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Backbenchers hold corporation tax debate

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MPs debated the issue of multinational companies and UK corporation tax last week in a debate scheduled by the Backbench Business Committee. Conservative MP Chris White opened the discussion, saying: ‘I was keen to see this debate take place, not only because of the gravity of the issue but because of the efforts that two local retailers, Frances and Keith Smith of Warwick and Kenilworth Books, have taken to raise the profile of the matter [by launching] a petition, which has gathered 170,000 signatures, calling on Amazon UK to pay UK corporation tax.’

Margaret Hodge, chairman of the Public Accounts Committee, said she was ‘particularly cross about the argument, which so many [multinational companies] put forward, that because they pay other taxes they can decide voluntarily whether to pay corporation tax’ and called for HMRC to be ‘toughened up’ and for the tax code to be simplified, adding: ‘I am not convinced that such companies are acting within the law, and until we challenge them we will not know whether I and the members of my committee, who I think feel the same as I do on the evidence we have received, are right or wrong. Greater transparency is needed. [Proper] information should be given to the public, whether it is a matter of opening up the books of the FTSE top 100 companies, or more naming and shaming of people for tax avoidance.’

However, David Gauke, exchequer secretary to the Treasury, said: ‘There can be occasions where it is entirely legitimate for a company not to be paying corporation tax if it is making use of reliefs or capital allowances in the way that parliament intended. It is also the case ... that corporation tax is a tax on profits, not a tax on sales. It is also worth remembering that we do collect significant sums of corporation tax from large businesses. But where the public’s concerns are justified, where there is avoidance, by which I mean contrived and artificial behaviour contrary to parliament’s intention, that is a very serious matter and it is right that we take action.’

When Hodge challenged him as to why HMRC ‘has not taken one case against any internet company’, Gauke responded that HMRC was constrained by the fact that ‘[HMRC] can collect only the tax that is due under the law; and 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.’ Responding to a point raised about the definition of ‘permanent establishment’, Gauke added: ‘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.’