Impact of globalisation on taxation

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"I warmly welcome those who are here at our conference today to discuss the vitally important subject of tax and globalisation.

Who pays tax and who avoids paying tax – whether it’s legal or not – has become a major issue of public debate and public concern.

It is unfair and offensive to many people that companies and individuals can take advantage of expensive advice to choose how much tax they pay on the money they make, or the profits they earn.

Paying tax should cease to be a voluntary gesture for the rich and the powerful and a civic obligation for the rest of us. We should all pay our fair share of tax.

Exploiting the complexity of our tax rules to avoid paying a fair share of tax is therefore morally reprehensible.

We are both bewildered and shocked at sheer lengths that some companies – like Google, Starbucks and Amazon – will go to get out of paying their fair share of tax on the profits they make in the jurisdictions in which they do business.

Here in the UK, the tax gap – the difference between the amount the Government considers is owed in tax and the amount it actually collects –has grown to £34 billion. The future of our public services depends on getting in every pound of money rightfully owed to Government.

I am therefore in no doubt that the present settlement is wrong and must be reformed.

I understand how complex these issues are. However, the law needs to change, and the behaviour of companies and individuals must also change. Countries compete, but they must also co-operate.

We need to work together internationally on greater transparency over ownership, better country by country reporting and less unfair competition through harmful tax practices in individual jurisdictions.

We want tougher tax regimes, closing the loopholes that companies exploit and investigating and prosecuting avoidance schemes. We need to simplify our tax systems, so that they are less vulnerable to abuse.

We welcome the UK Government’s planned moves to introduce a 'Google tax' to stop companies moving profits offshore through devices such as the 'Double Irish' sandwich.

Like many other countries, however, the UK Government has found it hard to resist the temptation to engage in a race to the bottom on tax. For example, its Patent Box tax relief, designed to encourage innovation, has come under investigation by the European Commission as a potential 'harmful tax practice.'

The success of international efforts to tackle tax avoidance depends on all countries being prepared to play by the same rules, and not adopting a two-faced approach where they sign up to OECD standards in principle, but try and undercut one another in practice.

Today provides an opportunity to try to move forward on some of these tricky issues, and we welcome the valuable contribution of all of our speakers and attendees today."

Margaret Hodge was speaking as the Committee held a conference on the impact of globalisation on taxation at the Guildhall in London on Thursday 30 October 2014.

Work has contributed to reforms

The Committee of Public Accounts has taken a strong interest in this Parliament in promoting fair and efficient tax systems. As well as making recommendations to HMRC about how it can collect taxes more efficiently and effectively in the UK, the PAC’s work highlighting harmful tax practices has contributed to the reforms to the international tax system the Government has been leading at the G20 and OECD. 

The conference aims to continue and broaden out the debate on taxation. Parliamentarians, business representatives, academics, campaigners and tax experts are meeting to discuss both the G20/OECD agenda and work being done in the UK.

Conference influences future work

The conference will influence the work that the PAC does for the remainder of the Parliament, and the PAC plans to produce a conference report which can be used to feed back views and ideas to key policy makers.

"Governments worldwide have recognised the need for coordinated action to ensure the integrity of the international tax system," said Grace Perez-Navarro, Deputy Director of the OECD Centre for Tax Policy and Administration and keynote speaker at the conference.

"Our efforts to increase transparency, combat offshore evasion and counter tax avoidance by multinational enterprises are having an impact on the ground and helping countries to make sure that all taxpayers pay their fair share," she added.

Justin King CBE, former CEO of J Sainsbury plc and keynote speaker at the conference, said:

"With both the international and virtual nature of so much business today it is clear that a business tax system designed last century, when business was very different, needs a significant overhaul. Tax should not be part of the competitive landscape and this is why it is increasingly becoming an issue for consumers as well as governments."

Michael Izza, Chief Executive of ICAEW (The Institute of Chartered Accountants in England and Wales), said: "An international conversation is already taking place on tax. Countries recognise the need to reduce burdens on business in order to attract inward investment, while at the same time trying to protect their tax income to help pay down public deficits. As a result there are growing questions about structures like the 'Double Irish' and even the UK Patent Box. This conversation has a long way to go but the fact that it is taking place is a step in the right direction."