Finance Bill

Debate between Catherine McKinnell and Kerry McCarthy

Monday 1st July 2013 Commons Chamber

[Catherine McKinnell]

The hon. Gentleman makes a helpful point. One would question to what extent the Government can rely on their general anti-abuse rule when they still have to invoke targeted anti-abuse rules, many of which we debated in Committee. Yet the GAAR is supposed to provide reassurance in relation to these matters. Will the Minister clarify exactly how it will work? As the hon. Gentleman says, there is much debate about whether it is too general or too narrow—too general to be effective or too focused on what could be deemed by a reasonable person to be egregious behaviour, and therefore arguably too narrow. I would be interested to hear the Minister explain exactly how the GAAR will work in reality.

The Minister will be aware of the concerns raised in Committee about how the GAAR’s effectiveness will be reviewed. Our amendment calling for an evaluation to be held two years post-implementation was dismissed on the grounds that it would be impractical. At what stage does the Minister think it would be practical to conduct a post-implementation review, given that this is one of the Government’s main tools to tackle tax avoidance? At what point does he think it would be appropriate to consider whether the GAAR needs to be strengthened by, for example, a penalty regime? He has said that it will be kept under review, so it would be extremely helpful if he could provide details of the time scales involved.

One of the most widely held concerns about the GAAR is that it simply does not deal with many of the issues about which members of the public in particular are understandably angry with regard to corporation tax avoidance. The Minister has said that the Government have never sought to give the impression that they will deal with these issues, but many people feel that when they raise concerns about corporate tax avoidance the Government give the impression that their general anti-abuse rule will somehow deal with them.

We believe that the Government could and should use this Finance Bill to go much further on tax avoidance and on increasing tax transparency in particular. We have presented the Government with many opportunities to put their money where their mouth is and to take action now.

I was pleasantly surprised to read in The Guardian on Friday that the Minister voiced his intention to take firm action on this issue—the Minister is looking at me blankly; I am not sure whether he reads The Guardian—during last week’s Back-Bench business debate on multinational companies and UK corporation tax avoidance. I usually pay attention to everything the Minister says, but I confess that Friday’s revelation passed me by. Given his reported new-found enthusiasm for tackling the issue head on, the Opposition would like to take this final opportunity, through new clause 12, to persuade the Minister and Government Members to use this year’s Finance Bill to demonstrate a commitment to increasing tax transparency and to cracking down on tax avoidance both here and abroad. It is unfortunate that the Liberal Democrat Benches are devoid of Liberal Democrat Members, because this is their opportunity finally to walk the walk on this issue, given that they have been very good at talking the talk on it for so many years.

The nub of the issue is this: there has been a monumental breakdown in public confidence in the corporation taxation system and it is clear that the era of tax secrecy should end. At a time of austerity around the world, when people have lost or are losing their jobs and are seeing their services cut and the cost of living rising while the value of their wages does not, they are rightly angry when they see the complex and extraordinary lengths to which multinational companies may go in order to avoid paying their fair share of tax in the countries where their profits are actually being generated. People, including more than 1 million supporters of the IF campaign, are equally furious that aggressive tax avoidance activity is reducing the ability of developing countries to tackle the issue effectively and contributing to their failure to combat hunger and invest in the vital infrastructure that we take for granted. As the OECD estimates, these countries lose three times more through tax avoidance than they receive in aid every year.

The Opposition believe that rather than simply calling on the OECD

“to develop a common template for country-by-country reporting”,

which the G8 has said it will do, we should actively work with our G8 partners to ensure that all multinationals, regardless of sector, are required to publish a single, easily comparable statement on the amount of tax that they pay in each country in which they operate. That needs to be introduced as a matter of urgency.

[Kerry McCarthy (Bristol East) (Lab)]

My hon. Friend is doing a good job of spelling out the sheer ludicrousness of countries losing more by profits being put into tax havens than they are given in aid. I am sure that she is aware of the recent ActionAid report, which mentions a single transaction made through UK-linked tax havens that would have provided the Indian Government with $2.2 billion in tax if it had not taken place offshore. Surely that is something that the Government ought to rectify.

[Catherine McKinnell]

My hon. Friend gives a powerful example of how ludicrous the failure to act on this issue is.

At a stroke, statements would give people, whether they are experts or not, the information they need to assess the amount of tax that multinationals pay. That would give British consumers the power to take such matters into consideration when they decide who to buy from. It would also give developing countries a vital boost to their resources so that they could tackle hunger and invest in the infrastructure that they so desperately need.

As the Minister is all too well aware, the Opposition have backed the calls of the IF campaign for a convention on tax transparency. We saw the UK’s presidency of the G8 as a prime opportunity to take international leadership on the issue by launching a convention at the G8 summit to establish a global standard of public registration for the ownership of companies and trusts. As the House knows, the G8 nations took a step in that direction; we have acknowledged that steps have been made in the right direction.

The G8 stated in “Common principles on misuse of companies and legal arrangements”:

“Beneficial ownership information on companies should be accessible onshore to law enforcement, tax administrations and other relevant authorities including, as appropriate, financial intelligence units. This could be achieved through central registries of company beneficial ownership and basic information at national or state level. Countries should consider measures to facilitate access to company beneficial ownership information by financial institutions and other regulated businesses.”

At the end of the day, there was a statement about what could or should be achieved or considered by G8 nations, and the UK promised to establish a register at Companies House on beneficial ownership of companies in the UK, but to make it available only to HMRC, not the public. That was a step in the right direction, but the Opposition feel that it did not go far enough. We believe that we need proper transparency about who is holding their wealth behind shell companies and trusts in tax havens, not just secret lists at Companies House.

My hon. Friend the Member for Bassetlaw (John Mann) put to the Minister doubts about the effectiveness of the UK’s proposed arrangements. Those doubts have been well articulated recently. Private Eye commented:

“Those with knowledge of the Companies House reality would take a great deal of convincing that it is about to become a tough enforcer able to scare global or even home-grown tax evaders—any more than it has ever deterred conmen the world over.

Companies House is merely a receiver and filer of documents. It is not set up to be reactive, never mind proactive. ‘We do not have the statutory power or capability to verify the accuracy of the information that companies send to us,’ a Companies House official candidly admitted to the Mail on Sunday last month when the newspaper wanted to know if a foreign currency investment company director actually existed. Hardly surprising when it is considered that there are 3 million ‘live’ companies on the UK register.”

Aware of the Government’s steadfast opposition to our proposals on country-by-country reporting and a global standard of public registration of company ownership, we have tabled new clause 12 to ask HMRC and the Government to at least review the possible effect of those measures. It is eminently reasonable and perfectly sensible for Government Members to support it. Crucially, on the subject of abusive tax arrangements, it calls on the Government to consider what steps they could take when working alongside the Governments of developing countries—not should, but could—to assess how UK companies could report their use of tax schemes that might have an impact on those countries, and how the UK could then assist in the recovery of that tax.