Finance Bill

Catherine McKinnell Excerpts

Monday 1st July 2013 Commons Chamber

[Mr Gauke]

This Government are determined to crack down on tax avoidance by the small minority of individuals and companies who are unwilling to pay their fair share of tax. This Bill includes some important anti-avoidance provisions, including the general anti-abuse rule—the GAAR—a major new development in UK tax law and a key part of this Government’s drive to tackle tax avoidance, and, in particular, abusive tax avoidance schemes. The Government have also made it clear that we will continue to legislate to close down specific loopholes if there is a clear case for doing so.

Before addressing the GAAR and the Opposition’s new clause 12, let me discuss new clauses 4 and 5, and new schedules 1 and 2. At this year’s Budget, the Chancellor of the Exchequer announced that the Government proposed to introduce legislation in the Finance Bill 2013 to prevent companies from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties—a practice that, for the sake of brevity, I will refer to for the rest of the evening as latent loss buying. Legislation on that matter was not included in the Finance Bill published in March, in order to allow more time for consultation with interested parties. Technical detail on the circumstances and manner in which the proposed legislation would operate was published on 20 March. That was followed on 28 March by the publication of draft legislation for a period of technical consultation. New clauses 4 and 5 and new schedules 1 and 2 introduce those targeted latent loss buying rules to this Finance Bill, and take on board comments received during the technical consultation.

Let me set out a little background to these new clauses and schedules. The UK’s loss relief system provides a measure of parity between taxing profits and relieving losses over the life cycle of a business, ensuring that businesses with different patterns of profit and loss pay a broadly similar amount of tax. Relief is based on long-standing underlying principles that: brought-forward trade losses should only be relievable against future profits from the same trade, carried on by the same legal entity; tax losses should not be transferable against profits of unconnected parties; and the movement of losses between companies should be allowed only where they are under common economic ownership for the accounting period when the losses arise. Within those principles, companies can gain relief for losses through being set off against profits in a number of ways. However, loss relief and business reorganisation rules are designed to prevent companies from passing the benefit of a loss to an unconnected third party. Those tax rules are designed to prevent companies from “selling” losses to some unconnected company that has taxable profits.

However, Her Majesty’s Revenue and Customs is now seeing a marked increase in companies entering into different arrangements to access deductions not caught by those existing rules. Indeed, we are expecting the new rules to bring in revenue of close to £1 billion over the next five years. A particular pressure point arises where it is possible to dictate or predict the amount and timing of reliefs, allowances and deductions. Where those are sizeable, they can encourage tax-motivated reorganisations through which unconnected entities may get access to what are, in effect, unrealised losses.

Where the amount and timing can be dictated or predicted, ownership or part-ownership changes can take place in advance of the crystallisation of the amount, enabling the current loss-buying rules to be bypassed. Such arrangements may take the form of selling all or some of the shares in a company or the assets of a company, where either there are allowances that could have been claimed but were not by the previous owner or where it is known that a debit will be created in a future accounting period. Arrangements can, however, be more complex and contrived, and may also involve moving profits into a company to use up relevant deductions.

These new clauses and schedules therefore deliver on what the Chancellor announced at the Budget. They bring the tax treatment of unrealised amounts, involved in a transfer between unconnected parties, more closely into line with the long-standing treatment of realised losses. The proposed changes introduce three separate rules to combat latent loss buying. The first rule expands the application of current rules in chapter 16A of part 2 of the Capital Allowances Act 2001—I am sure you have fond memories of that Act, Madam Deputy Speaker. The other two rules are targeted anti-avoidance rules—TAARs—to be included in a new part of the Corporation Tax Act 2010. One seeks to counter tax-motivated reorganisations between unconnected parties involving other forms of relevant deductions, and the other seeks to counter arrangements that aim to transfer profits to companies so that the relevant deductions can be used.

A draft of the legislation was published for technical consultation on 28 March and nine responses were received: four from legal firms, two from accountancy firms and three from individual businesses. The majority of representations related to the technical application of the legislation rather than the underlying policy intent and have been addressed in the provisions before us today. I hope that is helpful to the House and anticipates some of the questions that might be raised by those on the Opposition Front Bench. Of course, I am happy to deal with any further questions later this evening.

Let me turn to what I suspect will take up most of the time for our debate this evening—that is, new clause 12. As I have said already, the GAAR is an important new tool, but it is not a panacea. New clause 12 focuses on much broader issues to do with the taxation of multinational companies, which have already been extensively debated during the course of the Bill and fall beyond the scope of the GAAR. Let me once again explain why that is the case.

New clause 12 first asks for a review of ways to require companies to publish a clear statement of their UK tax payments. That is not a matter for the GAAR. I am aware that the GAAR does not do what people want it to do by tackling a wider range of tax issues, particularly those involving multinational companies. We have never pretended otherwise.

The GAAR can of course apply to multinational companies if they engage in abusive schemes, but the broader issues concerning where and how their profits are taxed are grounded in how the international tax system operates. That is why we are driving forward the OECD’s work on improving international tax standards through the G8 and G20. Both the Chancellor and the Prime Minister have set out clearly that international tax problems need international solutions.

We accept that tax rules have not kept up with the age of electronic business, but the answer is not for the UK to take unilateral action. That approach would do the UK no favours as a location for business investment. It would risk setting in train a disparate approach among our trading partners, with serious consequences for international trade and growth and hence for jobs in the UK.

The OECD report on base erosion and profit shifting, which was endorsed by the G20 in February this year, shows that to tackle the issue effectively requires collective action to strengthen international tax standards. The Government have been at the forefront in taking forward work on the issue through the OECD.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

The Minister has made some rather bold statements. Will he reiterate what he just said? He suggested that the proposal made by new clause 12, which asks the Chancellor to review proposals for the Government to require the production of a single corporate tax figure, as well as the other amendments, would result in lost jobs in the UK. Will he confirm whether that was what he said and on what evidence the statement was based?

[Mr Gauke]

That is not quite what I said. I said that it would not be sensible for the UK to take unilateral action to change the tax law that applies internationally and that the best approach to dealing with international tax issues is to work multilaterally with other economies to update the tax system. I shall turn to some of the specific elements of new clause 12 in a moment, but I am setting out the framework. It is sensible for us to work with other countries to ensure that the international tax system does what it needs to, rather than going off on our own and making changes that could damage the UK’s competitiveness. I am sure that no one in this House would want us to do that.

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[Mr Gauke]

The hon. Gentleman tempts me into an area that I am very much looking forward to debating with him on Thursday afternoon. He has secured a debate on that very subject, so perhaps I shall keep some of my powder dry for that occasion. The point that I am making is that the Government are making substantial progress in this area and we also have an international agenda, ensuring that other countries move as well, so that there is much more information about beneficial ownership. That is not to say that the job is done and that there are not challenges that we face, but we have made a great deal of progress, particularly at the recent Lough Erne summit. That should be acknowledged.

Returning to new clause 12, the final element takes us back to an issue that we have debated previously, which is a requirement on the Government to assess how UK companies could report avoidance of tax in developing countries and how assistance could be offered in the recovery of that tax.

Under the disclosure of tax avoidance schemes—DOTAS—regime, UK companies are already obliged to report to HMRC their use of tax avoidance schemes carrying certain hallmarks. That applies to avoidance schemes that have an impact on developing countries, but only where UK taxes are affected.

The Opposition’s new clause 12 effectively suggests that Her Majesty’s Government should require UK companies to report their use of tax schemes, so that developing countries’ tax authorities can be notified of tax avoidance schemes, and that the Government should assist them in recovering any tax lost. It is unlikely that HMRC will have sufficient understanding of the details of developing countries’ tax systems to enable it to do that.

[Catherine McKinnell]

I appreciate that we debated the issue at some length in Committee, but I should like to pick up on the Minister’s language: he stated that it was “unlikely” that HMRC would have sufficient information on developing countries’ taxation regimes. Will he clarify whether HMRC and the Treasury have undertaken an assessment? That is what the new clause is asking for. It is not asking whether they can do these things, but whether they will undertake an assessment of what they can do, and how they could do it.

[Mr Gauke]

I have certainly sought advice, in preparation for this and other debates, on how practicable it would be for HMRC to provide such a service. HMRC makes the point that it is not something that it is well set up to do; its expertise is on how the UK tax system works. It is also worth pointing out that DOTAS is based on hallmarks set by UK tax law. Trying to extend it in the way suggested would be very difficult. That would require a major change to a successful tool—the hon. Lady and I have debated this point before—for tackling tax avoidance, and would risk disrupting the effectiveness with which HMRC does its job. My answer to her is one that I have given in the past: I do not believe that this is something that HMRC could do effectively. It is not a good priority for us. All sides want to do more to help developing countries to develop their tax systems, but it is better to focus on building capacity by providing training and support than for HMRC to try to judge, police and assess the tax system in developing countries.

[Catherine McKinnell]

The Minister perhaps betrayed the true answer at the end of his comments. His previous response sounded a bit “computer says no”; he said it was all very difficult and he did not believe it would be possible. However, he just said that it would not be a good use of HMRC resources. Does he not agree that a bit of transparency on the possibility of putting the clause into action would be of benefit, not only to Parliament, but to the public, so that it could understand the reasoning and how the conclusion was arrived at?

[Mr Gauke]

The reasoning remains what it always was. HMRC has a large number of specialists on the UK tax system, and the UK tax system does not apply in other countries. Assessing whether a particular arrangement constituted tax avoidance in Tanzania, to pluck a country at random, would require a detailed understanding of the Tanzanian tax system. If the hon. Lady is asking whether we could train up somebody to learn an awful lot about the Tanzanian tax system, in theory that could be done, but it would be a better use of HMRC resources to help train the Tanzanian tax authority, so that it was in a better position to collect the taxes that are due. Indeed, that is exactly what we do; we provide a lot of support to the Tanzanian tax authority.

[Mr Gauke]

It is not just me saying this, and there is no desire to be unhelpful. Indeed, the Government’s record on building up tax capacity in developing countries is very good, with regard to providing them with technical assistance so that they gain a better understanding of the tax that they could collect. Indeed, we are providing support to help developing countries to make greater use of the new information exchange positions.

I will again quote Richard Murphy, whose views on these matters tend to differ profoundly from mine. He works closely with the non-governmental organisations, and he has said:

“I admit, I have never seen how extending DOTAS internationally could work. I can’t see how HMRC could know if they got accurate data, or none at all and as such can see no way such a scheme could be enforced in which case I admit I can’t see how it could ever be workable.”

I do not often pray in aid Richard Murphy, but he makes that point not from any desire to limit the help that we provide to developing countries but as a matter of sheer practicality. He makes a reasonable point.

[Catherine McKinnell]

The Minister certainly does not often pray in aid Richard Murphy. Indeed, I think this is the only thing that Richard Murphy has said that he agrees with, and he is using it to advance his argument. Will he acknowledge that all the elements of new clause 12 relate to information sharing and transparency? We are asking the Government to consider how they can improve information sharing and transparency and use DOTAS to that end, and it would be helpful if the Minister could focus his comments on that. I think that members of the public will struggle to understand why the Government are refusing even to consider that proposal.

[Mr Gauke]

It is important that our debates on these matters should not simply be about the expression of warm words. They should also be about working out what we can do at a practical level, and what will and will not work. I take the view that extending DOTAS will not be effective, but our response to the hon. Lady’s proposals should not be, “Oh, they are all terrible.” It should be to ask ourselves what would be effective. There is a lot that we can do that is effective. This is about capacity building. It is about ensuring that developing countries have the right information, and about bringing them into the existing web of treaties so that they can have access to more information. It is also about ensuring that multinationals provide information that is useful to tax authorities in order to ensure that the right amount of tax is collected and the tax authorities’ efforts can be focused in the right place. That is the agenda that we have been pursuing, with some success.

I am sympathetic to what new clause 12 is getting at, and I do not in any way doubt the motives behind it, but I do not believe that it is necessary. We are already leading international action on tax transparency and on the taxation of multinational companies, and I do not believe that the GARR, as drafted, is the right vehicle for tackling these issues. For those reasons, I urge Opposition Members not to press the new clause to a vote.

[Catherine McKinnell]

It is a pleasure to speak here today on these important issues. I shall focus particularly on those covered by amendment 56 and by new clause 12. First, however, I shall touch on new clauses 4 and 5, and on new schedules 1 and 2, which relate to measures announced in Budget 2013. Together, they introduce three separate rules to combat what the Minister describes as loss buying. That activity goes against the accepted concept that losses brought forward on or after a change in company ownership should be allowable for corporation tax relief to the company and to the trade in which they occurred.

The Government’s new clauses seek to strengthen the loss-buying rules, first by expanding the application of chapter 16A of part 2 of the Capital Allowances Act 2001 so that it applies to “qualifying activities” and not just trades, as is currently the case. The other two rules introduced by the clauses are targeted anti-avoidance rules and will be included in a new part of the Corporation Tax Act 2010. As a consequence of the new clauses, companies will be prevented from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties. The Opposition support the introduction of these anti-avoidance measures, but it would be helpful if the Minister outlined, in response to this submission, what additional annual yield the Exchequer is expected to receive as a result of their introduction.

Before speaking specifically to the Opposition’s new clause 12, I would like to refer more generally to the Government’s general anti-abuse rule, which will be introduced by clauses 203 to 212, and take the opportunity to probe the Minister on its implementation, because it was last discussed in Committee of the whole House back in April. The Government have made much of the GAAR, their flagship policy for tackling tax avoidance, but, as the Minister knows, several serious concerns were raised about its likely impact, or lack thereof, during our debate in April.

We have been advised that the GAAR will target only “egregious”, “very aggressive” or “highly abusive” avoidance schemes, which the Bill defined as those that use “contrived or abnormal steps” to obtain a tax advantage. Yet the GAAR guidance’s definition of what those entirely subjective terms mean is inadequate. It states merely that they will be interpreted and applied in their “normal” sense. I do not know how Government Members would apply those terms in their normal sense, but I am interested to know whether Opposition Members would know how to apply those terms in their normal sense, given that we will be voting on that tomorrow when the Bill is considered on Third Reading.

[Stella Creasy]

I wonder whether my hon. Friend, like me, is concerned that the subjectivity and lack of clarity on this subject is a little like the concept of pornography; we all know it when we see it, but defining it is very difficult unless there is clarity. With tax avoidance schemes, clarity is absolutely crucial.

[Catherine McKinnell]

I fear that you, Madam Deputy Speaker, might accuse me of straying into rather unexplored territory if I were to compare tax avoidance to pornography, so I simply acknowledge the point my hon. Friend makes, which is that they are very subjective terms. That point has been made not only by me, but by many experts who are very concerned about the wording in the legislation. That is why it would be useful if the Minister responded to some of the concerns that have been raised during the Bill’s consideration.

The GAAR is projected by the Government to result in an additional yield of only £85 million a year by 2017-18. That is a notable sum of money, but it does not even come close to putting a serious dent in the £5 billion tax gap estimated to arise each year as a result of avoidance activity, and it is a mere drop in the ocean compared with the overall annual tax gap of £32 billion estimated by HMRC, which we know is a conservative projection. We also know that concerns remain about the so-called “double reasonableness” test and the GAAR advisory panel that will judge whether arrangements can

“reasonably be regarded as a reasonable course of action.”

As I have highlighted previously, what one person—let us say, a tax expert who has spent his or her entire career advising companies on how they might reduce their tax liability—regards as reasonable could be very different from what a member of the public or, indeed, a Member of this House might consider to be reasonable.

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[Stewart Hosie]

The hon. Lady is asking whether the GAAR is too narrow. It is designed to squeeze out tax advantage through abusive means. The advantages include

“relief or increased relief from tax…repayment or increased repayment of tax…avoidance or reduction of a charge to tax or an assessment…avoidance of a possible assessment…deferral of a payment of tax or advancement of a repayment”

and

“avoidance of an obligation to deduct or account for tax.”

What else could she add to widen that if she thinks it is too narrow?

[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.

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[Stella Creasy]

My hon. Friend is making a powerful case about the importance of the measures in question for developing countries. Does she agree that the Exchequer Secretary, having spoken about the importance of acting multilaterally and understanding how international companies operate, should be able to see the benefits of transparency to the UK tax system? Surely one thing that we are concerned about right now is UK companies using overseas territories to avoid paying tax in the UK. If we had the transparency that we suggest and HMRC worked with countries such as Tanzania, there would be benefits for both UK taxpayers and developing nations. It would be a win-win situation for all concerned.

[Catherine McKinnell]

My hon. Friend makes a good point. The Government have trumpeted their commitment to 0.7% of GDP being spent on international aid, but they stand by and say that they can do little to assist in ensuring that that is not swallowed up by the three times more that is lost in tax avoidance every year. If they could assist, that would be a win-win situation for developing countries and the UK.

In new clause 12, we call for additional transparency in what the Exchequer Secretary admitted are four fairly reasonable requests. Those requests are well considered and are made in all sincerity. We want to be able to bring in additional tax receipts for the UK Treasury, but we also want to use our powers and information, and the additional intelligence that we would gain from transparency, not only to benefit the lives of UK citizens, for whom public resources could be funded through the tax receipts, but to support developing countries.

My hon. Friend makes the point that it is a win-win situation, and we very much agree. That is why we urge hon. Members to support our new clause. As I have said, it is completely reasonable and I cannot see why Government Members would oppose it, particularly Liberal Democrat Members—I am pleased that the hon. Member for Burnley (Gordon Birtwistle) is in the Chamber to hear this debate on an issue that I know the Liberal Democrats feel strongly about. Indeed, at their recent party conference they held a debate in support of some of the measures we are proposing. I therefore see no reason why Liberal Democrat Members will not vote with the Opposition in the Lobby this evening.

[Stephen Doughty]

My hon. Friend has been making strong points. Does she agree that in a way this debate exemplifies the difference between settling for charity and seeking justice on some of these issues? I would not say that the Government are not charitable. They continue to give aid; we continue to give aid—that is charity and people on both sides of the House do charitable work. However, when it comes to achieving justice on these issues, and getting a grip of the problems and understanding why they are there in the first place, we often find the Government wanting.

[Catherine McKinnell]

My hon. Friend makes the important point that we are talking about justice. We talk about justice and fairness in relation to developing countries when considering how a disclosure of a tax avoidance scheme, and the information we receive from it, might be used to support developing countries and international justice on that level. However, it is also about justice for UK taxpayers. We must ensure that companies that engage in the sort of tax avoidance activities that so rile members of the public, and should concern every Member of the House, do not have a competitive advantage over companies that do not engage in such activities, which may mean that their business ends up suffering.

That is what we are discussing and the amendments should not be just a step in the right direction. The announcements that came out of Lough Erne and the G8 agreement contained warm words and welcome sentiments, but there is an opportunity for the Government to start walking the walk, not just talking the talk. They must make not only warm statements but legislative changes that will move the issue forward and show the leadership that the UK should be showing. That would give us greater leverage when debating such matters on an international scale.

The Prime Minister rightly put tackling tax avoidance and evasion at the top of the G8 agenda, and Government Members now have the opportunity to demonstrate their commitment to delivering in that area. What came out of the G8 does not have to remain a statement of intent; it could become a reality for the UK today. We believe that our amendments would help the UK to take genuine action towards securing tax transparency and the fairness the world needs in the 21st century. I therefore urge all Members on both sides of the House to back our suggestions for how the Government can put their money where their mouth is on this issue.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to be here to discuss issues that we have already discussed once or twice this year. The Government’s new clauses have rightly been introduced to tackle loss buying and capital allowance avoidance planning. Those are examples of what we can, following the logic of the hon. Member for Walthamstow (Stella Creasy), call hard-core tax abuse. The rules have been allowed to get out of date and have been exploited for years, so it is right that they are tackled.

The new clauses demonstrate, however, that the system is far too complex. There are far too many different types of loss and of relief, which create the scope for transactions to try to exploit them. I am not entirely sure why we need trading losses, schedule A losses, D3 losses, non-trade debits and capital losses—and probably a few more I cannot remember off the top of my head. If we moved to a simpler corporation tax system that had only revenue losses and capital losses, we could perhaps tackle avoidance more easily, rather than having to introduce separate anti-avoidance rules for each different kind of loss to try and ensure that they all work. I encourage the Minister for the umpteenth time to try to simplify our corporation tax system, because it would help in tackling these problems.

There is an interesting question on the interaction of legislation with the general anti-abuse rule—if each time we see some aggressive abuse that we think the general anti-abuse rule should stop, we end up producing a specific anti-abuse rule, what does that say about how strong we believe the general anti-abuse rule is? I would personally prefer specific, clear legislation that all taxpayers can read, understand and abide by, rather than relying on some general statement of principle, but there has to come a point when we say, “We think that is abusive and falls foul of the general anti-abuse rule, and that is enough for us to tackle it. We do not need to introduce more complexity to our tax code: instead, we will rely on the rule.” It will be interesting to see, as the years pass, how confident the Government are in that position. For us to be able to evaluate how successful the general anti-abuse rule is, we will probably need to see if the Treasury—or, at least, HMRC—can win some court cases relying on that rule. It may be a few years before we have some returns filed and challenged on that basis.

[Catherine McKinnell]

Does the hon. Gentleman share the concerns of some people that we will never see those court cases, because the panel, depending on how it is selected, may deem most tax behaviour to be so eminently reasonable that it prevents such cases from ever getting to court?

[Nigel Mills]

I doubt that. The general anti-abuse rule came out of some proposals by Graham Aaronson, a leading tax counsel, so it is not fair to suggest that the whole industry is so wedded to egregious tax abuse that they will find any arrangement acceptable. That would make a complete mockery of the whole thing. I do not share that concern, but we have to be careful in how we draft the general anti-abuse rule. Effectively, it comes back to saying, “Although Parliament may have passed legislation in these terms, what we really meant was something slightly different.” Perhaps we did not envisage a complex scheme that works its way into what we actually said, rather than what we really meant.

If we tried to define a general anti-abuse rule too closely, we would be straight back on the horns of the dilemma of what Parliament meant when it passed a certain piece of legislation. I suspect that most people would say that we actually mean what we write in the many hundreds of pages of taxes that we pass each year. We have to allow the courts room to interpret where arrangements are clearly not what we intended when we passed them. The clue is in the word “general” in “general anti-abuse rule”. If we make it too focused, it will not work. We will see in a few years what happens.

Another measure we could use is whether the tax gap comes down. Do we see fewer of these abusive arrangements being entered into? Is that because of the threat of a general anti-abuse rule? Perhaps we could also measure it by the weight of the Finance Bill next year. If we do not need all these anti-avoidance clauses, the Bill will be an inch thinner and the Government will be happy that the general anti-abuse rule is working. I expect I will serve on the Committee next year and I am not optimistic about the Bill being much shorter.

I cannot support new clause 12. I can see why it was drafted, and I might have drafted some amendments in Committee that were equally creative as a way to force an issue into a debate where it does not really fit. I generally agree with the idea that we should require more transparency from our largest corporate taxpayers about how much tax they are paying, but also crucially why they are paying that amount of tax.

--- Later in debate ---

[John Mann]

I am sure that it will be a damn sight more than that.

[Catherine McKinnell]

I thought I would take this opportunity to say that we have thoroughly missed my hon. Friend on the Finance Bill Committee this year. In response to the intervention by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), I point out that the new clause asks for a review of how these aims can be achieved. The cost of HMRC undertaking the review would be the issue to consider.

[John Mann]

I thank my hon. Friend for that intervention. In this matter, as in many matters, my approach is to beef up my own Front Bench, as well as expose the fallacies, weakness and hypocrisy of the Conservative Front Bench and the absence of anything from the Liberal Front Bench. Therefore, the stronger the Opposition Front Bench is in the practical detail, and in saying to the British public that it is unfair and unjust that these large companies pay so little tax that a company such as Starbucks pays less than a café in the centre of Worksop, the better. How can that in any way be just?

This is not just about justice, however. Those of us on the Opposition Benches must articulate the fact that this is about economic efficiency. Let us consider the small entrepreneur or the new company, the company looking to grow, or the company that has reached its place in society, such as a small family café that is providing an excellent service to the community and that pays its taxes and is being undercut by multinationals. How can they compete with large multinationals avoiding their taxes?