Finance Bill
Debate between Baroness Hodge of Barking and David Gauke(8 years, 5 months ago)
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Mr Gauke
I begin by expressing my gratitude for your dispensation, Mrs Laing. I will, of course, take interventions, and I hope it will not disconcert Members if I remain standing at the Dispatch Box while doing so. There is a great deal to cover and a large number of amendments have been tabled by Opposition Members, many of which I shall have to cover briefly. I shall try to provide as much information as I can as quickly as I can and respond to points raised in the course of the debate.
Clauses 144 to 146 make administrative changes to the general anti-abuse rule—the GAAR procedure—and introduce a new penalty for those who enter into abusive tax arrangements. Clause 144 allows Her Majesty’s Revenue and Customs to make a provisional GAAR counteraction where it believes additional tax is due but the assessment time limits are due to expire. Clause 145 is an administrative change to strengthen the GAAR’s procedural efficiency. The GAAR procedure currently requires each user of the same type of marketed tax avoidance arrangements to be referred separately to the GAAR advisory panel. This is an inefficient use of HMRC’s and the advisory panel’s resources, so clause 145 corrects this. Clause 146 introduces a new penalty of 60% for taxpayers who enter into abusive tax arrangements that are counteracted under the GAAR.
The Government have tabled 84 amendments to clauses 144 to 146, making minor changes to ensure that the legislation works as intended, but let me respond now to new clause 4 and amendment 4, which relate to the GAAR clauses I have just outlined. New clause 4 asks the Government to conduct a review of the GAAR in a year’s time. The GAAR advisory panel is already required to publish anonymised reports of the cases it considers. It is difficult to see how this new clause could provide a better insight into GAAR cases than this.
Amendment 4 proposes that a penalty of 100% is introduced for the GAAR. While under HMRC’s existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, it is right for the GAAR penalty to sit just below this. Under the new measure, tax avoiders can be charged penalties under the existing penalty rules and the GAAR penalty up to a maximum of 100%. As such, the amendment does little more than what we are already suggesting, and I therefore urge the House to reject it.
Clause 147 and schedule 18 introduce the new serial avoidance regime and a new threshold condition for the existing POTAS—promoters of tax avoidance schemes— regime introduced by clause 148. The new serial avoidance regime will tackle those tax avoiders who use multiple tax avoidance schemes. It will work by putting avoiders on notice when HMRC defeats a scheme they have used. If they use further schemes and HMRC defeats them, they will face serious and escalating sanctions, including a penalty starting at 20% of tax understated and reaching 60% for a third scheme defeat while under notice. Clause 148 introduces a new threshold condition for the promoters of tax avoidance schemes regime so that promoters who have promoted three schemes that have been defeated by HMRC over an eight-year period risk entering the POTAS regime.
The Government have tabled 27 amendments to clause 148 and schedule 18. The amendments to schedule 18 provide for those who try to avoid tax through companies they own or partnerships to be brought within the scope of the new regime. Amendments to clause 148 provide for POTAS to cover circumstances where tax avoidance is promoted through associated persons. The remaining amendments make minor changes to ensure the schemes work as intended.
Clause 149 introduces a new requirement for large businesses to publish their tax strategies, ensuring greater transparency about their tax approach to HMRC, shareholders and the public. Transparency promotes good tax compliance while providing a fairer, more stable and competitive environment in which to do business. The strategy published by businesses must cover the areas specified in legislation, be updated annually and remain accessible. A penalty may be chargeable if a strategy is not published or if the information contained does not meet the requirements of the legislation.
The Government are also committed to tackling cases of aggressive tax planning. Schedule 19 introduces a new special measures process which will apply sanctions to large businesses that persistently undertake aggressive tax planning or refuse to work with HMRC in a collaborative and transparent way. Taken together, clause 149 and schedule 19 will help to reduce the appetite for aggressive tax planning and improve large business tax compliance.
On the amendments tabled by the Opposition, amendments 5 to 18 would collectively introduce a requirement for directors of a business to be personally, jointly and severally liable for a penalty of £25,000 should the business fail to comply with the legislation, rising to a monthly charge of £25,000 after the initial 12 months have passed. Amendments 9, 14 and 18 also propose that the said named directors should not be reimbursed in any way and would impose further penalties.
These amendments are disproportionate and go against the principle of encouraging behavioural change across businesses. Boards take a collective responsibility for any decisions made on behalf of their businesses and their tax strategy is no exception. Ultimately, this Government believe any penalty is a business responsibility, not one to be pursued across a group of directors. In summary, these amendments would result in less clarity around any sanctions, not more, and I urge the House to reject them.
The amendment to clause 149, tabled by the right hon. Member for Don Valley (Caroline Flint), seeks to require large multinational enterprises to publish a country-by-country report on their activities within their published tax strategy. As I have set out, this Government fully share her aims of increasing transparency and clamping down on avoidance and evasion wherever it occurs. Indeed, this Government have led the way in calling at an international level for public country-by-country reports. However, I do not believe that her amendment would help to achieve the objectives that we all share. It is technically flawed, and hence would not achieve the stated transparency or pro-business objectives that we all espouse.
The right hon. Lady has said that multinational businesses such as Google would be forced to publish headline information about where they do business, the money that they make and the tax that they pay, but that is not the case. According to Government legal advice, the amendment would, in practice, place such a requirement only on UK-headquartered multinationals. Foreign-headquartered multinationals such as Google would not be caught at all, and that undermines the transparency objective of the amendment.
The amendment also risks putting UK multinationals at a competitive disadvantage by imposing a reporting requirement that does not apply to foreign competitors operating in the same market. For example, a company headquartered in the UK, whether on the mainland or in Northern Ireland, would have to file public reports, but a company headquartered in the Republic of Ireland—or, indeed, pretty well anywhere else—would not. That, I think, contradicts the level playing field objective whose importance the right hon. Lady has emphasised. At a time of increased uncertainty, we should be particularly cautious about disadvantaging UK-based businesses and imposing on them a further commitment that does not apply to their foreign competitors.
Dame Margaret Hodge (Barking) (Lab)
I am grateful to the Minister for giving way, especially as he is in pain. He said earlier that the amendment was “technically flawed”, but that is not the advice that my right hon. Friend has received. It seems to me that, in reality, the Government are more driven by their ideas about tax competition. Will the Minister confirm that that is the case? If it is, I suggest to him that transparency is more important for the British people in particular, and that if any global company chooses to leave the UK simply because of demands for transparency and demands that it pay fair tax, which will be a rare occurrence, it may well be that it is not the sort of company that we want to be headquartered here.
Mr Gauke
There are some issues of timing, but I must emphasise that the only companies that would fall within the scope of the amendment would be UK-headquartered companies. The Googles of this world would be unaffected. We believe that all this should be done on a multilateral basis, and—although my timing may be slightly unfortunate—I should point out that considerable progress has been made at European Union level. Indeed, the relevant commissioner has said that we are on the cusp of a deal and that he hopes that it will be concluded during the course of the Slovakian presidency, in the second half of this year. The UK has been leading the way in that debate, and, indeed, we have been calling for the Commission to toughen up its rules.
Dame Margaret Hodge
I want to make two points about the response to whistleblowing. First, as I read the clause, it would lead to a review of whistleblowing in the banking and financial services sector. During my period as the Chair of the Public Accounts Committee, we did a lot of work on the whistleblowing from Falciani on the Swiss bank accounts and on the PwC leaks in Luxembourg. What was so interesting was that the only action that the two financial institutions took was to try to pursue the whistleblowers through the courts—trying to get them indicted and jailed. That is unacceptable.
Secondly, the internal HMRC lawyer who gave us the evidence that demonstrated that a sweetheart deal had been entered into with Goldman Sachs could not, in the end, return to his job. Everything of his was rifled through from his wife’s computer to his telephone and everything else. That is not good enough. I urge the Minister to think again and to instigate a review.
Mr Gauke
I note what the right hon. Lady says, but I will not let her comments about sweetheart deals pass. We have discussed the matter before, and I point her in the direction of Sir Andrew Park’s review of those settlements and his conclusion that there were no sweetheart deals. This is an issue that she and I have discussed before and no doubt will discuss again, and I fear that we will not reach agreement. I note her points, but I am not persuaded by the case for new clause 8.
Tax Avoidance and Multinational Companies
Debate between Baroness Hodge of Barking and David Gauke(8 years, 10 months ago)
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Dame Margaret Hodge
I agree entirely. The Minister talks about the work done by the Public Accounts Committee. The law is not a complete ass. I do not believe that. When the National Audit Office looked at, I think, 10 cases—I will be corrected if I am wrong—it found three where HMRC had not abided by its own rules. Every time something like this happens, it damages British jobs and British businesses—nobody else. We have definite proof that a sweetheart deal was entered into with Goldman Sachs.
Dame Margaret Hodge
No. With the greatest respect, those are not the facts. The judge looked at five cases. The NAO looked at 10 cases and found in three of them that HMRC had not abided by its own rules.
The reason the Chancellor and his team do not get it is the people they talk to about tax. A small army of tax professionals and multinational companies are the only people with whom they converse. I have to say to the Minister that there is a difference between good working relationships, which I applaud, and undue influence and preferential treatment, which I do not. Talking to stakeholders is a good thing. Being captured by stakeholders is a bad thing.
We just have to look at the evidence—and not just the 25 meetings held with Google. If we look at the Tax Professionals Forum, its members are KPMG, Ernst and Young, Grant Thornton and so on. There is nobody from any of the tax campaigning organisations. There is nobody from any of the charities and no academic with a different view. Ernst and Young made £250 million in recent years by advising Google, Apple, Facebook and Amazon.
Let us look at what the Minister has done. He appointed David Heaton from Baker Tilly to the Government’s advisory panel on the general anti-abuse rule, which was supposed to look at closing loopholes. That particular gentleman was captured on video describing
“ways to keep the money out of the Chancellor’s grubby hands”.
Let us look at what happened to Dave Hartnett—within six months he was going to work at HSBC and within a year he was going to work at Deloitte. Let us look at Edward Troup, who is now our commissioner on taxation. He wrote in the Financial Times that “Taxation is legalised extortion.” This is a small bunch of people who all have the same interests.
I want to make two other brief points. The Government say they want companies to pay proper tax, but the Government are obsessed with tax competition. That means far from tackling tax havens and so on, they are trying to make the UK an alternative best tax haven in the world. We only have to look at three changes the Government brought through on the control of foreign company rules, Eurobonds and the infamous patent box tax relief to see that that is right.
We do not know whether the Google settlement is fair, because under the existing law—the Minister is right—we cannot see it. I personally do not accept that HMRC properly challenged Google on the evidence the Public Accounts Committee collected, which demonstrated that it engages in economic activity here in the UK. I personally do not think the whistleblowers were listened to properly. Google does sell here. It does complete sales here. It does research and development here. Its economic activity is here. What on earth is that massive complex in King’s Cross for if not to undertake economic activity?
I have to say to the Minister that he has lost the argument on transparency. He ought to cave in gracefully and open up the books of these multinational companies so we can restore confidence.
Multinational Companies and UK Corporation Tax
Debate between Baroness Hodge of Barking and David Gauke(11 years, 5 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a short but useful debate. I congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on securing it and thank the Backbench Business Committee for granting it.
Rightly, this issue has received much greater scrutiny in recent months. The public anger is understandable and not surprising, given that difficult decisions are being made on the public finances and the vast majority of people pay the taxes they owe, and the perception is that some companies are not contributing their fair share or complying with the law.
We should say at the outset, and the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was right to say, that there can be occasions where it is entirely legitimate for a company not to be paying corporation tax if it is making use of reliefs or capital allowances in the way that Parliament intended. It is also the case—there can be confusion about this—that corporation tax is a tax on profits, not a tax on sales. It is also worth remembering that we do collect significant sums of corporation tax from large businesses. But where the public’s concerns are justified, where there is avoidance, by which I mean contrived and artificial behaviour contrary to Parliament’s intention, that is a very serious matter and it is right that we take action.
There is an issue of administration. The point has been raised about HMRC’s effectiveness in dealing with tax avoidance by large businesses. I should explain that HMRC works, with regard to large businesses, by putting in place CRMs—customer relationship managers. Their role is essentially to man-mark the most complex and high-risk taxpayers. In recent years that approach has proved to be effective in getting money in. HMRC secured £8 billion of additional compliance yield from large businesses in 2012-13, and more than £23 billion in the past three years. It is an approach that has been endorsed by the OECD. One of the difficulties that HMRC has is that it is bound by taxpayer confidentiality. It cannot give a running commentary to this House on the action that it takes, but the numbers demonstrate that HMRC is effective in getting money in.
Mr Gauke
Neither the right hon. Lady nor I know what action HMRC has taken with regard to individual companies. What we do know is that it has got billions of pounds in additional yield as a consequence of the action that it takes with large businesses as a whole. With reference to HMRC’s performance across the board, additional yield is being achieved year after year, and this Government have provided resources to increase the yield on evasion and avoidance.
One other constraint on HMRC is that it can collect only the tax that is due under the law, and there is an issue here because very often the law that applies to large businesses encompasses international law, OECD arrangements and what is set out in double taxation agreements. The point was raised about the definition of “permanent establishment”. That is set out not just in domestic legislation, but in international law. We have led the way in encouraging the OECD to look at what needs to be done to improve the international situation, to make sure that the base erosion and profit-shifting work can ensure that the tax rules are all up to date for the internet world.
We have had a very short debate, and in this very short speech and the time available to me I cannot do justice to all the points that were raised. Let me say in conclusion that HMRC has robust methods in place to ensure that tax compliance by the biggest businesses occurs, and the numbers support that. We have used our international position to make sure that there is progress in bringing international tax law up to date to reflect the current position. We have a Government who are committed to ensuring that large corporates pay the tax that is due.
Tax Avoidance and Evasion
Debate between Baroness Hodge of Barking and David Gauke(12 years, 3 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to respond to this debate, and I begin by congratulating the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. This has been a broad and wide-ranging debate, and over the past couple of hours we have discussed the taxation of large businesses and wealthy individuals, taxpayer confidentiality, HMRC staff numbers, a general anti-avoidance rule, and the right hon. Gentleman’s private Member’s Bill, which I am sure the House looks forward to debating tomorrow.
Tax simplification was raised by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Wycombe (Steve Baker), and my hon. Friend the Member for Portsmouth North (Penny Mordaunt) discussed standards of service in HMRC. My hon. Friend the Member for Bristol West (Stephen Williams) raised the topical matter of cash in hand, and perhaps went even further than I did earlier this year in his remarks about negotiating a discount for cash. I suspect all those matters could have filled a two-hour debate in themselves, but let me attempt to address as many of them—and others raised in the debate—as I can.
My first point is that the Government have a strong track record in addressing the full range of avoidance and evasion that results in the tax gap—the difference between the tax that is collected and the tax that is due. We remain further committed to tackling the gap and to reducing that sum over the course of this Parliament. Our intention is that the compliance yield of £13 billion a year, which we inherited, will increase to £20 billion a year in this Parliament.
It is helpful to distinguish between tax evasion and tax avoidance. A number of hon. Members have done so in the debate, but let me underline the point. Put simply, tax avoidance is the reduction of tax liabilities by using tax law to get an advantage that Parliament never intended. As we have heard—not least from my hon. Friend the Member for Bristol West, who brings expertise to these matters—tax evasion is illegally understating tax liabilities. Evasion is fraud and means breaking the law. There is striking unanimity in the House on the need to address both avoidance and evasion, and that the Government should take them seriously. I shall discuss the different responses we have in place for each, and the new directions on tax avoidance that we are considering through consultation.
I should first like to set out a few facts on compliance generally. Last year, HMRC collected £474 billion in tax. The tax gap for the last year for which authoritative numbers were produced—2009-10—was £35 billion. Of that figure, tax avoidance constitutes around 14%, which is down from 17.5% in 2007-08. The tax gap arising from tax evasion is also falling—from 17.5% in 2007-08 to 12% in 2009-10.
I would make two observations on that, the first of which was made by a number of right hon. and hon. Members, namely that the vast majority of UK taxpayers do not avoid or evade tax. The vast majority of taxpayers and our constituents expect us to ensure that as many people as possible pay the right amount in tax. Secondly, although by international standards our tax gap is low, the Government are determined to do everything we can to improve those numbers. That is why we are re-investing more than £900 million to transform the approach to compliance, to close the tax gap, and to enable HMRC to address the serious matters it faces.
The investment is funding a range of measures to widen HMRC’s overall compliance coverage and target the highest risks. It also includes funding for a highly skilled work force. We are increasing the number of staff working on compliance by around 2,500 full-time equivalent positions by 2014-15. Reference has been made to the Public Accounts Committee report that highlights concerns that cuts in the number of compliance staff resulted in revenue in the order of £1.1 billion not being collected in the previous Parliament. Hon. Members are correct that the number of HMRC staff will fall in this Parliament, but the number of those focusing on compliance activities will increase. There will, for example, be more criminal investigators and people working in intelligence to tackle tax evasion and avoidance.
Margaret Hodge
I accept that it is the intention of the Exchequer Secretary to increase compliance activity, but I would like him to address two issues that I raised: first, the fact that HMRC has raised the threshold for taking action on fraud, as a result of which less money will be collected; and secondly that, although he said we needed more highly trained individuals, such training is not taking place, because of the Department’s inability to establish training provision and ensure that people benefit from it and get on with it.
Mr Gauke
I do not accept the right hon. Lady’s point about the increase in the fraud threshold. When I look at some of the work that HMRC is doing—for example, to address inheritance tax fraud—I see a substantial increase in activity. It is addressing far more cases than ever.
I know that the PAC takes a strong interest in training. It is important that staff are trained. People are being moved from other parts of HMRC—for example, from personal tax—into enforcement and compliance. It is important that they are properly trained, however, and that process is going on—progress is being made and the compliance yield is already increasing. Over the months and years ahead, we will increasingly see the benefits of a large and better-trained compliance team. It is absolutely right that the PAC scrutinises this specific point, but HMRC is making progress, and we all want to encourage it to make further and faster progress to ensure that we get the right staff in the right places.
Compliance revenue has more than doubled in six years, and HMRC is on track to bring in about £7 billion in additional tax each year by 2014-15. In addition, on avoidance, HMRC has closed down seven schemes in the past year alone and, since 2010, litigated about 30 direct avoidance cases, with a high success rate. On evasion, HMRC has secured 413 criminal convictions, resulting in more than £1 billion in additional revenue and revenue-loss prevention. Those are significant achievements,
Anyone reading the papers recently might well think that avoidance is rampant. I want to reassure right hon. and hon. Members that that is not the case, and the vast majority pay their taxes without trying to get around the system. Nevertheless, where we and HMRC see people trying to exploit the system, we will take swift action. Currently, there are a minority of cowboy tax advisers—small niche firms selling crude avoidance schemes unlikely to be successful under challenge from HMRC. Many of those who sell those schemes use tactics that border on mis-selling, and their clients can end up shocked when they are later pursued by HMRC over their involvement. The Government recognise the need to do more to target those who market such schemes to protect taxpayers and prevent them from entering into them.