The UK’s Treasury Select Committee is to launch an inquiry into problems affecting the corporate tax base, committee chair Andrew Tyrie has confirmed.
In a statement, Tyrie said: “The complexity of tax law is turning what should be a straightforward principle – that everybody should pay the correct amount of tax – into a piece of elastic. For corporation tax, for instance, the problem is exacerbated by the globalization of economic activity and any liability to tax that accompanies it.”
Tyrie’s comments followed the announcement by technology giant Google that it had agreed with HM Revenue and Customs (HMRC) a “new approach to its UK taxes.” It is to pay GBP130m (USD184.4m) in back taxes as part of a settlement covering the period since 2005 and “will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.”
According to Tryrie, “A corporation’s duty to shareholders will be to minimize its tax liability. It should be the duty of those making tax policy to find better ways to limit the elasticity. Google may be the symptom, but it is not the cause.”
“There is a lot the Government could be doing. Tax policy must be made more practicable and the tax system more coherent. Tax needs to be fair. It needs to provide more certainty and stability. There is a lot to do and a lot for the committee to examine.”
The Government has defended the agreement with Google. On January 25, Financial Secretary to the Treasury David Gauke told the House of Commons that the deal is “solid evidence that companies are changing their models and reviewing their structures because we have strengthened the rules.” He pointed out that the Government took a leading role in the international base erosion and profit shifting project, introduced a 25 percent diverted profits tax (DPT), and invested heavily in HMRC compliance activities.
Gauke explained that Google’s announcement followed “the conclusion of a lengthy inquiry by HMRC,” and that he was “unable to go into the details of the inquiry’s conclusion beyond those made public at the end of last week.” He did nevertheless stress that a 2012 National Audit Office review of the HMRC settlement process “concluded that HMRC obtained a reasonable settlement for the Exchequer” and that the recommendations made have since been implemented.
Gauke added: “Government action is levelling the playing field among businesses, giving worldwide tax authorities more effective tools to tackle aggressive tax planning and helping us to better align the location of taxable profits with the location of economic activity. We are incentivizing businesses to do the right thing and come to the table early.”
“Last week’s announcement represents an important result of those actions. I can assure Members [of Parliament] that we will continue to tackle the tax risks posed by multinational companies over the coming years, giving the Exchequer more money to fund the public services we all rely on.”