Corporate tax avoidance debate could undermine business confidence in UK, says manufacturers' body

EEF, the manufacturers' organisation, said that rebuilding public confidence in the corporate tax system must not come at the expense of damaging the UK's reputation with international companies. It has warned the UK Government to avoid "unilateral or knee-jerk responses" to complex international issues, among other recommendations.

"It's understandable that the public are concerned about corporate tax avoidance because there are areas that do need reform, particularly in the area of international taxation," said the organisation's chief economist, Lee Hopley. "But in the contest to out companies for not paying their fair share we are losing sight of the key issue - creating the right environment to get industry investing and growing in the UK."

Last week the European Parliament proposed new rules to tackle tax avoidance by multinational businesses, with a particular focus on those who use 'transfer pricing' to shift their profits away from those jurisdictions that charge higher rates of tax. According to the EU figures, there is a €1 trillion 'tax gap' between the amount that should be collected by national tax authorities and that which is actually collected.

The MEPs also called on the European Commission to force companies to publish a "simple, single figure for the amount of tax paid in each Member State in which they operate". Proposals should also be brought forward to improve information-sharing between tax authorities, and the Commission should look into the creation of a new taxation regime for "cross-border business models and electronic commerce", they said.

In the UK, the House of Commons Public Accounts Committee (PAC) has led the investigation into the tax affairs of multinational companies including Google, Amazon and Starbucks. The PAC has accused these companies of behaving "unethically" due to the amount of corporation tax they pay in the UK when compared to their volume of UK sales.

EEF said that taxation issues were of particular importance to companies operating in the "trade and investment-intensive" manufacturing sector, particularly as nearly half the investment in UK manufacturing comes from foreign-owned companies. It said that some of the proposals being raised, including country-by-country reporting and the issuing of 'kite marks' to companies that pay their "fair share" of tax were "counterproductive" or subjective, and would add "complex and costly administrative burdens to companies".

EEF said that the UK Government should not rule out "better application" of the current rules against tax avoidance, as well as or instead of creating new ones. Any proposed changes should be thoroughly assessed for "their impact on investment and growth for both the economy and individual sectors", as well as "their potential to deliver greater confidence from the public in the corporate tax system", it said.

Tax expert Ray McCann of Pinsent Masons, the law firm behind Out-Law.com, said that the comments by EEF reflected "increasing concern" from businesses about the potential long-term damage to the reputation of the UK tax system in the eyes of international businesses that could result from the PAC and UK media's ongoing "campaign" against tax avoidance.

"It is easy to accuse Google and others of not paying their 'fair share' since they don't seem to pay much corporation tax, but it is much harder to explain why and whether this is the correct amount," he said. "It is harder still to change the way in which these global brands are taxed given the differences in how such companies are taxed around the world, and rushing through changes may make matters worse," he said.

"Whilst increased reporting of some kind by large businesses seems inevitable, simply requiring companies to open their books will in the short term most likely further inflame a debate that too often has failed to properly question whether the current rules for taxing international businesses are capable of producing an outcome that the public can trust, having regard to the way in which cross-border trade is changing. There is no obvious reason why 'country by country' reporting, for example, would improve things," he said.