§ Mr. Tugendhat
asked the Chancellor of the Exchequer if he will make a statement on transfer pricing by international enterprises.
§ Mr. Nott
While such enterprises can and do contribute a great deal to the economy of this country, it is the Government's responsibility to ensure that all enterprises, whether national or international, do not use any special position they may have in ways which would give rise to losses to the balance of payments or to the Exchequer. These matters are kept under continuous review by the Departments concerned.422W
I regret that certain of the figures for A/Cs 70 and 71 given in my answer to the hon. Member's Question on 6th November—[Vol. 863, c. 132-4]—were transposed : the table gives the correct figures.
For exchange control purposes companies in this country forming part of international groups are all treated as resident and they are subject to the same obligations as purely domestic companies, for instance on payments for goods and services or on securing payment for exports.
Any control must avoid attempting to monitor large numbers of individual commercial transactions. This would be impracticable and at the same time impose an intolerable burden on the companies concerned. Her Majesty's Customs already watch for instances of under-invoicing of exports and over-invoicing of imports. Steps have recenly been taken to strengthen the supervision already exercised in this field. Her Majesty's Customs' investigations are concerned, among other things, with ensuring that payment is received in full within the appropriate time for exports and that invoicing between the members of international groups is satisfactory. Furthermore, where the parent company is resident in the Uunited Kingdom exchange control operates to ensure the remittance to this country of an adequate level of profits.
For corporation taxation purposes, inspectors of taxes have powers to assess the profits of companies in the United Kingdom on the assumption that arms-length prices are paid in transactions with non-resident members of international groups. The Inland Revenue is studying how to improve the exercise of these powers.423W
Double taxation agreements provide for consultation between tax administrations and for exchange of information between them for the purpose of carrying out the provisions of the agreement and for the prevention of fraud in relation to the taxes covered by the agreement. The growth of international operations makes it desirable for such consultation and exchange to take place more systematically and on a more extensive scale ; and informal discussions are now being carried on with other tax administrations with a view to ensuring that the fullest possible international co-ordination is achieved in the tax treatment of persons whose activities extend over several countries.
Interest in the activities generally of international enterprises is not confined to this country. Government Departments are at present participating fully in the work being done on this subject in the OECD and the EEC.