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Taxing multinationals: Gauke dismisses E&Y attack on ‘morality test’

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Companies should ‘think very seriously about aggressive, artificial, contrived behaviour’ in managing their tax affairs, David Gauke warned yesterday.

‘There is low tolerance for such behaviour,’ the exchequer secretary said during Treasury questions in the House of Commons, in response to a question from Conservative MP Nick Gibb.

Gibb said: ‘The managing partner of Ernst & Young has dismissed the concerns of the House about aggressive tax avoidance by stating: “The simplest solution is to stop banging on about morality and change the law.”’

Gibb asked: ‘Does the minister share my view that in a civilised society we do not live by rules and regulations alone, but by what we consider to be right? Should not boards of companies that operate in this country be asking themselves a key question about all their activities, including their tax policy: is this the right thing to do?’

Gauke replied: ‘Increasingly, artificial contrived behaviour is something that all of us, including the public, simply do not accept. My honourable friend is right to say that this is a board matter, and boards should take tax policy seriously.’

As Tax Journal reported on Monday, business leaders at the World Economic Forum were reported to have backed David Cameron’s call for all businesses to pay their ‘fair share’ of tax.

However, Mark Otty, Ernst & Young’s area managing partner for Europe, the Middle East, India and Africa, told the Daily Telegraph: ‘The only way you can resolve this issue is through a legal code. I don’t see how you can have any assessment on payments of tax other than what is in the statute. The simplest solution is to stop banging on about morality and change the law.’

Otty added: ‘In days gone by it was a much easier argument. Now there is this morality test. For an organisation, it becomes very difficult ... you don’t know what the rules are or who the arbiter is.’

Yesterday Charlie Elphicke, another Conservative MP and a former tax lawyer, welcomed the UK’s use of the G8 presidency tackle international tax avoidance ‘after a decade in which the government of this country stood by while industrial tax avoidance was allowed to run rampant’.

Elphicke added: ‘I urge the government to focus on the issue of tax presence, particularly for companies such as Amazon, which we all know are in this country and should be paying tax in this country, but are playing the rules to avoid it.’

Gauke replied: ‘I will not get into individual cases. As I have said, the OECD, at the urging of the chancellor, is looking at these issues. We want to ensure that there is an international tax system whereby economic activity is taxed where it occurs. That has been overlooked for too long and we are determined to address it.’

Last week an Amazon spokesman was quoted, in a Financial Times report of high street retailers ‘putting pressure on the government to deliver a level playing field on tax’, as saying: ‘Amazon pays all applicable taxes in every jurisdiction that it operates within. Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages dispatching products to all 27 countries in the EU. We have a single European headquarters in Luxembourg with hundreds of employees to manage this complex operation.’