Finance (No. 3) Bill

Debate between Chris Philp and Alison Thewliss

Committee: 2nd sitting: House of Commons
Tuesday 20th November 2018 Commons Chamber

[Alison Thewliss]

The problem is that it is not being comprehensively enforced. About £2 billion is due in fines from SLPs. If the Government are not going to collect £2 billion, why on earth are they putting forward austerity cuts? They could have that money easily.

[Chris Philp]

It will not have escaped the hon. Lady’s notice that by the fifth year of the five-year period there is a fiscal loosening of £30 billion—that is hardly austerity—and that the NHS will receive a huge amount of extra money, including the NHS in Scotland via Barnett consequentials. I think that we can say very clearly that this was not an austerity Budget. I agree, however, with her more serious point. As my hon. Friend the Member for Ochil and South Perthshire said, where a law is passed, it should be properly enforced, and if there is more scope to enforce this law, it should certainly be done.

A further legislative measure was announced over the summer in relation to transparency. By 2021, we will start recording the ultimate beneficial ownership of property owned by companies, which is an important measure, because some properties, particularly very expensive, high-end properties, are often owned in offshore companies, but there is currently no transparency in respect of who owns those companies. As of 2021, we will know who the ultimate beneficial owners are, and that will also create an interesting taxation opportunity that I strongly commend to the Financial Secretary.

At the moment, when an ordinary property is bought or sold by an individual, it triggers residential stamp duty, but when a transaction takes place whereby the company owning the property is sold, no residential stamp duty is paid, because, as far as the Land Registry is concerned, no change of ownership has taken place. At the moment, we have no visibility over any change of ultimate beneficial ownership, because it is not registered, but from 2021 we will, because that change will have to be registered. I suggest, for a future Budget, that a change of ultimate beneficial ownership should trigger a stamp duty charge as though for a direct change of ownership, as would happen if any of us bought a property. That would yield significant extra residential stamp duty.

I will give an example. I am aware of a transaction in Belgravia, not far from here, that took place two or three years ago. It was a collection of luxury houses developed by an offshore company—based in the Cayman Islands or British Virgin Islands—and sold to a Chinese gentleman for £110 million, but he did not buy the property and therefore no stamp duty was payable. He bought the offshore company and no stamp duty was paid. Had that change of ultimate beneficial ownership been registered and had stamp duty been payable, a stamp duty charge of about £16 million would have been crystalised for the Exchequer’s benefit.

I suggest we collect that sort of money in the future. Of course, that property is liable for annual taxation on envelope dwellings, because it is held in a company, but that only levies at a rate of £226,000 a year, so the payback period is 73 years, and most of these properties are traded more frequently than that. I challenged the hon. Member for Oxford East earlier to come up with some ideas for raising revenue and combating non-compliance. There is my idea. I hope that a future Budget adopts it and takes it forward.

I will conclude—I know the shadow Chancellor wants to hear more, but I have to disappoint him—by briefly addressing Government clauses 15 and 16 on intellectual property charges and charges in relation to fragmented profits. This is an extremely important area, because a number of large corporates are using intellectual property charges to spirit away profits attributable to UK operating activities.

Most notoriously, Starbucks used this about five or six years ago. It managed to extract almost all its UK profits by levying an intellectual property charge in relation to its beans. It said the beans were special beans and had a very high charge on them, and it managed to register pretty much zero UK profit. That is precisely the kind of intellectual property charge that these measures are designed to combat. An arm’s-length, third-party intellectual property charge cannot possibly result in zero profit for the company paying that charge, and it is right that the Government are taking further action.

Multinationals take their profits out of the UK and into, typically, the Luxembourg, Swiss or Caribbean jurisdictions, and intellectual property charges are more often than not the means by which they do so. I strongly commend clauses 15 and 16 for taking direct action to prevent avoidance measures that have undoubtedly cost the Exchequer. I think that I have spoken long enough about these clauses, which I shall be extremely happy to support if there are Divisions in 10 minutes’ time.