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New turnover tax on multinationals is not the answer, says expert

A new sales tax on multinationals is not the way to ensure that they pay their fair share of UK tax according to tax expert Heather Self of Pinsent Masons, the law firm behind Out-law.com, responding to suggestions made in the weekend press.12 Nov 2012

According to a report in the Sunday Telegraph both Lord Myners, the former City minister, and Margaret Hodge, the chairman of the Public Accounts Committee (PAC)  have suggested that a sales tax should be considered as a way of raising revenue from multinational companies.

"A ‘turnover tax’ sounds nice in theory, but in practice the UK already has one of these: VAT,” said Self. She added that, as VAT is an EU-wide tax, as a matter of EU law "the UK cannot unilaterally impose its own version". 

Self suggested that there have been "too many knee-jerk reactions on tax recently". The UK’s tax system is already incredibly complex and in sync with international rules; it cannot be changed ad hoc. She added that making unilateral changes to the UK tax system would be very unhelpful for UK businesses and for the UK in the eyes of multinational businesses. "It would put the UK out of step with other countries and would be an unwelcome return to protectionism.”

 “There has been the same problem with calls for changes to ‘transfer pricing’ rules", she added. "The UK can’t change things unilaterally; we have to adopt a multilateral approach and, if changes were to be made, we would need to amend the OECD principles that lie behind the current rules.”

“The OECD rules on transfer pricing are long-established and generally work well. They do need updating to deal with the rise of e-commerce and the pricing of intangibles, but this work is actually already underway,” she said.

Last week Chancellor of the Exchequer George Osborne and Wolfgang Schäuble, the German finance minister, said that international action was needed to prevent large companies from "profit shifting" their taxable income to jurisdictions with more lenient corporation tax regimes. They called on colleagues to back work on identifying possible gaps in international tax standards, currently being carried out by the Organisation for Economic Cooperation and Development (OECD).

The OECD's tax base erosion and profit shifting initiative is expected to lead to a first analysis report to be presented to the next G20 meeting in Russia in February 2013. The project is looking at whether, and if so why, multinationals' taxable profits are being allocated to locations different from those where the actual business activity takes place.

While giving evidence to the PAC last week Lin Homer, chief executive of HM Revenue & Customs said: "All that HMRC can do and all that you would want us to do is apply the laws. I acknowledge that in an international setting, multinational businesses can choose, to some extent, where some parts of their business are based and where some of their profits are based."

Matt Brittin, Google Vice President for Sales and Operations, Northern and Central Europe, Troy Alstead, Starbucks Global Chief Financial Officer and Andrew Cecil, Director, Public Policy, Amazon are due to appear before the PAC this afternoon to answer questions from MPs on why their organisations pay so little UK corporation tax. 

Expertise in Corporate Tax

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