MPs have launched an inquiry into the UK’s tax system in the wake of criticism over a deal that saw Google pay HMRC around £130m in backdated tax.
The Treasury select committee will consider whether a radical shakeup to the UK’s system of corporation tax is needed.
Although the inquiry is not directed specifically at Google, it will consider whether tax on business could be based on turnover rather than profit. The committee will also review whether HMRC is doing enough to tackle tax avoidance.
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Committee chair Andrew Tyrie said: “The complexity of tax law is turning what should be a straightforward principle – that everybody should pay the correct amount of tax – into a piece of elastic.
“For corporation tax, for instance, the problem is exacerbated by the globalisation of economic activity and any liability to tax that accompanies it.
“A corporation’s duty to shareholders will be to minimise its tax liability. It should be the duty of those making tax policy to find better ways to limit the elasticity. Google may be the symptom, but it is not the cause.
“There is a lot the government could be doing. Tax policy must be made more practicable and the tax system more coherent. Tax needs to be fair. It needs to provide more certainty and stability. There is a lot to do and a lot for the committee to examine.”
The inquiry comes after it emerged that the search engine giant had paid an effective rate of 3% when it reached an agreement with HMRC on backdated tax since 2005. The official rate of corporation tax is 20%, and The Times today reports that Google is negotiating a tax settlement with France worth around three times the amount it paid to Britain.
The size of the settlement prompted criticism from Labour, with shadow chancellor John McDonnell branding the figure “derisory” and calling on the Treasury to publish more details about big companies' tax affairs. Treasury Minister David Gauke yesterday faced MPs in the Commons, with Tory MP Steve Baker claiming the deal was “unacceptable to the public”.
But George Osborne has hailed the deal as a “major success” and “victory” for the government and insisted private tax affairs should not be put in the public domain. Downing Street has described the agreement as "a step forward", but declined to repeat Osborne's description.
The Public Accounts Committee has meanwhile said it will ask Google representatives and HMRC officials to give evidence about how the deal was reached.