Commons select committee calls on coalition to review decision allowing British-owned companies to move profits to tax havens
Britain will deprive developing countries of up to £4bn in tax revenues after a change in the law that could prompt British-owned multinational companies to shift profits into offshore havens, according to a leading charity.
A cross-party parliamentary select committee on Thursday called on the government to conduct a review of the change to the controlled foreign companies (CFC) rules which could have a “detrimental impact” on the tax revenues of developing countries.
The Commons international development select committee issued its warning in a report which cites a claim by ActionAid that the changes, which will be implemented from next January, could cost developing countries £4bn.
Labour said the changes, announced by George Osborne in this year’s budget, “make a mockery” of the chancellor’s pledge to crack down on tax avoidance.
As part of a drive to make Britain’s tax system more competitive, Osborne announced a relaxation of the tax haven CFC rules which currently deter British-owned companies from moving profits to countries with a lower corporate tax rate than the UK.
After the changes, Britain will only impose a levy to make up the difference in tax if the profits have been moved out of the UK.
Any profits moved from a developing country into a tax haven by a UK-owned company will no longer have to pay the levy.
The select committee said: “If approved, the newly-relaxed controlled foreign companies (CFC) rules … will incentivise multinational corporations to shift profits into tax havens.
“This is likely to have a significant detrimental impact on the tax revenues of developing countries …
“The government should designate a DFID [Department for International Development] ministerial responsibility for the development impact of tax and fiscal policy.”
Ivan Lewis, the shadow international development secretary, said: “George Osborne’s determination to press ahead with these changes makes a mockery of the Tory-led government’s commitment to tackling tax avoidance.
“Giving aid to developing countries with one hand while removing tax revenue with the other allows UK-based multinational companies to shirk their responsibilities at the expense of the poorest people in the world.
“Once again the Tories are demonstrating whose side they are really on.”
ActionAid told the Commons committee that the changes could deprive developing countries of £4bn in revenues.
In a written submission to the committee, the charity called on the government to heed a call by the IMF, the OECD and the World Bank to assess the impact of such tax changes.
The charity wrote: “ActionAid is concerned that the proposals will eliminate a significant deterrent that discourages UK-based companies from shifting profits from developing countries to tax havens.
“We estimate that the reforms may cost developing countries as much as £4bn and have urged the treasury and DFID to conduct their own spillover analysis, as recommended by the international organisations. No such analysis has been undertaken.”
ActionAid cited the UK-based brewer SABMiller, maker of Peroni and Grolsch beers, which has shifted an estimated £100m of profits from subsidiaries in developing countries to tax havens.
In its evidence to MPs, the charity cited its 2010 report on the brewer which estimated that payments from its subsidiaries in Africa and India to Switzerland, the Netherlands and Mauritius deprived the developing countries of £20m. This would have been enough to educate 250,000 children.
The charity cited Marta Luttgrodt who pays £47 a year in tax on a small bar in the Ghanian capital Accra. By contrast the SABMiller brewery, which supplies her bar, paid no income tax in Ghana.
Sir Malcolm Bruce, the Liberal Democrat MP who chairs the international development select committee, endorsed ActionAid’s call for a government analysis of the changes.
Bruce said: “The government is committed to supporting economic growth in developing countries to reduce their dependency on aid.
“While this is clearly the right thing to do, it would be deeply unfortunate if the government’s efforts were undermined by its own tax rules.
“Some estimates claim that the revised CFC rules will cost developing countries up to £4bn. We do not know if this estimate is correct, but the government cannot legitimately refute the £4bn figure unless it is prepared to conduct its own analysis. That is what we are urging it to do.”