The chairman of the Commons Public Accounts Committee has warned against countries “adopting a two-faced approach” to tax policy by signing up to international standards while engaging in tax competition.
Margaret Hodge, addressing the committee’s London conference on tax and globalisation, welcomed the UK government’s plans to stop companies moving profits offshore. Last month George Osborne indicated that his autumn statement on 3 December would target technology companies that “go to extraordinary lengths to pay little or no tax here”.
The allocation of taxing rights between countries, in relation to the profits of companies doing business in countries where they have little or no taxable presence under existing law, is a key issue being addressed by the OECD’s base erosion and profit shifting (BEPS) project. G20 leaders will discuss the OECD’s findings at their Brisbane summit next month.
‘A race to the bottom’
Hodge said the UK, like many other countries, had “found it hard to resist the temptation to engage in a race to the bottom on tax”. She cited the patent box, which provides for a lower rate of corporation tax on patent income.
“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,” she said.
At this week’s Berlin conference, where 51 jurisdictions endorsed a new standard on automatic exchange of information, the chancellor “came under renewed pressure” to modify the patent box. But the UK Treasury was “confident of a successful outcome” on BEPS issues, according to the Financial Times.
The paper reported that tax experts at the PAC conference predicted that the patent box would be “redesigned to make it less attractive and more complex”.
Several attendees tweeted from the conference, using the hashtag #pactaxconf. The speakers included business representatives, campaigners and tax experts.
ICAEW chief executive Michael Izza said an international conversation on tax was already taking place. “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.”
The committee said the conference would influence its work for the remainder of the current Parliament: “The PAC plans to produce a conference report which can be used to feed back views and ideas to key policymakers.”
Tax and morality
Hodge told the PAC conference that exploiting the complexity of tax law to avoid paying a fair share of tax was “morally reprehensible”. Last week a Christian Aid report on tax and theology suggested that “multinational companies may have a moral duty to pay more tax than the letter of the law strictly requires of them”, the charity said.
Dr Rowan Williams, the former Archbishop of Canterbury who is now chairman of Christian Aid, said in a foreword to the report that “tax justice” was “crucial to the goal of setting many nations on the path to greater self-determination and ending their reliance upon aid”. The report noted that while an action may be technically legal, “that does not make it moral”.
Tax experts have argued that appealing to fairness or morality to counter tax avoidance may not be helpful in finding practical solutions. In a report for the National Audit Office in 2012, the Oxford University Centre for Business Taxation said it was not suggesting that all legal avoidance was “unproblematic”.
However, it was necessary to have a legal definition of what is to be taxed, and at what rate, to “ascertain what tax is actually due in a way that is practical and enforceable by society”.
The authors added: “The answer to those questions must ultimately depend on the law. There is no other way of determining the tax due.”
PwC’s global chairman Dennis Nally said in an interview earlier this month that tax advice had a moral dimension. Professional services firms had a role to play in helping companies think about “what’s acceptable and appropriate”, he told the FT.