MPs have attacked the "unnaceptable" tax avoidance measures employed by some major IT companies, arguing that firms which fail to pay corporation tax should not be awarded lucrative government IT contracts.
In a Parliamentary debate Liberal Democrat MP Ian Swales said that stronger action is needed from the government to prevent large contracts being given to companies which pay little or or no tax.
"I am convinced that doing public sector business with tax avoiders does net damage to our economy," he said. "Government action could mean that companies quickly change their behaviour."
Swales said that tax avoidance, which is a legal practice condoned by HM Revenues & Customs (HMRC), is putting smaller firms at a disadvantage in terms of government procurement. He said this means that small to medium businesses involved in tendering for government procurement contracts are at a "clear disadvantage when bidding against the tax-avoiding giants".
Conservative MP Charlie Elphicke highlighted Oracle, Xerox, Dell, CSC and Symantec as some of the large IT companies which have paid no corporation tax in the past year. This is despite earning more than £474 million between them from government contracts, contributing to a total UK turnover of £7 billion.
Elphicke labelled this tax avoidance "on an industrial scale".
"To me, it is unacceptable, unethical and irresponsible," he said, adding that reform of tax rules should cover contracts awarded to tax avoiding companies.
"No Government contracts should be awarded to businesses that are fleecing our tax system, and the Government should examine how much UK tax companies pay when deciding who gets plum Government contracts."
Elphicke added:"If taxpayers’ money and a Government contract are being awarded, we should look at the taxpayers’ money we are paying out and the tax money that we get back when we assess the value for the nation of awarding a particular contract."
This would mean including the amount of tax paid by a company in decision making before a contract is awarded, he said. Companies which pay more corporation tax would be favoured in the procurement process, as the money recouped via tax would be factored into the overall contract cost.
"We should consider the question holistically, rather than simply thinking about how much the contract should be let for," said Elphicke.
Labour MP John McDonnell added that Capgemini and Accenture have been awarded contracts with HMRC itself in the past, with Capgemini involved as the lead contractor on HMRC's Aspire contract, for example, despite being identified as tax avoiders themselves.
He said that Capgemini paid £308,000 of corporation tax last year despite making £38 million in profit, roughly one percent of its earnings.
McDonnell also said that Accenture paid 3.5 percent tax on earnings boosted by its £9.6 million contract with HMRC to supply technical support, with the company paying £2.8 million in tax on a total of £82 million earnings last year.
The figures presented in the parliamentary debate have been questioned by one of the vendors however.
A spokesman for Accenture told ComputerworldUK that the company is in full compliance with domestic tax laws, claiming figures cited MPs have been calculated incorrectly.
"Accenture reports all of its revenues earned within the UK, pays taxes on the profits earned within the UK and we are confident that our tax filings are compliant and appropriate," the spokesman said.
"It is not correct that in 2011 we reduced our tax bill to 3.5 percent, paying only £2.8 million in tax on nearly £82 million of profits."
The spokesperson said that the calculations arriving at this figure had been inaccurate, and had failed to take into account deductions on the total tax charge given to Accenture.
"On profits of £81.8m the tax charge at the effective statutory rate of 27.16 percent gives £22.2m," he said. "Our current tax charge was reduced by deductions and losses brought forward and other timing differences to a current tax charge of £2.8m. All of this can be verified through our filings with Companies House."
He added that the company is also due to pay an additional £12.7 million in corporate taxes, deferred to later periods "as required by UK GAAP and tax legislation".
This will mean Accenture's total tax expense amounts to £15.5 million for the 2011 financial, he said, representing an effective tax rate of 19 percent.
It is not the first time companies accused of paying little corporation tax have been warned about being blocked from public sector IT contracts by MPs. At a Public Accounts Committee hearing late last year concerning tax avoidance by major multinationals, Swales said that Google could be shut out from providing public sector IT services.
PAC chair MP Margaret Hodge claimed at the hearing that the government had been "too lenient" on multinational companies paying tax outside of the UK.