On Wednesday 7th January, I held a Westminster Hall debate in Parliament on the Diverted Profit Tax, introduced in the 2014 Autumn Statement. I welcome the introduction of this tax from April 1st, and I believe that the Diverted Profits Tax will deter multinational companies from avoiding paying tax here in the UK. As many of you will already know, I worked as a Tax Adviser to Businesses prior to becoming your Member of Parliament and I can see potential for this tax to tackle an issue which I know many of you are concerned about.
I recognised that there are real public concerns about unfairness in the tax system especially amongst my constituents, I have received a number of emails on this issue and have been asked about this on the doorstep. People are quite rightly concerned about some companies, particularly large multinationals, are seen to be aggressively avoiding paying tax in the UK. It is absolutely vital that the public have confidence in our tax system, and that the tax rules treat both companies and individuals fairly and consistently, without leaving any scope to avoid obligations.
The Diverted Profits Tax is a proactive measure, introduced by this Government to stop multilateral companies flouting tax rules around the world and avoiding paying tax on profits they earn in various countries. It is ludicrous that a large global company can earn profits in the UK and not pay tax here. I know we all want that to stop, and I am sure you will welcome the fact that the Government have introduced a proactive measure to achieve just that. If a company comes to this country, it is right that we charge tax, but it will be expected to pay. That is what lies behind the measure: to ensure that companies pay that fair rate of tax.
Since 2010, the Government have introduced a series of tax reforms to boost competitiveness, such as the patent box, increasing the generosity of research and development reliefs, modernising the UK’s controlled foreign companies regime, and cutting corporation tax from 28% to 21%—next year, it will fall to 20%, the lowest rate in the G20 which is working to create the most competitive tax system in the G20 here in the UK.
Corporation tax reforms were a central plank of the Government’s economic strategy, and that strategy is working; growth, jobs and investment are all moving in the right direction. It is clear that the tax reforms made since 2010 are supporting our economic recovery, and that the Government’s plan to cut corporation tax again to 20% will lead to more jobs and investment in the UK. I am aware that 90% of UK businesses say the corporation tax rate cuts delivered since 2010 have been good for UK competitiveness.
I welcome the diverted profits tax and the Government’s commitment to creating in the UK, the most competitive environment in which to base and run a business, including low corporation taxes, but it is a requirement of this Government that companies wishing to do business in the UK should pay those taxes and should not seek to avoid paying them.
You can read my contributions in the debate and the Government’s response here.