In a bid to help the taxman fight multi-billion pound multinational corporations, Chancellor George Osborne today announced that he would provide an additional £77m a year for two years to fund HMRC staff efforts in tackling tax-avoiding companies.
The move follows a damning report by the Public Accounts Committee which has called on government to be 'more aggressive and assertive in confronting corporate tax avoidance' and ordered HMRC to stop being so lenient with big business.
PAC chair Margaret Hodge said that while the UK should be leading the field on tackling the issue of corporate tax evasion by strengthening the law to make it more difficult, efforts should be ramped up 'to increase international cooperation'.
Basing its response on the recent evidence from Starbucks, Amazon and Google, the committee said much of it was 'unconvincing and, in some cases, evasive'.
'The inescapable conclusion is that multinationals are using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK,' Hodge said.
Currently, both France and Germany are looking at ways to clamp down on such practices.
The committee said that while corporation tax revenues were falling, the taxman must do more and stop being 'too passive' with big companies.
'HMRC should be challenging this but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what HMRC does,' continued Hodge.
'It must be more aggressive and assertive in confronting corporate tax avoidance. This is essential for the credibility of both the department and the tax system,' she said.
The committee said multinationals should be forced to report their tax practices transparently and 'prosecutions mounted where necessary' with offenders 'publically named and shamed'.
Some of the controversial but entirely legal practices used include 'transfer pricing', whereby separate arms of the same company pay royalties and intellectual property fees to parent companies or other subsidiaries. Profits can then be reduced in the country where corporation tax is due. This results in some companies not paying 'their fair share', the PAC said.
'We consider that paying an appropriate amount of tax in the country in which profits are made is not only a matter of basic economics. It is also a matter of morality,' said Hodge.
A spokesman for HMRC defended its role to date, saying: 'HMRC ensures that multinationals pay the tax due in accordance with UK tax law.
'We have been very successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years, including £4.1bn in the last four years from transfer pricing enquiries alone. These figures speak for themselves.
'Corporation tax receipts are dependent on the wider economy and the corporation tax rate set by Parliament, which was reduced by 2 percentage points for 2011-12.'
The government has announced the details of a new HMRC Investment package and a series of actions aimed at clamping down on tax dodgers ahead of the Chancellor's Autumn Statement on Wednesday.