JOHN McDONNELL has welcomed a new report by a global trade union that calls for tougher taxes on multinational companies.

The shadow chancellor said that proposals from Public Services International (PSI) for a shake-up of the international tax system were “exciting and important.”

PSI said that multinational companies should pay tax in the countries where the economic activity occurs, rather than recording the sale in a tax haven.

Union boffins took aim at companies such as Amazon, which attributes its sales in Britain as revenue for a parent firm in low-tax Luxembourg.

“Similarly, Google has a UK affiliate with many hundreds of employees engaged in ‘marketing’ of advertising, but sales are attributed to its affiliate in Ireland, resident in Bermuda,” PSI said.

Large companies that operate across borders should be treated as single entities for tax purposes, PSI said.

Report authors, Emeritus Professor Sol Picciotto at Lancaster University and PSI deputy leader Daniel Bertossa, also called for a fairer formula to calculate how much tax business tycoons should pay.

They argue that this approach could boost funding for public services and would be better for British businesses, which are currently being undercut by multinationals underpaying tax.

Nobel Laureate in Economics Professor Joseph Stiglitz praised the report.

He said: “It is time for countries to take both unilateral and multilateral actions to tax multinationals; Labour’s proposal to start taxing multinationals through formulary apportionment is the right way forward.

“‘Formulary apportionment’ requires multinationals to declare profits in the UK that reflect their UK share of global sales, labour, and assets.

“This would restrict profit-shifting, and would increase the profits on which multinationals have to pay UK corporation tax.

“The report estimates that the new approach could raise between £6 and £14 billion in increased corporation tax revenue for the UK every year, at current corporation tax rates.”

Mr McDonnell said: “We welcome this exciting and important report on fair taxation of multinationals.

“We need to find a practical way for multinationals to pay their fair share to support the proper funding of our public services.

“We’re looking closely into how we could implement this approach in government and champion the new framework internationally.”