we have cut corporation tax, cut the small business rate, funded a new enterprise allowance and got a grip on regulation. We’ve sent huge trade delegations to the fastest-growing economies all over the world, sending out the message that Britain is back open for business.

"And in the essential work of sorting out the deficit, we have made the decision to prioritise growth. So we’re making cuts to the welfare budget – which is hugely difficult…so that we can fund big transport projects on our roads and railways."

A year ago in Davos, Cameron said that companies that thought they could pay no tax in Britain needed to "wake up and smell the coffee", in what appeared to be a dig at Starbucks. He also said he planned to lead a global effort to reform tax evasion and tax avoidance during the country's leadership of the G8.

The exchequer secretary to the Treasury David Gauke was already calming this kind of rhetoric in November last year, when in a speech at the Tax Journal Conference he said that the public was "misunderstanding" the "complexities" of the tax system.

"The debate [on avoidance] has – in fact – often been simplified and misrepresented in ways which are unhelpful. Trying to sum up a multinationals’ tax arrangements in a sentence – or a headline – can be like trying to sum up the Bible in a tweet," he said.

"And – as such – it has sometimes led to cases where behaviour which is perfectly legitimate – or behaviour which is perfectly legal – has been presented in the public sphere as completely illegitimate, or completely illegal."

He also warned that this "misunderstanding" could stop companies from investing in the country.

"When legitimate and legal tax behaviour is wrongly presented to the public as illegitimate, or illegal; it can have a very damaging impact.

"‘What’s the problem?’ Some people might ask. ‘Surely it keeps individuals and companies on their toes? If they know they’ll be under this scrutiny, surely they’re less likely to do anything suspect?’

"But what we have to remember is this. If companies are worried that their reputations will be unfairly damaged. That perfectly legal and perfectly legitimate behaviour might be presented to the public as something different… Then it is quite understandable that this could put them off moving here, or investing here, or creating jobs here." ®

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