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Margaret Hodge backs country-by-country reporting and a UK FATCA to end tax avoidance

30 November 2012

Salman Shaheen - ITR

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Margaret Hodge MP, chair of the House of Commons Public Accounts Committee (PAC), hauled Google, Amazon and Starbucks over the hot coals earlier this month for avoiding UK taxes. She tells Salman Shaheen how transparency measures such as country-by-country reporting and FATCA can be used to ensure companies pay their fair share of tax, and calls for HMRC to step up its game.

Labour Member of Parliament Margaret Hodge was Minister for Children in Tony Blair’s government and Minister for Culture and Tourism under Gordon Brown. With her party in opposition, she now chairs the PAC. Here she has found a new voice, stridently chasing tax avoidance and the lack of transparency in corporate accounting, which Google, Amazon and Starbucks have learned to fear since being hauled before her earlier this month on the charge that they have acted immorally by not paying their fair share of tax in the UK.

Companies and their lawyers, however, argue that they pay the amount of tax they are required to under law and that it is for politicians and supranational bodies to take responsibility for the tax systems they have designed.

Hodge accepts that governments do have a responsibility to devise a law that ensures fair contributions from individuals and corporations.

"We have such a complex tax code, we spend our time chasing our tails," she says. "Every time you think you’ve closed a loophole, another one is devised."

Tearing it up and starting again appears to be beyond any government, she says however, pointing out that the Conservative government appointed a "simplification czar", but only gave him six people to work with.

She is also keen to note that the tax code was designed for the nation state, not for a globalised world. It is clear, then, that she thinks reform is necessary.

"But, passing the buck back to the government is not good enough either," she says. "There are responsibilities on companies to behave ethically. And there are responsibilities on the government to make it harder for them to avoid tax."

Hodge also says there are responsibilities on HM Revenue & Customs (HMRC) to "step up its game" and she calls on the tax authority to "aggressively deal with those companies that are deliberately exporting profits from the UK to low-tax jurisdictions".

"HMRC has to build up better skills and use them in the right way to toughen up its stance when negotiating things like transfer pricing deals," Hodge adds.

Country-by-country reporting and FATCA

On the regulation side of things, Hodge is singing from a similar hymn sheet to Richard Murphy and the Tax Justice Network, whose work she praises.

"Country-by-country reporting and unitary taxation both seem like really good ideas," she says.

However, Hodge cautions that these will take forever to negotiate given the speed at which Europe and the rest of the world moves, "so we can’t put all our eggs into that basket".

"The time has come to stop relying on Private Eye to tell us when things go wrong," Hodge says. "We need to see how the negotiations occur. I would start that off with the FTSE 100, and if the world doesn’t fall apart we’ll see if we can take it further. And I don’t think the world’s going to fall apart."

Hodge says she cannot understand why the information corporations have to file in the US is so much more transparent than the information they have to file in the UK at Companies House.

"It’s inexcusable to me that Starbucks can give one story to Companies House and another to investors," she says.

"We could name and shame those who are found guilty of tax avoidance in the same way we name and shame benefit cheats," Hodge adds.

Hodge does not declare herself to be a tax expert, but she says that she would support any method of tackling tax avoidance that works, including a UK version of the US Foreign Accounts Tax Compliance Act (FATCA), which International Tax Review recently revealed the government was secretly preparing.

"At a time when there are fiscal constraints, the idea that big corporations get away without paying their fair share is anathema," she says.

Corporate citizens

On Starbucks reducing its royalty rate from 6% of sales to 4.7% after being challenged by HMRC, Hodge said: "it appeared to be just what you could get away with", something she describes as "deeply unfair".

Hodge is keen for companies to be good corporate citizens. One thing that makes her particularly angry is big companies promoting their corporate social responsibility credentials by saying they fund good work projects and using this as a justification for not paying their taxes. She is also incensed by the standard company response that the amount of corporate tax they pay does not matter because they pay other taxes.

"The country’s about to spend about £1 billion ($1.6 billion) extending broadband into rural areas," Hodge says. "Google will benefit from that. That’s entirely taxpayer and council taxpayer funded investment. The idea that they don’t benefit from taxpayers’ expenditure but only contribute to the public purse is absurd."

A key fact that has weighed heavy on Starbucks’ reputation is that it has not paid UK corporation tax for 14 of the last 15 years. Hodge wonders what business will continue expanding while making such losses.

But equally, one wonders why it has taken 15 years to become an issue.

"There’s a greater focus when money is tight on demonstrating we’re all in this together and paying our fair share," Hodge explains.

Of course, it has not just become an issue for politicians and the PAC. As Occupy and UK Uncut have spectacularly demonstrated in the last year, the public too has lost patience with corporations they believe are paying less than their fair share in an era of biting cuts. Hodge is not exactly ready to set up a tent outside St. Paul’s Cathedral in London, but she is encouraged by the popular outcry from across the political spectrum.

"Both the TaxPayers’ Alliance on the right and UK Uncut on the left support the work that the PAC is doing," she says. "That shows we’ve touched a raw nerve here and corporations should take note because it is creating reputational damage which costs them business."

"There’s a self-interest for them to get on and pay their ruddy tax".

Report

The PAC will release its report on Monday.

"We want to influence at the last minute the Chancellor in his Autumn Statement."

Meanwhile, the PAC is taking evidence on the K2 type of scheme infamously used by comedian Jimmy Carr. And it will not be forgetting about other multinationals it believes are not respecting the spirit of the law.

"We won’t let go of it because it’s a hugely important element in the public finances," Hodge says. "We will be raising issues that have been raised with me by whistleblowers or in the media. Almost every other day there’s a new secret exposed."

The interview concludes as another public scandal takes immediate precedence and Hodge rushes to hear Prime Minister David Cameron’s response to the Leveson Inquiry into press ethics. But tax avoiders can rest assured, if not easy, that their affairs will continue to be among Hodge’s highest priorities.






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