Abolition of corporation tax is to be considered by a new cross-party group of MPs and peers who will subject ministers and business leaders to public interrogations in a bid to secure fairer and more responsible tax policies.
The all-party parliamentary group on responsible taxation will bring together senior Labour and Tory parliamentarians determined to keep up pressure on ministers to ensure multinationals and others pay their fair share.
The group will begin work in the new year and be chaired by Labour MP Margaret Hodge, with ex-Tory minister David Davis as a vice-chairman.
In a departure for parliamentarians, it will hold meetings in public and ask ministers, tax experts and business people to attend for questions and debate. The first item on the agenda will be how to respond to G20 recommendations to crack down on corporate tax avoidance.
With evidence growing that the current tax on profits is unfair and too easily avoided, the group wants to debate whether it should be replaced by a new tax on location of activity and sales.
HM Revenue and Customs recently stepped up efforts to crack down on tax avoidance. It emerged last week that a taskforce is ensuring that overseas firms trading on the internet charge VAT on products sold to customers in the United Kingdom.
Other members of the cross-party group include Labour peer Stewart Wood, a former adviser to Ed Miliband, Conservative MPs Stewart Jackson and Richard Bacon, and John McFall, Labour peer and former chairman of the Treasury select committee.
Corporation tax is levied on a firm’s profits, but there have been increasing concerns in recent years that multinationals with complex global operations can shift them to low-tax jurisdictions by making large royalty payments between different arms of their business.
The American coffee chain Starbucks was widely criticised in 2012 when it emerged that it had paid just £8.6m in corporation tax since 1998, on more than £3bn of sales.
David Cameron warned the Seattle-based firm to “wake up and smell the coffee”. Starbucks announced last week that it paid £8.1m of tax last year – more than in its first 14 years of operating in the UK.
The Organisation for Economic Cooperation and Development, the club of developed nations, has been spearheading recent work on tackling the practice of “profit-shifting”, and Britain has signed up to the new rules it has drafted. But campaigners complain that lobbying by multinationals watered down the proposals.
It was also revealed last week that five of the largest banks in the UK – JP Morgan, Bank of America Merrill Lynch, Deutsche Bank, Nomura Holdings and Morgan Stanley – legally paid no corporation tax in 2014, though they made billions in profits. The banks offset past losses against their taxable income.
The chancellor, George Osborne, has repeatedly cut the headline corporation tax rate, from 28% in 2010 to 20%, in a bid to cement Britain’s reputation as a business-friendly economy.
Labour’s Treasury team has pledged to review tax reliefs, for everything from investment to employee share ownership, that firms can offset against their tax bill. Hodge, who became the scourge of multinationals in her time chairing the Commons public accounts committee, said: “Who pays tax and how much they pay has moved from being an obscure issue only discussed by tax professionals to one of huge public concern which is of interest to everybody.
“We want to stimulate an open debate on the challenges and reforms needed to restore and maintain confidence in the fairness of our tax system.
“Raising the tough questions and breaking through the technical jargon, which in the past has created a veil of secrecy, is just what parliament should do.”
Labour’s Lord Wood added: “There is now strong public support for making sure that business pays its fair share of tax, and pays it in the countries where they make their money. At the moment it is clear that this is not happening in a consistent way.
“This cross-party group of parliamentarians is determined to press the government to demand greater transparency, ensure fairness and take steps to minimise avoidance. We want to engage and hear from the public.”
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