Britain faces a “serious problem” of corporation tax avoidance, caused by overly complex rules and companies doing their utmost to shift their liabilities abroad, a committee of peers has concluded.
The practice damages the economy and undermines trust in the tax system, the Economic Affairs Select Committee said. It added that it was “not clear” that reforms proposed by the Organisation for Economic Co-operation and Development (OECD) would be sufficient to end the practice of shuffling money through different jurisdictions in a bid to cut tax bills, within a planned two-year period.
It also urged the Government to continue work with the international organisation in a bid to bring about successful reforms. One recommendation is for large companies to publish a summary of their tax returns so the public and media can see they are paying their fair share.
Short-term measures could be fresh regulation on tax advisers and measures to penalise users of failed tax-avoidance schemes, the committee said.
Longer term, proposals, including a destination-based cash flow tax and differential treatment of debt and equity, could be considered.
Chairman Lord MacGregor said: “There is a sense that corporation tax is voluntary for some multinationals which operate globally, while small UK-based businesses go by the book and have to pay. That brings the tax system into disrepute and loses much needed revenue.”
A Treasury spokeswoman said: “We want a competitive tax system that supports investment, jobs and growth, and having the lowest corporation tax rate in the G20 is a key part of that. But tax that is owed must be paid.”