It would be unrealistic to think low corporation tax jurisdictions, or so-called tax havens, could be eradicated, the Treasury committee was told today.
Responding to a question from the committee on whether tax havens are a relic, Steve Edge, a tax partner at Slaughter and May, pointed out that different jurisdictions had different "packages" on what they could offer businesses. He added that, if an economy could not offer a competitive package to businesses on a other commercial measures, "then you've got to compete in some way and if you impose the same amount of tax but don't offer the same package….then you won't get the business".
However, Edge added that low tax jurisdictions that existed purely to enable companies to pay a reduced tax rate when they had no real business interests in that country had "had their day for a little while".
Edge was speaking at a hearing covering UK tax policy and tax bases, and, in particular, the issues that occur when multinationals operate in countries with a range of different tax rates.
Speaking alongside Edge were Michael Devereux, director of the Oxford University Centre for Business Taxation, and Paul Morton, head of group tax at RELX Group.
Devereux remarked that if the UK was concerned about its tax base being eroded or profits that should be taxed in the country being pushed out to a lower rate jurisdiction, then he "wouldn't blame the tax haven…[he] would look at our own tax rules to solve any problems that we perceive to be there".
The experts also pointed out that the UK's own tax rate was comparatively low to some other major economies, including the US.
Committee member Chris Philp challenged the experts on the effectiveness of HM Revenue & Customs (HMRC) staff, remarking that the common perception is that "the brightest and the best probably end up in private practice" and asking "are HMRC being outgunned?"
Edge responded that he personally thought HMRC staff did "a good job". Morton conceded that the junior level staff could sometimes do with a boost to their commercial awareness, but noted that this was also often true of junior staff in big firms.
City A.M. contacted HMRC for comment but had not received a response at time of writing.
Although the issues surrounding differing tax rates applying to large multinationals have been bubbling along for some time, it became particularly topical earlier this year when HMRC was accused of striking a sweetheart deal with Google.
In particular, the technology giant found itself under fire for the number of operations it had in so-called tax havens.