David Gauke
Main Page: David Gauke (Independent - South West Hertfordshire)Department Debates - View all David Gauke's debates with the HM Treasury
(8 years, 6 months ago)
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The First Deputy Chairman of Ways and Means (Mrs Eleanor Laing)
Before I call the Minister to move Government amendment 114 and for the sake of clarity, I grant the Minister the Chair’s permission and the House’s sympathy in respect of his requirement to stand throughout the proceedings—or, indeed, to be in whatever position suits him so that he can spend several hours at the Dispatch Box with his current disability. He has the House’s sympathy, as I said, and he may do as he sees fit.
Clause 144
General anti-abuse rule: provisional counteractions
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move amendment 114, page 194, leave out lines 12 to 15 and insert—
“( ) notifies the person of the person’s rights of appeal with respect to the notified adjustments (when made) and contains a statement that if an appeal is made against the making of the adjustments—
(i) no steps may be taken in relation to the appeal unless and until the person is given a notice referred to in section 209F(2), and
(ii) the notified adjustments will be cancelled if HMRC fails to take at least one of the actions mentioned in section 209B(4) within the period specified in section 209B(2).”
The First Deputy Chairman
With this it will be convenient to discuss the following:
Clause stand part.
Government amendments 115 to 174, 178, 175 to 177 and 179.
Clause 145 stand part.
Government amendments 82 to 86.
Amendment 4, in clause 146, page 209, line 25, leave out from “penalty” to end and insert
“shall be 100% unless the GAAR Advisory Panel or an officer duly delegated by that panel considers that there are exceptional reasons for lessening that percentage.”
Government amendments 87 to 99.
Clauses 146 and 147 stand part.
Government amendments 100 to 110.
Government amendments 112, 111 and 113.
Schedule 18 stand part.
Government amendments 69 to 81.
Clauses 148 and 149 stand part.
Amendment 1, in schedule 19, page 516, line 21, at end insert—
‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.
(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”
Amendment 5, page 516, leave out line 39 and insert—
‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.
Amendment 6, page 517, line 1, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 7, page 517, line 5, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 8, page 517, leave out lines 11 to 15 and insert—
‘(5) At the end of that period, the director or directors of the head of the group—
(a) are personally jointly and severally liable to a further penalty of £25,000, and
(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”
Amendment 9, page 517, line 15, at end insert—
‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.
(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”
Amendment 10, page 518, leave out line 24 and insert—
‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.
Amendment 11, page 518, line 29, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 12, page 518, line 33, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 13, page 518, leave out lines 39 to 43 and insert—
‘(5) At the end of that period, the director or directors of the head of the group—
(a) are personally jointly and severally liable to a further penalty of £25,000, and
(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”
Amendment 14, page 518, line 43, at end insert—
‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.
(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”
Amendment 15, page 520, leave out line 12 and insert—
‘(2) The director or directors of the company are personally jointly and severally liable to a penalty of £25,000 if:”.
Amendment 16, page 520, line 17, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 17, page 520, leave out lines 27 to 31 and insert—
‘(5) At the end of that period, the director or directors of the head of the group—
(a) are personally jointly and severally liable to a further penalty of £25,000, and
(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”
Amendment 18, page 520, line 31, at end insert—
‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.
(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”
Schedule 19 and clause 150 stand part.
Amendment 19, in schedule 20, page 534, line 23, at end insert
“, or P has introduced Q to a person R with whom P has a business relationship, where P knows or should know that R is likely to facilitate Q to carry out offshore tax evasion or non-compliance.”
Amendment 20, page 535, line 5, at end insert
“; and P will be deemed to have known if P wilfully or recklessly failed to make such enquiries that a reasonable and honest person would have made”.
Schedule 20, clause 151, schedule 21, clauses 152 and 153, schedule 22 and clause 154 stand part.
New clause 4—Report on the workings of the General Anti-Abuse Rule—
‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the workings of the General Anti-Abuse Rule.
(2) The report must include but need not be limited to—
(a) the number of meetings held by the General Anti-Abuse Rule Advisory Panel;
(b) the date by which the procedures of the Advisory Panel were published;
(c) the number of cases referred to the Advisory Panel and by whom;
(d) the number of cases on which a decision has been made by the Advisory Panel;
(e) the number of outstanding cases on which a decision has not been made by the Advisory Panel, and the dates on which those cases were first referred to the Advisory Panel.”
New clause 5—Report on the number of deliberate tax defaulters—
The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report containing the number of deliberate tax defaulters whose details have been published, and an estimate of the number of taxpayers who have been deterred from deliberately defaulting as a result of the provisions contained in section 94 of FA 2009 as amended by this Act.”
New clause 6—Report on the asset-based penalty for offshore inaccuracies and failures—
‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the asset-based penalty for offshore inaccuracies and failures.
(2) The report must include but need not be limited to—
(a) how much tax revenue has been recouped due to this measure;
(b) the amount of monies paid in asset-based penalties; and
(c) the number of persons upon whom asset-based penalties have been levied.”
New clause 7—Report on the impact of the criminal offences relating to offshore income, assets and activities—
‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the criminal offences relating to offshore income, assets and activities.
(2) The report must include but need not be limited to—
(a) the number of persons who have been charged with offences under each of sections 106B, 106C and 106D of TMA 1970;
(b) the number of persons who have been convicted of any such offence;
(c) the average fine imposed; and
(d) the number of people upon whom a custodial sentence has been imposed for any such offence.”
New clause 8—Whistleblowing in relation to tax evasion—
The Chancellor of the Exchequer shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector in relation to the disclosure of suspected tax evasion, and report to Parliament within six months of the passing of this Act.”
New clause 9—Estimated impact of extending the scope of the Register of People with Significant Control Regulations 2016—
The Chancellor of the Exchequer must, within 12 months of this Act coming into force, publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the requirement placed on UK-incorporated companies by the Register of People with Significant Control Regulations 2016 to publish a register of people with significant control to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.”
This new clause would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information about people who have significant control over them to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.
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.
Several hon. Members rose—
Mr Gauke
I will just finish what I am saying before I give way. I am being bombarded by distinguished right hon. Members.
We know that the debate on corporation tax tends to focus on companies’ sales, but corporation tax is not based on sales; it is based on activity. If a company takes part in a lot of activity in the UK but makes a lot of sales in another jurisdiction, it is likely to pay a lot of tax in the UK, but not a lot of tax in other jurisdictions where there is little or no activity but a great many sales. If the UK is the only jurisdiction that is putting out this information, or requiring its companies to put it out, there will be many examples of UK companies that are acting completely properly in foreign jurisdictions and not paying a lot of tax in those jurisdictions, but are vulnerable to criticism. It would be very much easier for all businesses to be able to point to an Italian, German, French or Swedish company that is in the same position, with a lot of activity in its own jurisdiction and a lot of sales in another jurisdiction, and is paying its tax where the activity is, not where the sales are. If the UK is acting unilaterally, I worry about unfair reputational criticism of our companies. As the right hon. Member for Barking (Dame Margaret Hodge) knows very well, reputational damage to a business can damage its commercial interests,.
Caroline Flint (Don Valley) (Lab)
Surely the problem is that so much of what we are finding out about companies—about where they do their business, where their profits are, and where they pay their taxes—is emerging through leaks. Massive reputational damage is being done to those companies. The amendment gives us a chance to put things on a much better footing by providing not all the information about companies, but the baseline headlines about where they do business, where they trade and where their profits are. Surely that is something on which we can lead.
Mr Gauke
I think that the principle and the destination are pretty clear. We are moving in the direction of companies’ publishing this information, and I believe that the UK should be leading the way in working out a multilateral deal in which a number of countries impose essentially the same requirements. That, I think, would help to improve transparency and would provide a level playing field.
I do not think that the UK should be the last mover in this respect by any means. The United States seems to be some way away from moving in this direction, and I do not think that we should wait for the United States; I think we should be there before it. We should be able to deliver, especially given that such good progress is being made at European Union level. We remain members of the European Union, and there is appetite for this in other EU states. I have no doubt that, if no progress has been made in a year or two, the right hon. Member for Don Valley will come back and ask, “Why has this not happened?”, and in that event her case would be strengthened. However, I think that until we have given the deal a fair wind, it would be premature to act unilaterally.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
The Minister has a perfectly justified and extremely good reputation for being sympathetic in driving this agenda forward. He will recall our discussions, both in opposition and back in 2010, about precisely the point that is addressed in the amendment. We all agree that companies should pay tax where their profits are earned.
The Minister knows as well as I do that some of the poorest people in the world live on top of some of the richest real estate, and that extraction taxes should be paid where those profits are earned. May I ask him to respond fully to the point that is being made by the right hon. Member for Don Valley (Caroline Flint)? If he thinks that her amendment is defective in some way, will he commit the Government to looking at those defects and considering whether they can frame a clause that would address the first part of what she said, with which I understood him to say he agreed?
Mr Gauke
The Finance Bill is not the ideal way in which to address this issue fully. I make no criticism whatsoever of the right hon. Member for Don Valley, who has shown much ingenuity in managing to ensure that her amendment is in order, but this is essentially an issue for company law.
We are keen to implement public country-by-country reporting, and we want to do it on a multilateral basis. As I have said, if there was a lack of progress the Government would obviously want to return to the issue, given the concerns that I think are felt by Members in all parts of the House. However, I think that we are in a position to aim for what I am sure we all agree would be the best result: achieving our aims on a multilateral basis.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Will the Minister give way?
Meg Hillier
It is clear that the Minister has some sympathy with the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint) and most of the Public Accounts Committee, along with many other Members in many parties. Rather than requiring my right hon. Friend to come back to the House, will he therefore commit the Government to looking at this matter unilaterally if multilateral agreement is not achieved? Or will he go even further today and agree to a sunrise clause to add to the proposals that my right hon. Friend and I, and others, have put forward, so that this can come into action if the multilateral agreement that he is hoping for does not come to fruition?
Mr Gauke
We are in quite a fast-moving area, and the progress that has been made in recent months has been considerable. Just at the beginning of this year, it looked unlikely that a deal would be possible, but now it looks as though the EU is heading in that direction. As I have said, the EU Commissioner has said that something is likely to happen by the end of this year. I must add the slight caveat that we will have a new Prime Minister by then, but it is certainly my view that if we have not made progress by this time next year on reaching a multilateral agreement, we will need to look carefully at the issue once again. I do not want to make a full commitment on this because—I am standing here desperately with the Dispatch Box as a source of support—I might no longer be in this position by then. I make that caveat, but I believe that there is every chance of an agreement. I would be disappointed if we did not make progress, but in the event of that happening—I hope it is unlikely—we would need to look at this again. I suspect that there is agreement between us here that it would be better for us to get a multilateral agreement than for us to go off alone.
David Mowat (Warrington South) (Con)
I think I have heard the Minister say that there will not be a multilateral agreement that includes the United States. So is it the Government’s position that we do not want to act unilaterally for the UK, but we will act unilaterally within the EU—even if we are not in it—even though the EU itself contains only 20% of the world’s multi- nationals? Is he saying that this does not need to be multilateral, and that it just needs to be EU-lateral?
Mr Gauke
I do not think that this has to be universal, but there would be disadvantages for the UK if we were the only country to do it. There is a sense that UK companies would be criticised for failing to pay very much tax in jurisdictions where they did not have a lot of activities but had a lot of sales. This comes back to the point about educating the public about how corporation tax works. I think it would be an awful lot easier if there were just a few examples of other countries doing this. I do not think it needs to involve every other country, but if, for example, Germany, France and Italy had the same type of system, every time a UK company was criticised we could say, “What about that French company? What about that Italian company? The same principles apply to them.”
We do not have to move at the pace of the slowest, but if we adopt an isolated position on this, there would be a reputational risk for UK businesses. We do not need to run that risk, particularly as good progress is being made, and I urge the House not to accept this amendment. Instead, I hope that we will be able to implement a measure over the next few months.
David Mowat
I suppose it depends which multinationals are in which segment of competition, but is the Minister saying that as long as, say, two or three other countries were to do this, the UK would join in?
Mr Gauke
I do not want to put a precise number on this. There is a threshold, and it depends on which countries those might be, but if I thought that three or four significant economies were going in the same direction, the case for doing this would be much stronger. Or, to put the reverse argument, if I were standing here next year and two or three other countries had gone down this route, the concerns that I am expressing from the Dispatch Box today would clearly carry less weight than I think they do today.
Meg Hillier
Perhaps I can help the Minister. On behalf of the Public Accounts Committee, I sent an open letter to the chairs of European finance and public accounts committees or their equivalents. The Minister might have picked up the fact that, to date, the letter has been signed by the chairs of parliamentary finance committees in Germany, Hungary, Finland, Norway and Slovakia, as well as by senior MPs in the Netherlands, the Czech Republic and Bulgaria. We also know that the French Finance Minister, Michel Sapin, is doing some interesting work in this area, as are many others. Does that help to push the Minister in the right direction and enable him to make us more of an offer today?
Mr Gauke
Well, it supports my optimism that we are on the cusp of a multilateral deal, and that will enable us to work out the legislation in the most comprehensive and effective way. As I have said, our preference would be to do this through company law rather than through a Finance Bill, but the hon. Lady’s intervention supports what I was saying earlier about the comments of the relevant EU Commissioner at the last ECOFIN meeting in Luxembourg, which I attended 11 days ago. He was optimistic that we would reach agreement by the end of this calendar year. If that is the case, it is hugely encouraging, and the point that the hon. Lady has just made supports that proposition.
Nigel Mills (Amber Valley) (Con)
I hope that the Minister will be willing to channel the leadership and enthusiasm that the UK showed in relation to the diverted profits tax, when we chose to go out alone and not wait for international agreements on base erosion and profit shifting. We introduced a whole new tax, with compliance burdens and penalties, and I suspect that that was a far bigger deal than requiring companies simply to disclose what they are already disclosing but in a slightly different format. I think that that was the right way to go.
Mr Gauke
My hon. Friend is right to mention the fact that we went ahead with the diverted profits tax, although doing so was clearly consistent with the direction of the base erosion and profit shifting process. That tax also brought in significant revenue to the UK, which has been very helpful.
If we want to achieve greater transparency, as I believe we all do, it is right that we focus on driving forward international efforts on public country-by-country reporting. In order to get full information on foreign multinational entities’ global activities, multilateral agreement will be required to enable countries to introduce comprehensive rules with the widest possible scope. This will allow for a comprehensive multilateral approach that applies consistently across UK and foreign multinational entities. We must get this right so that, when it is introduced into UK law, it is effective and enforceable. We will continue to support and drive this multilateral change forward following the result of the referendum, and I share the determination of the Members supporting this amendment not to move at the pace of the slowest.
Mr Mitchell
The Minister is being extremely generous in giving way. I am sure we all agree with him that this should be done multilaterally—there is nothing between us on that—and I am sure that it will be helpful to his aim of being able to demonstrate strong support for this across the House of Commons when he is dealing with his international partners. I should like to make a suggestion, and I hope that it will be helpful. Would he consider asking his officials to draft a clause for public discussion that is not defective and that he could put to his colleagues multilaterally as a measure that they might wish to include in their parliamentary legislation?
Mr Gauke
I am grateful to my right hon. Friend for that suggestion. Let me take it away, because there are a number of ways in which this could be done, and we would want to consider it. I believe that this debate will be helpful to our parliamentary and governmental colleagues in other jurisdictions in that it demonstrates our cross-party determination to make progress on this matter. We are committed to acting swiftly to implement international agreements, as we have done with the OECD BEPS recommendations on country-by-country reporting. We are committed to improving the transparency of multinational tax affairs, but we support an effective multilateral approach. At this time of increased uncertainty, a domestic measure of the sort being discussed today would, I fear, disadvantage UK business for the reason that I outlined. I look forward to hearing the contribution of the right hon. Member for Don Valley, but I hope she is satisfied with the assurances that I have provided today.
Clause 150 and schedule 20 create new civil penalties for those who have deliberately assisted taxpayers to evade UK inheritance tax, capital gains tax or income tax via offshore means. The bill introduces a financial penalty of up to 100% of the tax evaded and public naming in the most serious cases.
I want briefly to respond to Opposition amendments 19 and 20. The intentions of amendment 19 seem twofold. The first would ensure that it is considered enabling to act as an introducer. Schedule 20 already covers acting as an introducer, so that part of the amendment is unnecessary. The second aim is to set a test to check whether it objectively appears that the adviser should have known that the advice was likely to enable offshore tax evasion and is therefore an enabler. The test would introduce a great deal of uncertainty, meaning that it would be unclear how much due diligence should be completed.
Similarly, amendment 20 proposes a test that would ask whether the adviser wilfully or recklessly failed to make inquiries that a reasonable and honest person would have made. The courts generally recognise that knowledge includes so-called “blind-eye” knowledge—where a person has a firm suspicion about specific facts and deliberately decides not to find out more about them—meaning that an enabler cannot bury their head in the sand. If they have good reason to think that they are assisting evasion, failing to make proper inquiries will not help them and they will be penalised under the schedule as it currently stands. Given the restrictions and uncertainty that amendments 19 and 20 would introduce, I urge hon. Members to reject them.
Clauses 151 to 153 and schedules 21 and 22 strengthen the civil sanctions levied on offshore tax evaders. Clause 151 will increase the minimum penalties for deliberate offshore tax evasion to 30% of the tax due. The current minimum penalty is 20% and the maximum penalty will remain up to 300% of the tax due. The clause will require offshore evaders who are seeking to minimise or reduce their penalty to provide more information about their evasion and enabling activities in co-operation with HMRC.
Clause 152 removes the protection from being publicly named for deliberate offshore tax evasion unless an offshore evader comes forward to HMRC voluntarily and makes a full disclosure. In addition, clause 152 allows HMRC to name the individual who controls a company or entity that has participated in offshore tax evasion.
Clause 153 introduces a new asset-based penalty that will apply to the most serious cases of deliberate offshore tax evasion, where the tax loss exceeds £25,000, and will levy a penalty of up to 10% of the value of the asset connected to the evasion. Such assets could include physical property, intellectual property, shares and bank accounts. The asset-based penalty will be levied in addition to any other tax-geared penalties and interest due. Taken together, the measures will provide HMRC with a greater understanding of tax evasion while significantly increasing the penalties on tax evaders and those who help them.
New clauses 5 and 6 concern the reporting of a number of offshore tax evaders who have been named by HMRC and the number of asset-based penalties levied within a year of the passing of this Bill. The asset-based penalties are expected to apply from the 2016-17 tax year and the strengthened naming provisions are expected to apply from the 2017-18 tax year, with the first details published under this clause expected to be in 2019-20. As such, there would be no time for the activities covered by the amendments to have happened by the deadlines set for the Government to report on them.
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.
Dr Whitford
My point is about the NHS, where whistleblowers have suffered exactly the same kind of detriment, but the Government are now trying to change their attitude. I do not understand why we would not want to support whistleblowers within the industry when we have had one scandal after another for the past decade.
Mr Gauke
My point would be about the sheer scale of the information provided to HMRC. I quoted the 125,000 pieces of information from the public, but by no means are all of those whistleblowers. HMRC certainly does receive a substantial amount of information from whistleblowers, which is helpful. As for how that works and its contribution to HMRC’s activities, I am not aware of worries that that is not working or that the existing provisions with regards to whistleblowers are ineffective. Of course these matters are always kept under review. If I thought that there was a strong case for returning to this issue, I would certainly be interested in doing so, but I am not hearing that at present.
The right hon. Member for Barking (Dame Margaret Hodge) has been waiting very patiently for me to turn to new clause 9, which would require the Government to estimate the impact on the tax gap of expanding our forthcoming register of persons with significant control to companies in the Crown dependencies and overseas territories. I do not believe that the clause would be effective in achieving its aims. It would cast the net too narrowly by focusing on companies with significant levels of trading activity in the UK. As the Prime Minister announced at the recent anti-corruption summit last month, the Crown dependencies and overseas territories have agreed to hold beneficial ownership information on all companies incorporated in their jurisdictions. Importantly, they will share that information with Her Majesty’s Revenue and Customs and UK law enforcement agencies, which means that our authorities will be able to see exactly who owns and controls companies incorporated there.
Although I understand the aims of the new clause, it would be less effective than the steps that we have already taken to improve transparency and tackle tax evasion. I do have some sympathy with the argument that, no doubt, we will hear from the right hon. Lady, but I am not persuaded by it, and I hope that she will not press her new clause to a vote.
I will not take up any more time of the Committee. I have tried to cover as much ground as I can and to anticipate the arguments that we will hear for the rest of this debate. I hope that the Government clauses, schedules and amendments can stand part of the Bill.
Rob Marris (Wolverhampton South West) (Lab)
I will try to be relatively brief, but, as the Minister has said, there is an awful lot to get through. I know that many Members wish to speak—indeed, today we have a profligacy of right hon. Members with us, particularly on the Opposition Benches, which is very good—so, perforce, I will have to be brief on various issues.
Labour does not oppose clause 144. On clause 145, which is to do with the general anti-abuse rule, I would like some assurance from the Minister that there are enough staff to deal with this work. I realise that the Government have gone into reverse gear on this, which I welcome, and the number of full-time equivalents has gone up from 57,000 to 60,000 this calendar year. That is a good step, but HMRC was significantly underperforming because it was very understaffed, and clause 145 proposes an additional amount of work for staff to do, so I should like some reassurance on that.
Clause 146 proposes penalties for the general anti-abuse rule. The Chartered Institute of Taxation, which has been extremely helpful to all Members, especially those on the Opposition Front Bench, is concerned that someone might be punished in a rather draconian manner for an innocent error of judgment. However, when my excellent researcher, Imogen Watson, looked at the case to which CIOT referred, she found that it was one to do with customs and excise rather than corporation tax and income tax. Perhaps the Minister can provide some clarification on that.
Amendment 4 on clause 146, which is tabled by me and my hon. and right hon. Friends, deals with raising the penalty from 60% to 100%. I heard what the Minister said about that, but I am concerned that the penalties would not be sufficient to change behaviour and encourage socially acceptable law compliant behaviour, which is what we all want to see.
Clause 147 deals with serial tax avoidance. The Chartered Institute of Taxation has expressed concern, and I understand its point, that this clause might introduce what would be a double penalty for an individual. Generally, we try to avoid double penalties for wrongdoing. Perhaps the Minister could have another think about the clause, or clarify for the Committee today that the CIOT has misunderstood things and there is no such double penalty being introduced. Could the Minister give us an indication—I know that these things are difficult—of how many non-taxpayers will mend their ways as a result of this measure and become taxpayers? Again, there is an issue of funding for HMRC.
Clause 148, which relates to the promoters of tax avoidance schemes, is supported by the Labour Front-Bench team. Although we support clause 149, which deals with special measures and so on, we have put forward amendments 5 to 18 on it—the Minister referred to them earlier. Those amendments deal with increasing the penalty to £25,000 from £7,500 and for holding a director or directors “jointly and severally liable”. Rather strangely, the Minister said that the Government were in the business of “encouraging behavioural change”. Well, so are we. Having higher penalties could encourage behavioural change, by which I mean somebody not indulging in bad behaviour, and filing their reports and so on. That is why we came up with the idea of joint and several liability rather than leaving it to one person. That means that all directors would be aware of what was going on. Furthermore, if the penalties were levied, they would not be reimbursable, as is too often the case. Too often, companies simply reimburse their staff when the staff have engaged in non-criminal wrongdoing. That is not an incentive for them to avoid wrongdoing in future—quite the reverse if anything.
With clause 149 comes amendment 1. I will be brief on that amendment, because my right hon. Friend the Member for Don Valley (Caroline Flint) will no doubt be speaking to it. It is an excellent amendment, which is fully supported by the Labour Front-Bench team. I will say a couple of things very briefly in response to what the Minister said on it. He said that the amendment is technically flawed. That may be the case, but this is the first of almost 200 amendments. If the Government supported it, they could have corrected any technical flaws they saw in it. I also think that they are being a bit timid here, because I do not see how the provisions under amendment 1 will lead to disadvantage to UK headquartered companies or to reputational damage—quite the reverse. Whether the Minister likes it or not, the reputation of Google was adversely affected in the United Kingdom because its tax deal with the UK authorities was not transparent and because people thought that Google was getting away with it. If there had been more transparency, Google’s reputation might not have been adversely affected.
Similarly, provisions in amendment 1 could lead not to reputational damage for UK headquartered companies, but reputational enhancement. I have to say to the Minister—I cannot resist it because he is such a good Minister—that, in our society, talking the talk is seen as hot air, but Gauking the Gauke is seen as being polite and helpful. May I urge him to walk the walk and support amendment 1? If it needs tidying up, he should do it and sort out the technicalities.
Let me talk now about clause 150 and schedule 20—I know that I am going at a bit of a gallop, but there are others who wish to speak. I heard what the Minister said about amendments 19 and 20, which are putative amendments to schedule 20. I defer to his superior knowledge, as this is a very technical area, and I am not an accountant. I think that I understood him to say that what was proposed in amendment 19 was already covered in schedule 20. In relation to amendment 20, he referred to “blind-eye knowledge”, which is a new one on me. I, like him, am a lawyer, and it seems that schedule 20 is introducing civil penalties and not criminal ones, so I accept what he says and will not be pursuing amendments 19 and 20.
Labour supports clause 151, which is to do with penalties in connection with offshore matters and offshore transfers. Clause 152 relates to offshore tax errors and publishing details of deliberate tax defaulters. Helpfully, the explanatory notes say that the clause will amend the Finance Act 2009 to allow HMRC
“the power to publish the details of an individual who controls a body corporate or a partnership”—
when it has been—
“charged a penalty for a deliberate failure to notify HMRC of a tax charge or deliberate inaccuracy in a return, and”—
when that individual—
“would have obtained a tax advantage”—
from it—
“had it not been corrected.”
This must involve an offshore matter or transfer.
Mr Gauke
I thank all right hon. and hon. Members for their contributions in this very good debate. Most of them focused on amendment 1 and new clause 9, as I will, but the hon. Member for Wolverhampton South West (Rob Marris) raised a number of points that I will quickly run through before turning to the main issues.
On new clause 4, which relates to the review of the GAAR, this is not a deadline issue. I was not making that point, as the hon. Gentleman rightly observed. I would argue that a review of the GAAR is unnecessary. The principal purpose of the GAAR is to deter taxpayers from entering into abusive tax avoidance in the first place. As I have made clear throughout this process, measuring the number of times that the GAAR has been invoked is not a reliable indicator of its success. I made that point when I brought in the legislation relating to the GAAR, and that remains the case.
On clause 153 and schedule 22 and asset-based penalties, the hon. Gentleman asked how we value the asset. The Valuation Office Agency, which is obviously experienced in that area, will value the asset for HMRC. The date of valuation will be the date of sale. For assets not disposed of, the value will be the market value on the last day of the tax year. That is the standard approach.
On the number of people affected by clause 147, the measures are aimed at a small but persistent minority of taxpayers who remain undeterred by the Government’s continued strategy to bear down on tax evasion and tax avoidance. We expect that the total number of taxpayers affected by the measures will be a small proportion of the total avoidance population; I do not wish to indicate anything other than that. This is a principled approach and it is right that that shrinking minority is properly dealt with.
The hon. Gentleman also raised a concern about a double penalty. I hope I can reassure him that the offset provision will apply to ensure that there will be no double penalty apart from the new GAAR penalty, whereby the combined total is capped, in most cases, at 100%.
We could have a longer debate, as we have done in the past, on the wider, familiar issue of HMRC resources. At the summer Budget, the Government provided HMRC with an extra £800 million to fund additional work to tackle evasion and non-compliance by 2020-21. That will enable HMRC to recover a cumulative £7.2 billion in tax over the next five years by tackling evasion and non-compliance. I also point out, as I tend to do in these circumstances, that HMRC’s yield is at record levels and that the tax gap is at record low levels. Although I do not think that the best measure is the number of staff working in a particular area, it is the case that the number in enforcement and compliance has consistently gone up. I accept that that is not the case across HMRC as a whole, although, as the hon. Gentleman has pointed out, the number is increasing at the moment, including in enforcement and compliance.
To return to the issue of penalties and whether they are sufficient, the GAAR penalty has been set at a rate high enough to act as a clear deterrent while being proportionate to the behaviour concerned. As I have said, under the existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, and it is appropriate for the GAAR penalty to be below that range.
Let me respond to the intervention by the right hon. Member for Barking (Dame Margaret Hodge) about whistleblowing. In October 2015 the Financial Conduct Authority published a package of rules designed to encourage a culture in banks whereby individuals feel able to raise concerns. Those rules require a senior manager to be appointed a whistleblowing champion, internal arrangements to handle all types of disclosure, and a requirement to inform the FCA if an employment tribunal with a whistleblower is lost.
Given that I have responded to one point raised by the right hon. Lady, I will now address some of her other points about new clause 9, which seeks to provide more information about the tax gap numbers. My argument is the practical point of whether it is likely that HMRC could estimate or measure the impact of such a specific measure on the tax gap, particularly given that the basis is hypothetical, since the register of persons with significant control is not yet operational. That is, therefore, a challenge, but I accept that the new clause also enables us to have a wider debate about the Crown dependencies and overseas territories. That is an important issue and I want to focus more on it.
We have made extraordinary progress in the past six years with regard to Crown dependencies and overseas territories and, indeed, more widely. When I first took over this role some six years ago, the big campaigning issue for many outside organisations was automatic exchange of information. My predecessor, the right hon. Member for East Ham (Stephen Timms), is held in very high regard by Members on both sides of the House. He was a dedicated Financial Secretary and tax Minister who energetically pursued that agenda, but I can remember him saying in 2010, “That’s very much what we want to do, but we think it’s a long way away.”
The progress that has been made over the past six years, for various reasons, is considerable. The automatic exchange of information, which was once seen as a laudable objective but not something we were going to reach any time soon, has now been reached. It applies to Crown dependencies and overseas territories, which were all early signatories to the common reporting standard, and that is now coming into force. It is fair to say that the UK Government encouraged them to do that, and that is an example of how working in partnership with the Crown dependencies and overseas territories can result in quicker and more effective implementation, whereas imposing legislation reduces that co-operation and can ultimately harm our ability to tackle and deter corruption, tax avoidance and tax evasion. The approach we have taken over the past six years has been successful in making substantial progress, which people of good will on all sides did not think would be possible. The common reporting standard is a good example of that.
Although I accept that Crown dependencies and overseas territories have not signed up to public registers of beneficial ownership, we have to put the issue in context. The UK is pretty much the only jurisdiction that has done that. Of course we should expect Crown dependencies and overseas territories to meet international standards. As a Government, we continue to press the case for ever higher international standards, but failing to have a public register of beneficial ownership is not a breach of international standards. We would like the international standards to be such, but they are not at present. We have to consider the issue in that context.
I do not want to rerun everything I said earlier about amendment 1. I believe that we all share the same objectives and that the question is about how we get to where we want to be. I want to make it absolutely clear that, although there are some technical concerns and flaws in the legislation, the fundamental point is that there is a limit to the extent that we can require a foreign multinational entity to disclose information on its global activities under UK law. That is why we believe that the best way forward is through international efforts on public country-by-country reporting. Even if those flaws can be addressed, we still face that problem.
Caroline Flint
In his earlier contribution, the Financial Secretary suggested that UK-headquartered companies would be disadvantaged, but my amendment is completely based on the information already required by HMRC, as laid down by this House with cross-party support. That includes multinational enterprises that are not necessarily UK headquartered but have a turnover of more than £600 million a year. Of course, the amendment does not catch everybody, but it is within the existing remit and range in the statute book. That is why I find it difficult to understand why there is a technical problem with my amendment. All we are saying is, “Make it public.”
Mr Gauke
The issue is that foreign multinational entities would not be caught by the amendment. That is the advice I have received. It means that the public will get information only on the taxes paid and profits made by a multinational entity headquartered in the United Kingdom and not on those paid and made by foreign multinational entities such as Google. That is the clear advice I have received on the right hon. Lady’s amendment.
Caroline Flint
I feel I have to pursue this point. Amendment 1 would insert two new subparagraphs in schedule 19. The first would mean that a
“group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.”
The qualifying group referred to is based on what the Government have already legislated for. The second subparagraph is very clear:
“In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”
That qualifying group, then, includes UK-headquartered companies but also companies from elsewhere whose turnover is more than £600 million a year, as I have said. It would affect not just UK companies but those companies with activity here that are headquartered elsewhere. I urge the Minister to ask civil servants whether they have got that advice right.
Mr Gauke
I assure the right hon. Lady that I have asked civil servants about this particular issue—she will not be entirely surprised to learn that there have been fairly extensive conversations with civil servants about it. We believe that the amendment as drafted would not apply to foreign multinational entities. The challenge is that the information is, essentially, held in the UK and relating to UK-headquartered companies, so only UK-headquartered companies are well placed to provide it. She has highlighted one of the problems with a unilateral approach.
I have a huge amount of sympathy with the right hon. Lady’s argument, as she knows. We have discussed this before. I am pleased that the United Kingdom is leading the way in making progress on this at a number of international forums. I urge the House to consider that we do not need to go it alone at this point. We can work with other countries, given the progress that is being made, quite often at the UK’s instigation.
Another important point was touched on by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) as well as the right hon. Lady, namely developing countries. I have a lot of sympathy with that point. It is worth noting that 39 countries, including the United Kingdom and developing countries such as Nigeria and Senegal, have signed the OECD mechanism for country-by-country reporting. That means that the information produced by companies and provided to tax authorities—not published, but already produced and provided to authorities—is shared with every one of the 39 signatories. I want to encourage other developing countries to sign that agreement, so that they have access to the information. The right hon. Lady made the point earlier that the EU proposals could go further on ensuring more information. I agree. That is the UK position and we have been arguing that case at EU level.
I never want to miss the opportunity to highlight what we do as a country to help developing countries’ tax authorities build up their tax capacity. That work does not get the coverage it deserves. The previous Labour Government also did such work, but we have built on that. The Department for International Development and HMRC do considerable work on helping developing countries ensure that they have the information they need and the capacity to do something with it.
Rob Marris
May I make this offer on amendment 1? My right hon. Friend the Member for Don Valley (Caroline Flint) and I are quite happy to meet the Minister and Treasury officials to iron out any technical deficiencies there may be. I make that offer today so that we can do so before Report. Secondly, I urge the Minister to think a little more broadly, in terms of the world that we live in now after the Brexit vote. If the United Kingdom, having left the European Union, chose to make it a condition of trading in the UK for multinational enterprises not headquartered here that they disclose that information, we could do so.
Mr Gauke
I am not sure about the practicality of that. I will also make the point that we remain members of the European Union. There does not seem to be any likelihood of our leaving the EU within two years. Given the progress currently being made on public country-by-country reporting, I hope that the process will conclude while our membership continues.
As I have said, there are some technical issues that could be ironed out in amendment 1, but the fundamental issue of not being able to access information from foreign multinational entities that are not headquartered in the UK would remain a problem. Even with the best will in the world—and the best lawyers and parliamentary counsel—we will not be able to solve that problem.
Mr Gauke
I am always happy to discuss this issue with the hon. Gentleman, but that underlying problem still exists.
In the light of all that, I will say that, yes, we want to make progress on public country-by-country reporting, but that needs to be on a multilateral basis. Amendment 1, despite some considerable ingenuity to get it in order to be debated today, does not do what is needed. I therefore urge hon. Members not to support it, in the knowledge that this Government want to make progress on this matter and expect to make considerable progress over the next few months.
Amendment 114 agreed to.
Clause 144, as amended, ordered to stand part of the Bill.
Clause 145
General anti-abuse rule: binding of tax arrangements to lead arrangements
Amendments made: 115, page 198, line 8, leave out “Condition 1 or 2” and insert—
“the condition in sub-paragraph (2)”.
Amendment 116, page 198, line 9, leave out “Condition 1” and insert “The condition”.
Amendment 117, page 198, line 10, at end insert—
“but no notice under paragraph 12 of Schedule 43 or paragraph 9 of Schedule 43B has yet been given in respect of the matter.”
Amendment 118, page 198, leave out lines 11 and 12.
Amendment 119, page 198, line 20, leave out from first “notice” to end of line 21 and insert—
“(a “pooling notice”) which places R’s arrangements in a pool with the lead arrangements.”
Amendment 120, page 198, line 21, at end insert—
“( ) There is one pool for any lead arrangements, so all tax arrangements placed in a pool with the lead arrangements (as well as the lead arrangements themselves) are in one and the same pool.
( )Tax arrangements which have been placed in a pool do not cease to be in the pool except where that is expressly provided for by this Schedule (regardless of whether or not the lead arrangements or any other tax arrangements remain in the pool).”
Amendment 121, page 198, line 22, leave out “notice of binding” and insert “pooling notice”.
Amendment 122, page 198, line 23, leave out
“(which has not been withdrawn)”.
Amendment 123, page 198, line 25, leave out from “43” to end of line 26.
Amendment 124, page 198, line 26, at end insert—
“Notice of proposal to bind arrangements to counteracted arrangements
1A (1) This paragraph applies where a counteraction notice has been given to a person in relation to any tax arrangements (the “counteracted arrangements”) which are in a pool created under paragraph 1.
(2) If a designated HMRC officer considers—
(a) that a tax advantage has arisen to another person (“R”) from tax arrangements that are abusive,
(b) that those tax arrangements (“R’s arrangements”) are equivalent to the counteracted arrangements, and
(c) that the advantage ought to be counteracted under section 209,
the officer may give R a notice (a “notice of binding”) in relation to R’s arrangements.
(3) The officer may not give R a notice of binding if R has been given in respect of R’s arrangements a notice under—
(a) paragraph 1, or
(b) paragraph 3 of Schedule 43.
(4) In this paragraph “counteraction notice” means a notice such as is mentioned in sub-paragraph (2) of paragraph 12 of Schedule 43 or sub-paragraph (3) of paragraph 9 of Schedule 43B (notice of final decision to counteract).
1B”.
Amendment 125, page 198, line 27, after “a” insert “pooling notice or”.
Amendment 126, page 198, line 30, after “A” insert “pooling notice or”.
Amendment 127, page 198, line 34, after “arrangements” insert
“or the counteracted arrangements (as the case may be)”.
Amendment 128, page 199, line 1, after “A” insert “pooling notice or”.
Amendment 129, page 199, leave out lines 4 to 10.
Amendment 130, page 199, line 12, after “a” insert “pooling notice or”.
Amendment 131, page 199, line 16, after “6” insert
“and Schedule 43B (generic referral of tax arrangements)”.
Amendment 132, page 199, line 17, leave out “of binding” and insert
“in question (and accordingly the tax arrangements in question are no longer in the pool)”.
Amendment 133, page 199, line 23, leave out “notice under paragraph 1” and insert “pooling notice or notice of binding”.
Amendment 134, page 199, line 26, leave out
“notice under paragraph 1”
and insert—
“pooling notice or notice of binding”.
Amendment 135, page 199, line 34, at end insert—
“( ) Where a person takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the person had not taken the relevant corrective action if the person fails to enter into the written agreement.”
Amendment 136, page 200, line 6, at end insert—
“Corrective action by lead taxpayer
2A If the person mentioned in paragraph 1(1) takes the relevant corrective action (as defined in paragraph 4A of Schedule 43) before the end of the period of 75 days beginning with the day on which the notice mentioned in paragraph 1(1) was given to that person, the lead arrangements are treated as ceasing to be in the pool.”
Amendment 137, page 200, line 9, leave out “notice of binding” and insert “pooling notice”.
Amendment 138, page 200, line 10, leave out from first “arrangements” to “and” in line 11.
Amendment 139, page 200, line 13, leave out from “about” to “is” in line 14 and insert
“another set of tax arrangements in the pool (“the referred arrangements”)”.
Amendment 140, page 200, line 16, leave out “bound” and insert “pooled”.
Amendment 141, page 200, line 17, at end insert—
“( ) No more than one pooled arrangements opinion notice may be given to a person in respect of the same tax arrangements.”
Amendment 142, page 200, line 19, leave out
“by virtue of Condition 2 in paragraph 1”.
Amendment 143, page 200, line 21, leave out “notice of binding” and insert “pooling notice”.
Amendment 144, page 200, line 22, leave out “bound” and insert “pooled”.
Amendment 145, page 200, line 25, leave out “lead” and insert “referred”.
Amendment 146, page 200, line 29, at end insert—
“( ) In relation to a person who is given a notice of binding “bound arrangements opinion notice” means a written notice which—
(a) sets out a report prepared by HMRC of any opinion of the GAAR Advisory Panel about the counteracted arrangements (see paragraph 1A(1)),
(b) explains the person’s right to make representations falling within sub-paragraph (2), and
(c) sets out the period in which those representations may be made.”
Amendment 147, page 200, line 30, after “given” and insert
“a pooled arrangements opinion notice or”.
Amendment 148, page 200, leave out lines 35 to 38.
Amendment 149, page 200, line 40, leave out “the lead arrangements” and insert
“(i) the referred arrangements (in the case of a pooled arrangements opinion notice), or
(ii) the counteracted arrangements (in the case of a bound arrangements opinion notice).”
Amendment 150, page 201, line 3, leave out from beginning to “paragraph” in line 4 and insert
“any tax arrangements have been placed in a pool by a notice given to a person under”.
Amendment 151, page 201, line 7, leave out “the lead arrangements” and insert
“any other arrangements in the pool (the “referred arrangements”)”.
Amendment 152, page 201, line 10, leave out “lead” and insert “referred”.
Amendment 153, page 201, line 17, leave out
“by virtue of Condition 2 in paragraph 1”
and insert “under paragraph 1A”.
Amendment 154, page 201, line 22, leave out “lead” and insert “counteracted”.
Amendment 155, page 202, line 25, leave out from “applies” to end of line 38 and insert
“if—
(a) pooling notices given under paragraph 1 of Schedule 43A have placed one or more sets of tax arrangements in a pool with the lead arrangements,
(b) the lead arrangements (see paragraph 1(1) of Schedule 43A) have ceased to be in the pool, and
(c) no referral under paragraph 5 or 6 of Schedule 43 has been made in respect of any arrangements in the pool.
(2) A designated HMRC officer may determine that, in respect of each of the tax arrangements that are in the pool, there is to be given (to the person to whom the pooling notice in question was given) a written notice of a proposal to make a generic referral to the GAAR Advisory Panel in respect of the arrangements in the pool.
(3) Only one determination under sub-paragraph (2) may be made in relation to any one pool.
(3A) The persons to whom those notices are given are “the notified taxpayers”.”
Amendment 156, page 203, leave out lines 1 to 4.
Amendment 157, page 203, line 6, leave out “representations, and” and insert “a proposal.”.
Amendment 158, page 203, leave out lines 7 to 16.
Amendment 159, page 203, line 18, leave out from “given” to end of line 20 and insert
“to propose to HMRC that it—
(a) should give T a notice under paragraph 3 of Schedule 43 in respect of the arrangements to which the notice under paragraph 1 relates, and
(b) should not proceed with the proposal to make a generic referral to the GAAR Advisory Panel in respect of those arrangements.”
Amendment 160, page 203, leave out lines 21 to 25.
Amendment 161, page 203, line 26, leave out
“representations are made in accordance with sub-paragraph (2)”
and insert
“a proposal is made in accordance with sub-paragraph (1)”.
Amendment 162, page 203, line 27, leave out “them” and insert “it”.
Amendment 163, page 203, line 28, leave out from beginning to end of line 22 on page 204.
Amendment 164, page 204, line 26, leave out “given a notice” and insert “made a proposal”,
Amendment 165, page 204, line 31, leave out “gives a notice” and insert “makes a proposal”.
Amendment 166, page 204, line 32, after “must” insert
“, after the end of that 30 day period,”.
Amendment 167, page 204, leave out lines 34 and 35 and insert
“( ) give a notice under paragraph 3 of Schedule 43 in respect of one set of tax arrangements in the relevant pool, or”.
Amendment 168, page 204, leave out lines 37 and 38 and insert
“tax arrangements in the relevant pool”.
Amendment 169, page 205, line 18, after “which” insert “the designated officer considers”.
Amendment 170, page 207, line 35, at end insert—
“( ) In section 210 (consequential relieving adjustments), in subsection (1)(b), after “Schedule 43,” insert “paragraph 5 or 6 of Schedule 43A or paragraph 9 of Schedule 43B,”.”
Amendment 171, page 207, line 40, after “1” insert “or 1A”.
Amendment 172, page 207, line 41, leave out “lead” and insert
“referred or (as the case may be) counteracted”.
Amendment 173, page 208, line 7, leave out “1(4)” and insert “1A(2)”.
Amendment 174, page 208, line 8, at end insert—
““pooling notice” has the meaning given by paragraph 1(4) of Schedule 43A;”.
Amendment 178, page 208, line 24, at end insert—
“(10A) Section 10 of the National Insurance Contributions Act 2014 (GAAR to apply to national insurance contributions) is amended in accordance with subsections (10B) to (10E).
(10B) In subsection (4), at the end insert “, paragraph 5 or 6 of Schedule 43A to that Act (pooling of tax arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referral of arrangements: notice of final decision)”.
(10C) After subsection (6) insert—
“(6A) Where, by virtue of this section, a case falls within paragraph 4A of Schedule 43 to the Finance Act 2013 (referrals of single schemes: relevant corrective action) or paragraph 2 of Schedule 43A to that Act (pooled schemes: relevant corrective action)—
(a) the person (“P”) mentioned in sub-paragraph (1) of that paragraph takes the “relevant corrective action” for the purposes of that paragraph if (and only if)—
(i) in a case in which the tax advantage in question can be counteracted by making a payment to HMRC, P makes that payment and notifies HMRC that P has done so, or
(ii) in any case, P takes all necessary action to enter into an agreement in writing with HMRC for the purpose of relinquishing the tax advantage, and
(b) accordingly, sub-paragraphs (2) to (8) of that paragraph do not apply.”
(10D) In subsection (11)—
(a) for “and HMRC” substitute “, “HMRC” and “tax advantage””;
(b) after “2013” insert “(as modified by this section)”.
(10E) After subsection (11) insert—
“(12) See section 10A for further modifications of Part 5 of the Finance Act 2013.”
(10F) After section 10 of the National Insurance Contributions Act 2014 insert—
“10A Application of GAAR in relation to penalties
(1) For the purposes of this section a penalty under section 212A of the Finance Act 2013 is a “relevant NICs-related penalty” so far as the penalty relates to a tax advantage in respect of relevant contributions.
(2) A relevant NICs-related penalty may be recovered as if it were an amount of relevant contributions which is due and payable.
(3) Section 117A of the Social Security Administration Act 1992 or (as the case may be) section 111A of the Social Security Administration (Northern Ireland) Act 1992 (issues arising in proceedings: contributions etc) has effect in relation to proceedings before a court for recovery of a relevant NICs-related penalty as if the assessment of the penalty were a NICs decision as to whether the person is liable for the penalty.
(4) Accordingly, paragraph 5(4)(b) of Schedule 43C to the Finance Act 2013 (assessment of penalty to be enforced as if it were an assessment to tax) does not apply in relation to a relevant NICs-related penalty.
(5) In the application of Schedule 43C to the Finance Act 2013 in relation to a relevant NICs-related penalty, paragraph 9(5) has effect as if the reference to an appeal against an assessment to the tax concerned were to an appeal against a NICs decision.
(6) In paragraph 8 of that Schedule (aggregate penalties), references to a “relevant penalty provision” include—
(a) any provision mentioned in sub-paragraph (5) of that paragraph, as applied in relation to any class of national insurance contributions by regulations (whenever made);
(b) section 98A of the Taxes Management Act 1970, as applied in relation to any class of national insurance contributions by regulations (whenever made);
(c) any provision in regulations made by the Treasury under which a penalty can be imposed in respect of any class of national insurance contributions.
(7) The Treasury may by regulations—
(a) disapply, or modify the effect of, subsection (6)(a) or (b);
(b) modify paragraph 8 of Schedule 43C to the Finance Act 2013 as it has effect in relation to a relevant penalty provision by virtue of subsection (6)(b) or (c).
(8) Section 175(3) to (5) of SSCBA 1992 (various supplementary powers) applies to a power to make regulations conferred by subsection (7).
(9) Regulations under subsection (7) must be made by statutory instrument.
(10) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.
(11) In this section “NICs decision” means a decision under section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671).
(12) In this section “relevant contributions” means the following contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992—
(a) Class 1 contributions;
(b) Class 1A contributions;
(c) Class 1B contributions;
(d) Class 2 contributions which must be paid but in relation to which section 11A of the Act in question (application of certain provisions of the Income Tax Acts in relation to Class 2 contributions under section 11(2) of that Act) does not apply.””
Amendment 175, page 208, line 28, leave out from “notice” to “in” in line 30 and insert
“has been given under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements)”.
Amendment 176, page 208, line 34, leave out from “Panel” to end of line 36 and insert
“about the other arrangements (see subsection (8)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013.”
Amendment 177, page 209, line 2, leave out from “(4)(d)” to end of line 6 and insert
“other arrangements” means—
(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);
(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”
Amendment 179, page 209, line 6, at end insert—
“(13A) In section 220 of FA 2014 (content of notice given while a tax enquiry is in progress)—
(a) in subsection (4)(c), after “219(4)(c)” insert “, (d) or (e)”;
(b) in subsection (5)(c), after “219(4)(c)” insert “, (d) or (e)”;
(c) in subsection (7), for the words from “under” to the end substitute “under—
(a) paragraph 12 of Schedule 43 to FA 2013,
(b) paragraph 5 or 6 of Schedule 43A to that Act, or
(c) paragraph 9 of Schedule 43B to that Act,
as the case may be.”
(13B) Section 287 of FA 2014 (Code of Practice on Taxation for Banks) is amended in accordance with subsections (13C) to (13E).
(13C) In subsection (4), after “(5)” insert “or (5A)”.
(13D) In subsection (5)(b), after “Schedule” insert “or paragraph 5 or 6 of Schedule 43A to that Act”.
(13E) After subsection (5) insert—
“(5A) This subsection applies to any conduct—
(a) in relation to which there has been given—
(i) an opinion notice under paragraph 7(4)(b) of Schedule 43B to FA 2013 (GAAR advisory panel: opinion that such conduct unreasonable) stating the joint opinion of all the members of a sub-panel arranged under that paragraph, or
(ii) one or more such notices stating the opinions of at least two members of such a sub-panel, and
(b) in relation to which there has been given a notice under paragraph 9 of that Schedule (HMRC final decision on tax advantage) stating that a tax advantage is to be counteracted.
(5B) For the purposes of subsection (5), any opinions of members of the GAAR advisory panel which must be considered before a notice is given under paragraph 5 or 6 of Schedule 43A to FA 2013 (opinions about the lead arrangements) are taken to relate to the conduct to which the notice relates.”
(13F) In Schedule 32 to FA 2014 (accelerated payments and partnerships), paragraph 3 is amended in accordance with subsections (13G) and (13H).
(13G) In sub-paragraph (5), after paragraph (c) insert—
(d) the relevant partner in question has been given a notice under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel about the other arrangements (see sub-paragraph (7)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013;
(e) the relevant partner in question has been given a notice under paragraph 9(2) of Schedule 43B to FA 2013 (GAAR: generic referral of arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel which considered the generic referral in respect of those arrangements was as set out in paragraph 7(4)(b) of that Schedule.”
(13H) After sub-paragraph (6) insert—
“(7) “Other arrangements” means—
(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);
(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”
(13I) In Schedule 34 to FA 2014 (promoters of tax avoidance schemes: threshold conditions), in paragraph 7—
(a) in paragraph (a), at the end insert “(referrals of single schemes) or are in a pool in respect of which a referral has been made to that Panel under Schedule 43B to that Act (generic referrals),”;
(b) in paragraph (b)—
(i) for “in relation to the arrangements” substitute “in respect of the referral”;
(ii) after “11(3)(b)” insert “or (as the case may be) 7(4)(b)”;
(c) in paragraph (c)(i) omit “paragraph 10 of”.”—(Mr Gauke.)
Clause 145, as amended, ordered to stand part of the Bill.
Clause 146
General Anti-Abuse Rule: Penalty
Amendments made: 82, page 209, line 14, after “person” insert “(P)”.
Amendment 83, page 209, leave out lines 15 and 16.
Amendment 84, page 209, line 17, leave out “the person” and insert “(P)”.
Amendment 85, page 209, line 21, leave out “the” and insert “particular”.
Amendment 86, page 209, line 22, at end insert—
“(ba) a tax document has been given to HMRC on the basis that the tax advantage arises to P from those arrangements,
(bb) that document was given to HMRC—
(i) by P, or
(ii) by another person in circumstances where P knew, or ought to have known, that the other person gave the document on the basis mentioned in paragraph (ba), and”
Amendment 87, page 209, line 33, at end insert—
‘( ) In this section the reference to giving a tax document to HMRC is to be interpreted in accordance with paragraph 11(g) and (h) of Schedule 43C.”
Amendment 88, page 210, line 16, at end insert—
‘( ) For the purposes of this paragraph consequential adjustments under section 210 are regarded as part of the counteraction in question.
( ) If the counteraction affects the person’s liability to two or more taxes, the taxes concerned are to be considered together for the purpose of determining the value of the counteracted advantage.”
Amendment 89, page 214, line 33, after “tax” insert
“(including any amount chargeable as if it were corporation tax or treated as corporation tax)”
Amendment 90, page 214, line 34, at end insert
“and (v) diverted profits tax;”.
Amendment 91, page 215, line 34, after “given” insert “a pooling notice or”.
Amendment 92, page 215, line 34, leave out “paragraph 1 of”.
Amendment 93, page 215, line 41, at beginning insert
“in the case of a pooling notice,”.
Amendment 94, page 215, line 47, leave out from beginning to “with” in line 48 and insert
“in the case of a notice of binding,”.
Amendment 95, page 215, line 49, leave out “of binding”.
Amendment 96, page 216, line 6, leave out “binding” and insert
“pooling or binding (as the case may be)”.
Amendment 97, page 216, line 43, at end insert—
(ja) an appeal under section 103 of FA 2016 (apprenticeship levy: appeal against an assessment), or”.
Amendment 98, page 216, line 45, leave out “(j)” and insert “(ja)”.
Amendment 99, page 217, line 23, at end insert—
‘( ) Where the taxpayer takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the taxpayer had not taken the relevant corrective action if the taxpayer fails to enter into the written agreement.”—(Mr Gauke.)
Clause 146, as amended, ordered to stand part of the Bill.
Clause 147 ordered to stand part of the Bill.
Schedule 18
Serial Tax Avoidance
Amendments made: 100, page 480, line 19, at end insert “, associated persons and partnerships”
Amendment 101, page 480, line 32, at end insert—
‘( ) A warning notice given by virtue of paragraph 46C must also explain the effect of paragraph 46E (information in certain cases involving partnerships).”
Amendment 102, page 484, line 10, after “decision)” insert—
“, paragraph 5 or 6 of Schedule 43A to that Act (pooled arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referrals: notice of final decision)”.
Amendment 103, page 484, leave out lines 23 and 24 and insert—
“the necessary corrective action for the purposes of section 208 of FA 2014 has been taken”.
Amendment 104, page 484, line 28, at end insert—
“(1A) In sub-paragraph (1) the reference to giving a follower notice to P includes a reference to giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner (as defined in paragraph 2(5) of Schedule 31 to FA 2014).”
Amendment 105, page 484, line 35, leave out from “advantage”” to end of line 36 and insert—
“has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act).”
Amendment 106, page 484, line 42, at end insert—
“(6) For the purposes of this paragraph a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph (a) or (b) of paragraph 2(2) of Schedule 31 to FA 2014.”
Amendment 107, page 485, line 8, after “election” insert—
“, or a partnership return is made,”
Amendment 108, page 490, line 22, at end insert—
“( ) If the person mentioned in sub-paragraph (1) is a person carrying on a trade or business in partnership, the information which may be published also includes—
(a) any trading name of the partnership, and
(b) information about other members of the partnership of the kind described in sub-paragraph (4)(a) or (b).”
Amendment 109, page 494, line 31, at end insert—
“( ) In this paragraph “relevant failure”, in relation to a relevant defeat, is to be interpreted in accordance with sub-paragraphs (2) to (7) of paragraph 43.”
Amendment 110, page 504, line 43, at end insert—
“Associated persons treated as incurring relevant defeats
46A (1) Sub-paragraph (2) applies if a person (“P”) incurs a relevant defeat in relation to any arrangements (otherwise than by virtue of this paragraph).
(2) Any person (“S”) who is associated with P at the relevant time is also treated for the purposes of paragraphs 2 (duty to give warning notice) and 3(2) (warning period) as having incurred that relevant defeat in relation to those arrangements (but see sub-paragraph (3)).
For the meaning of “associated” see paragraph 46B.
(3) Sub-paragraph (2) does not apply if P and S are members of the same group of companies (as defined in paragraph 46(9)).
(4) In relation to a warning notice given to S by virtue of sub-paragraph (2), paragraph 2(4)(c) (certain information to be included in warning notice) is to be read as referring only to paragraphs 3, 17 and 18.
(5) A warning notice which is given to a person by virtue of sub-paragraph (2) is treated for the purposes of paragraphs 19(1) (duty to give relief restriction notice) and 30 (penalty) as not having been given to that person.
(6) In sub-paragraph (2) “the relevant time” means the time when P is given a warning notice in respect of the relevant defeat.
Meaning of “associated”
46B (1) For the purposes of paragraph 46A two persons are associated with one another if—
(a) one of them is a body corporate which is controlled by the other, or
(b) they are bodies corporate under common control.
(2) Two bodies corporate are under common control if both are controlled—
(a) by one person,
(b) by two or more, but fewer than six, individuals, or
(c) by any number of individuals carrying on business in partnership.
(3) For the purposes of this section a body corporate (“H”) is taken to control another body corporate (“B”) if—
(a) H is empowered by statute to control B’s activities, or
(b) H is B’s holding company within the meaning of section 1159 of and Schedule 6 to the Companies Act 2006.
(4) For the purposes of this section an individual or individuals are taken to control a body corporate (“B”) if the individual or individuals, were they a body corporate, would be B’s holding company within the meaning of those provisions.
Partners treated as incurring relevant defeats
46C (1) Where paragraph 46D applies in relation to a partnership return, each relevant partner is treated for the purposes of this Part of this Act as having incurred the relevant defeat mentioned in paragraph 46D(1)(b), (2) or (3)(b) (as the case may be).
(2) In this paragraph “relevant partner” means any person who was a partner in the partnership at any time during the relevant reporting period (but see sub-paragraph (3)).
(3) The “relevant partners” do not include—
(a) the person mentioned in sub-paragraph (1)(b), (2) or (3)(b) (as the case may be) of paragraph 46D, or
(b) any other person who would, apart from this paragraph, incur a relevant defeat in connection with the subject matter of the partnership return mentioned in sub-paragraph (1).
(4) In this paragraph the “relevant reporting period” means the period in respect of which the partnership return mentioned in sub-paragraph (1), (2) or (3) of paragraph 46D was required.
Partnership returns to which this paragraph applies
46D (1) This paragraph applies in relation to a partnership return if—
(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and
(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition A (final counteraction of tax advantage under general anti-abuse rule).
(2) Where a person has incurred a relevant defeat by virtue of sub-paragraph (1A) of paragraph 13 (Condition B: case involving partnership follower notice) this paragraph applies in relation to the partnership return mentioned in that sub-paragraph.
(3) This paragraph applies in relation to a partnership return if—
(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and
(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition C (return, claim or election made in reliance on DOTAS arrangements).
(4) The references in this paragraph to a relevant defeat do not include a relevant defeat incurred by virtue of paragraph 46A(2).
Partnerships: information
46E (1) If paragraph 46D applies in relation to a partnership return, the appropriate partner must give HMRC a written notice (a “partnership information notice”) in respect of each sub-period in the information period.
(2) The “information period” is the period of 5 years beginning with the day after the day of the relevant defeat mentioned in paragraph 46D.
(3) If, in the case of a partnership, a new information period (relating to another partnership return) begins during an existing information period, those periods are treated for the purposes of this paragraph as a single period (which includes all times that would otherwise fall within either period).
(4) An information period under this paragraph ends if the partnership ceases.
(5) A partnership information notice must be given not later than the 30th day after the end of the sub-period to which it relates.
(6) A partnership information notice must state—
(a) whether or not any relevant partnership return which was, or was required to be, delivered in the sub-period has been made on the basis that a relevant tax advantage arises, and
(b) whether or not there has been a failure to deliver a relevant partnership return in the sub-period.
(7) In this paragraph—
(a) “relevant partnership return” means a partnership return in respect of the partnership’s trade, profession or business;
(b) “relevant tax advantage” means a tax advantage which particular DOTAS arrangements enable, or might be expected to enable, a person who is or has been a partner in the partnership to obtain.
(8) If a partnership information notice states that a relevant partnership return has been made on the basis mentioned in sub-paragraph (6)(a) the notice must—
(a) explain (on the assumptions made for the purposes of the return) how the DOTAS arrangements enable the tax advantage concerned to be obtained, and
(b) describe any variation in the amounts required to be stated in the return under section 12AB(1) of TMA 1970 which results from those arrangements.
(9) HMRC may require the appropriate partner to give HMRC a notice (a “supplementary information notice”) setting out further information in relation to a partnership information notice.
In relation to a partnership information notice “further information” means information which would have been required to be set out in the notice by virtue of sub-paragraph (6)(a) or (8) had there not been a failure to deliver a relevant partnership return.
(10) A requirement under sub-paragraph (9) must be made by a written notice and the notice must state the period within which the notice must be complied with.
(11) If a person fails to comply with a requirement of (or imposed under) this paragraph, HMRC may by written notice extend the information period concerned to the end of the period of 5 years beginning with—
(a) the day by which the partnership information notice or supplementary information notice was required to be given to HMRC or, as the case requires,
(b) the day on which the person gave the defective notice to HMRC,
or, if earlier, the time when the information period would have expired but for the extension.
(12) For the purposes of this paragraph—
(a) the first sub-period in an information period begins with the first day of the information period and ends with a day specified by HMRC,
(b) the remainder of the information period is divided into further sub-periods each of which begins immediately after the end of the preceding sub-period and is twelve months long or (if that would be shorter) ends at the end of the information period.
(13) In this paragraph “the appropriate partner” means the partner in the partnership who is for the time being nominated by HMRC for the purposes of this paragraph.
Partnerships: special provision about taxpayer emendations
46F (1) Sub-paragraph (2) applies if a partnership return is amended at any time under section 12ABA of TMA 1970 (amendment of partnership return by representative partner etc) on a basis that—
(a) results in an increase or decrease in, or
(b) otherwise affects the calculation of,
any amount stated under subsection (1)(b) of section 12AB of that Act (partnership statement) as a partner’s share of any income, loss, consideration, tax or credit for any period.
(2) For the purposes of paragraph 14 (Condition C: counteraction of DOTAS arrangements), the partner is treated as having at that time amended—
(a) the partner’s return under section 8 or 8A of TMA 1970, or
(b) the partner’s company tax return,
so as to give effect to the amendments of the partnership return.
(3) Sub-paragraph (4) applies if a partnership return is amended at any time by HMRC as a result of a disclosure made by the representative partner or that person’s successor on a basis that—
(a) results in an increase or decrease in, or
(b) otherwise affects the calculation of,
any amount stated under subsection (1)(b) of section 12AB (partnership statement) as the share of a particular partner (P) of any income, loss, consideration, tax or credit for any period.
(4) If the conditions in sub-paragraph (5) are met, P is treated for the purposes of paragraph 14 as having at that time amended—
(a) P’s return under section 8 or 8A of TMA 1970, or
(b) P’s company tax return,
so as to give effect to the amendments of the partnership return.
(5) The conditions are that the disclosure—
(a) is a full and explicit disclosure of an inaccuracy in the partnership return, and
(b) was made at a time when neither the person making the disclosure nor P had reason to believe that HMRC was about to begin enquiries into the partnership return.
Supplementary provision relating to partnerships
46G (1) In paragraphs 46C to 46F and this paragraph—
“partnership” is to be interpreted in accordance with section 12AA of TMA 1970 (and includes a limited liability partnership);
“the representative partner”, in relation to a partnership return, means the person who was required by a notice served under or for the purposes of section 12AA(2) or (3) of TMA 1970 to deliver the return;
“successor”, in relation to a person who is the representative partner in the case of a partnership return, has the same meaning as in TMA 1970 (see section 118(1) of that Act).
(2) For the purposes of this Part of this Act a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member after the change.”
Amendment 112, page 507, leave out lines 15 to 20.
Amendment 111, page 507, line 38, at end insert—
““partnership follower notice” has the meaning given by paragraph 2(2) of Schedule 31 to FA 2014;
“partnership return” means a return under section 12AA of TMA 1970;”
Amendment 113, page 508, line 13, at end insert—
‘( ) For the purposes of this Schedule a partnership return is regarded as made on the basis that a particular tax advantage arises to a person from particular arrangements if—
(a) it is made on the basis that an increase or reduction in one or more of the amounts mentioned in section 12AB(1) of TMA 1970 (amounts in the partnership statement in a partnership return) results from those arrangements, and
(b) that increase or reduction results in that tax advantage for the person.”—(Mr Gauke.)
Schedule 18, as amended, agreed to.
Clause 148
Promoters of tax avoidance schemes
Amendments made: 69, page 219, line 15, at end insert—
‘(1A) An authorised officer must make the determination set out in subsection (1B) if the officer becomes aware at any time (“the relevant Part 2B time”) that—
(a) a person meets a condition in subsection (6), (7) or (8), and
(b) at the relevant Part 2B time another person (“P”), who is carrying on a business as a promoter, meets that condition by virtue of Part 2B of Schedule 34A (meeting the section 237A conditions: bodies corporate and partnerships).
(1B) The authorised officer must determine whether or not—
(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and
(b) P’s meeting of the condition as mentioned in subsection (1A)(b),
should be regarded as significant in view of the purposes of this Part.”
Amendment 70, page 219, line 16, leave out “Subsection (1) does” and insert “Subsections (1) and (1A) do”.
Amendment 71, page 219, leave out lines 21 to 25.
Amendment 72, page 219, line 25, at end insert—
‘(3A) Subsection (1A) does not apply if, at the relevant Part 2B time, an authorised officer is under a duty to make a determination under section 237(5) in relation to P.
(3B) But in a case where subsection (1) does not apply because of subsection (3), or subsection (1A) does not apply because of subsection (3A), subsection (5) of section 237 has effect as if—
(a) the references in paragraph (a) of that subsection to “subsection (1)”, and “subsection (1)(a)” included subsection (1) of this section, and
(b) in paragraph (b) of that subsection the reference to “subsection (1A)(a)” included a reference to subsection (1A)(a) of this section and the reference to subsection (1A)(b) included a reference to subsection (1A)(b) of this section.”
Amendment 73, page 219, line 28, at end insert—
‘( ) If the authorised officer determines under subsection (1B) that—
(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and
(b) P’s meeting of the condition as mentioned in subsection (1A)(b),
should be regarded as significant in view of the purposes of this Part, the officer must give P a conduct notice, unless subsection (5) applies.”
Amendment 74, page 225, line 7, at end insert—
( ) Part 2A contains provision about when a relevant defeat is treated as occurring in relation to a person;
( ) Part 2B contains provision about when a person is treated as meeting a condition in subsection (6), (7) or (8) of section 237A;”
Amendment 75, page 226, line 9, leave out from “person” to end of line 11 and insert
“is carrying on a business as a promoter and—the person is or has been a promoter in relation to the arrangements, or that would be the case if the condition in sub-paragraph (2) were met.”
(i) the person is or has been a promoter in relation to the arrangements, or
(ii) that would be the case if the condition in sub-paragraph (2) were met.”
Amendment 76, page 228, line 26, after first “to” insert
“, paragraph 5(2) or 6(2) of Schedule 43A to or paragraph 9(2) of Schedule 43B to”.
Amendment 77, page 230, line 9, at end insert—
Part 2A
Relevant defeats: associated persons
Attribution of relevant defeats
16A (1) Sub-paragraph (2) applies if—
(a) there is (or has been) a person (“Q”),
(b) arrangements (“the defeated arrangements”) have been entered into,
(c) an event occurs such that either—
(i) there is a relevant defeat in relation to Q and the defeated arrangements, or
(ii) the condition in sub-paragraph (i) would be met if Q had not ceased to exist,
(d) at the time of that event a person (“P”) is carrying on a business as a promoter (or is carrying on what would be such a business under the condition in paragraph 3(2)), and
(e) Condition 1 or 2 is met in relation to Q and P.
(2) The event is treated for all purposes of this Part of this Act as a relevant defeat in relation to P and the defeated arrangements (whether or not it is also a relevant defeat in relation to Q, and regardless of whether or not P existed at any time when those arrangements were promoted arrangements in relation to Q).
(3) Condition 1 is that—
(a) P is not an individual,
(b) at a time when the defeated arrangements were promoted arrangements in relation to Q—
(i) P was a relevant body controlled by Q, or
(ii) Q was a relevant body controlled by P, and
(c) at the time of the event mentioned in sub-paragraph (1)(c)—
(i) Q is a relevant body controlled by P,
(ii) P is a relevant body controlled by Q, or
(iii) P and Q are relevant bodies controlled by a third person.
(4) Condition 2 is that—
(a) P and Q are relevant bodies,
(b) at a time when the defeated arrangements were promoted arrangements in relation to Q, a third person (“C”) controlled Q, and
(c) C controls P at the time of the event mentioned in sub-paragraph (1)(c).
(5) For the purposes of sub-paragraphs (3)(b) and (4)(b), the question whether arrangements are promoted arrangements in relation to Q at any time is to be determined on the assumption that the reference to “design” in paragraph (b) of section 235(3) (definition of “promoter” in relation to relevant arrangements) is omitted.
Deemed defeat notices
16B (1) This paragraph applies if—
(a) an authorised officer becomes aware at any time (“the relevant time”) that a relevant defeat has occurred in relation to a person (“P”) who is carrying on a business as a promoter,
(b) there have occurred, more than 3 years before the relevant time—
(i) one third party defeat, or
(ii) two third party defeats, and
(c) conditions A1 and B1 (in a case within paragraph (b)(i)), or conditions A2 and B2 (in a case within paragraph (b)(ii)), are met.
(2) Where this paragraph applies by virtue of sub-paragraph (1)(b)(i), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the time of the third party defeat, given P a single defeat notice under section 241A(2) in respect of it.
(3) Where this paragraph applies by virtue of sub-paragraph (1)(b)(ii), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the second of the two third party defeats, given P a double defeat notice under section 241A(3) in respect of the two third party defeats.
(4) Section 241A(8) has no effect in relation to a notice treated as given as mentioned in subsection (2) or (3).
(5) Condition A1 is that—
(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of the third party defeat,
(b) at the time of the third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a defeat notice in respect of the third party defeat, had the officer been aware that it was a relevant defeat in relation to P, and
(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of the third party defeat have never been met (ignoring this paragraph).
(6) Condition A2 is that—
(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of each, or both, of the third party defeats,
(b) at the time of the second third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a double defeat notice in respect of the third party defeats, had the officer been aware that either of the third party defeats was a relevant defeat in relation to P, and
(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of those third party defeats (or either of them) have never been met (ignoring this paragraph).
(7) Condition B1 is that, had an authorised officer given P a defeat notice in respect of the third party defeat at the time of that relevant defeat, that defeat notice would still have effect at the relevant time (see sub-paragraph (1)).
(8) Condition B2 is that, had an authorised officer given P a defeat notice in respect of the two third party defeats at the time of the second of those relevant defeats, that defeat notice would still have effect at the relevant time.
(9) In this paragraph “third party defeat” means a relevant defeat which has occurred in relation to a person other than P.
Meaning of “relevant body” and “control”
16C (1) In this Part of this Schedule “relevant body” means—
(a) a body corporate, or
(b) a partnership.
(2) For the purposes of this Part of this Schedule a person controls a body corporate if the person has power to secure that the affairs of the body corporate are conducted in accordance with the person’s wishes—
(a) by means of the holding of shares or the possession of voting power in relation to the body corporate or any other relevant body,
(b) as a result of any powers conferred by the articles of association or other document regulating the body corporate or any other relevant body, or
(c) by means of controlling a partnership.
(3) For the purposes of this Part of this Schedule a person controls a partnership if the person is a controlling member or the managing partner of the partnership.
(4) In this paragraph “controlling member” has the same meaning as in Schedule 36 (partnerships).
(5) In this section “managing partner”, in relation to a partnership, means the member of the partnership who directs, or is on a day-to-day level in control of, the management of the business of the partnership.
Part 2B
Meeting section 237A conditions: bodies corporate and partnerships
Treating persons under another’s control as meeting section 237A condition
16D (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) that condition was met by a person (“C”) at a time when—
(i) C was carrying on a business as a promoter, or
(ii) RB was carrying on a business as a promoter and C controlled RB, and
(b) RB is controlled by C at the relevant Part 2B time.
(2) Sub-paragraph (1) does not apply if C is an individual.
(3) For the purposes of determining whether the requirements of sub-paragraph (1) are met by reason of meeting the requirement in sub-paragraph (1)(a)(i), it does not matter whether RB existed at the time when C met the section 237A condition.
Treating persons in control of others as meeting section 237A condition
16E (1) A person other than an individual is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) a relevant body (“A”) met the condition at a time when A was controlled by the person, and
(b) at the time mentioned in paragraph (a) A, or another relevant body (“B”) which was also at that time controlled by the person, carried on a business as a promoter.
(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether A or B (or neither) exists at the relevant Part 2B time.
Treating persons controlled by the same person as meeting section 237A condition
16F (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) another relevant body met that condition at a time (“time T”) when it was controlled by a person (“C”),
(b) at time T, there was a relevant body controlled by C which carried on a business as a promoter, and
(c) RB is controlled by C at the relevant Part 2B time.
(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether—
(a) RB existed at time T, or
(b) any relevant body (other than RB) by reason of which the requirements of sub-paragraph (1) are met exists at the relevant Part 2B time.
Interpretation
16G (1) In this Part of this Schedule—
“control” has the same meaning as in Part 2A of this Schedule;
“relevant body” has the same meaning as in Part 2A of this Schedule;
“relevant Part 2B time” means the time referred to in section 237A(1A);
“section 237A condition” means any of the conditions in section 237A(6), (7) and (8).
(2) For the purposes of paragraphs 16D(1)(a), 16E(1)(a) and 16F(1)(a), the condition in section 237A(6) (occurrence of 3 relevant defeats in the 3 years ending with the relevant time) is taken to have been met by a person at any time if at least 3 relevant defeats have occurred in relation to the person in the period of 3 years ending with that time.”
Amendment 78, page 234, line 27, at end insert—
‘(9A) Schedule 36 (promoters of tax avoidance schemes: partnerships) is amended in accordance with subsections (9B) to (9G).
(9B) In Part 2, before paragraph 5 insert—
“Defeat notices
4A A defeat notice that is given to a partnership must state that it is a partnership defeat notice.”.
(9C) In paragraph 7(1)(b) after “a” insert “defeat notice,”.
(9D) In paragraph 7(2) after “the” insert “defeat notice,”.
(9E) After paragraph 7 insert—
“Persons leaving partnership: defeat notices
7A (1) Sub-paragraphs (2) and (3) apply where—
(a) a person (“P”) who was a controlling member of a partnership at the time when a defeat notice (“the original notice”) was given to the partnership has ceased to be a member of the partnership,
(b) the defeat notice had effect in relation to the partnership at the time of that cessation, and
(c) P is carrying on a business as a promoter.
(2) An authorised officer may give P a defeat notice.
(3) If P is carrying on a business as a promoter in partnership with one or more other persons and is a controlling member of that partnership (“the new partnership”), an authorised officer may give a defeat notice to the new partnership.
(4) A defeat notice given under sub-paragraph (3) ceases to have effect if P ceases to be a member of the new partnership.
(5) A notice under sub-paragraph (2) or (3) may not be given after the original notice has ceased to have effect.
(6) A defeat notice given under sub-paragraph (2) or (3) is given in respect of the relevant defeat or relevant defeats to which the original notice relates.”
(9F) In paragraph 10—
(a) in sub-paragraph (1)(b) for “conduct notice or a” substitute “, defeat notice, conduct notice or”;
(b) in sub-paragraph (3), after “partner—” insert—
“(za) a defeat notice (if the original notice is a defeat notice);”.
(c) in sub-paragraph (4), after “(“the new partnership”)—” insert—
“(za) a defeat notice (if the original notice is a defeat notice);”
(d) after sub-paragraph (5) insert—
“(5A) A notice under sub-paragraph (3)(za) or (4)(za) may not be given after the end of the look-forward period of the original notice.”
(9G) After paragraph 11 insert—
11A The look-forward period for a notice under paragraph 7A(2) or (3) or 10(3)(za) or (4)(za)—
(a) begins on the day after the day on which the notice is given, and
(b) continues to the end of the look-forward period for the original notice (as defined in paragraph 7A(1)(a) or 10(2), as the case may be).”
Amendment 79, page 234, line 27, at end insert—
‘(9A) Part 2 of Schedule 2 to the National Insurance Contributions Act 2015 (application of Part 5 of FA 2014 to national insurance contributions) is amended in accordance with subsections (9B) and (9C).
(9B) After paragraph 30 insert—
“Threshold conditions
30A (1) In paragraph 5 of Schedule 34 (non-compliance with Part 7 of FA 2004), in sub-paragraph (4)—
(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that P is to be deemed not to have failed to comply with the provision concerned as P had a reasonable excuse for not doing the thing required to be done, and
(b) the reference in paragraph (c) to a determination is to be read accordingly.
(2) In this paragraph “corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.
Relevant defeats
30B (1) Schedule 34A (promoters of tax avoidance schemes: defeated arrangements) has effect with the following modifications.
(2) References to an assessment (or an assessment to tax) include a NICs decision relating to a person’s liability for relevant contributions.
(3) References to adjustments include a payment in respect of a liability to pay relevant contributions (and the definition of “adjustments” in paragraph 17 accordingly has effect as if such payments were included in it).
(4) In paragraph 9(3) the reference to an enquiry into a return includes a relevant contributions dispute (as defined in paragraph 6 of this Schedule).
(5) In paragraph 21(3)—
(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that the person is to be deemed not to have failed to comply with the provision concerned as the person had a reasonable excuse for not doing the thing required to be done, and
(b) the reference in paragraph (c) to a determination is to be read accordingly.
“Corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.”
(9C) In paragraph 31 (interpretation)—
(a) before paragraph (a) insert—
(za) “NICs decision” means a decision under section 8 of SSC(TF)A 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671);”
(b) in paragraph (b), for “are to sections of” substitute “or Schedules are to sections of, or Schedules to”.”
Amendment 80, page 234, line 39, after “person” insert “or an associated person”.
Amendment 81, page 235, line 2, at end insert—
‘(12A) For the purposes of subsection (11) a person (“Q”) is an “associated person” in relation to another person (“P”) at any time when any of the following conditions is met—
(a) P is a relevant body which is controlled by Q;
(b) Q is a relevant body, P is not an individual and Q is controlled by P;
(c) P and Q are relevant bodies and a third person controls P and Q.
(12B) In subsection (12A) “relevant body” and “control” are to be interpreted in accordance with paragraph 16C of Schedule 34A to FA 2014.”—(Mr Gauke.)
Clause 148, as amended, ordered to stand part of the Bill.
Clause 149 ordered to stand part of the Bill.
Schedule 19
Large businesses: tax strategies and sanctions
Amendment proposed: 1, page 516, line 21, at end insert—
‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.
(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”—(Caroline Flint.)
Question put, That the amendment be made.
The Temporary Chair (Sir Roger Gale)
With this it will be convenient to take the following:
Clauses 42 to 44 stand part.
Clauses 65 to 71 stand part.
Mr Gauke
The Bill introduces measures on small business investment that will simplify the tax system and ensure that allowances are fair and not open to abuse.
Clause 41 charges corporation tax for the financial year beginning 1 April 2017. Corporation tax is an annual tax approved by Parliament each year. This is an essential provision that enables us to collect tax. The key reform announced in the Budget to support business investment and back Britain’s economy is set out in clause 42, which cuts the rate of corporation tax to 17% with effect from 1 April 2020. I expect that our debate will focus on this provision, so I will start here, before commenting more briefly on the other clauses.
I will begin by setting out our broader strategy on corporation tax. The Government have been clear that taxes should be low but must be paid, and since 2010 we have made progress towards those goals. The main rate of corporation tax was 28% in 2010. By 2020, we will have cut the UK main rate by more than a third to make the UK more competitive and to support growth and investment. It will be one of the biggest boosts British business has ever seen. Further corporation tax cuts will increase the returns companies receive on their investments, and by 2020 corporation tax cuts delivered since 2010 will be saving businesses almost £15 billion a year. This will ensure that the UK has by far the lowest rate of corporation tax in the G20 and make Britain even more attractive to inward investors.
At the same time, we have taken significant measures to clamp down on tax avoidance and aggressive tax planning. The Government successfully helped initiate the G20-OECD base erosion and profits shifting project and worked internationally, including with G20 and OECD partners, to bring this to a successful conclusion in October 2015. We spent the earlier part of today’s debate considering some of the measures introduced in the Bill to address avoidance and evasion, but the Bill also takes further steps elsewhere. Key measures include tackling hybrid mismatch arrangements, introducing a restriction on the tax deductibility of corporate interest and expense, extending the UK’s withholding tax rights over royalties and ensuring non-resident property developers pay tax in the UK on profits they make in this country.
Low corporation rates enable businesses to increase investment, take on new staff, increase wages or reduce prices. This is borne out in receipts data: onshore corporation tax receipts have risen by almost 20% since 2010, despite lowering corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. This modelling suggests that the cuts could increase long-run GDP by more than 1%—almost £24 billion in today’s prices. The corporation tax cuts and other reforms we introduced have completely changed perceptions of the UK tax regime. The UK is now regularly cited in surveys as one of the most competitive regimes in the world.
As the Chancellor has said, in the last six years, the Government and the British people have worked hard to rebuild the British economy. We have worked systematically through a plan that means that today Britain has the strongest major advanced economy in the world. Cutting corporation tax rates has been a central part of the Government’s economic strategy, and that strategy is working.
The UK has been one of the fastest-growing economies in the G7, and the OECD forecasts the UK to be the fastest-growing G7 economy in 2016. There are 2.3 million more people in employment since 2010, and business investment is now 30% higher than it was in 2010. Tax competition is dynamic. In the last few decades, we have seen countries across the world cut their corporation tax rates. We cannot afford to stand still while others rush ahead. The UK needs to be as competitive as possible. A new 17% rate of corporation tax sends out the message loud and clear around the world that the British economy is fundamentally strong and highly competitive and that Britain is open for business. For those reasons, I urge the Committee to support the clauses, and to speak in anticipation of what we are about to hear, I hope the Committee will reject amendment 21, tabled by the hon. Member for Wolverhampton South West (Rob Marris), which would cancel the corporation tax cuts.
Let me move on to the other measures in this group. Clause 43 abolishes vaccine research relief from 1 April 2017. This relief is available only to large companies and is claimed fewer than 10 times a year, with a value below £5 million. The Government believe that direct spending programmes such as the recently announced £1 billion Ross fund offer a more effective and flexible approach to supporting the development of medicines and vaccines, and will have a far greater impact.
Clause 44 makes a small change to ensure that the introduction of the research and development expenditure credit does not have the unwanted effect of reducing the amount of relief available to certain small businesses. The expenditure credit replaced the old large company R and D tax credit scheme in 2016, following a period of three years in which both were available simultaneously. We recognise that R and D tax relief plays a vital role in supporting productive investment in the UK. These two changes will ensure that R and D tax support remains effective in meeting this objective.
Clause 65 extends the current time limit for claiming enhanced capital allowances in enterprise zones to eight years from the date on which the enterprise zones are announced. Businesses operating in the 46 enterprise zones across the UK can opt either for a rebate on business rates or enhanced capital allowance covering 100% of investment. Extending the time limit for claiming enhanced capital allowances to eight years will allow all zones to enjoy it for the same duration. I am sure that hon. Members of all parties will welcome this.
Clause 66 will strengthen the existing capital allowance anti-avoidance revisions to ensure that artificial and contrived arrangements cannot be used to gain excessive capital allowances. Capital allowances allow businesses to write off amounts that they spend on plant and machinery against their taxable profits. This reflects the depreciation in the value of the assets over time. When the business disposes of the asset, the legislation is designed to subtract this disposal value so that the allowances are reduced to reflect the net cost of the asset to the business. HMRC has received several disclosures of tax-avoidance schemes where the disposal value has been manipulated to an artificially low level. This leads to excessive capital allowances being received; the tax result does not reflect commercial reality and so constitutes an avoidance of tax. Clause 66 prevents this and ensures that business pays the correct amount of tax.
Mr Gauke
I thank hon. Members for their contributions to the debate. I will perhaps turn to corporation tax rates and clause 42 at the end of my speech—I think we will save the most exciting element to the end. Let me first pick up some of the other points that have been raised.
Vaccine research relief is currently available only to large firms; it was removed for small and medium-sized enterprises in 2011, at the same time as the general SME R and D relief was increased. It is also worth pointing out that all vaccine producers can claim normal R and D relief on qualifying expenditure. Incentivising vaccine production remains a priority for the Government, but we believe that spending programmes such as the Ross fund are more effective at doing that. The amount claimed through VRR is less than £5 million a year, despite a generous raise.
The Ross fund was announced by my right hon. Friend the Chancellor in November 2015. It will target infectious diseases, including malaria, diseases with epidemic potential, neglected tropical diseases, which affect more than 1 billion people globally, and antimicrobial resistance, which poses a substantial and growing threat to global health. In January 2016 the Chancellor built on the announcement of the Ross fund by confirming that the Government will invest £500 million a year over the next five years in the fight to end deaths from malaria. That formed part of the £3 billion commitment between the Government and Bill Gates. The UK continues to contribute to the Global Fund to Fight AIDS, Tuberculosis and Malaria, an internationally supported organisation designed to accelerate the end of AIDS, tuberculosis and malaria as epidemics. I wanted specifically to come back on the very good point raised by the hon. Member for Aberdeen North (Kirsty Blackman).
The Ross fund does constitute official development assistance. It is worth pointing out that all UK ODA is administered with the promotion of the economic development and welfare of developing countries as its main objective, and it is in line with internationally agreed rules on ODA, so it is perfectly reasonable that we include the fund in the 0.7%, and it can clearly make a huge difference to large numbers of people.
The hon. Member for Wolverhampton South West (Rob Marris) asked how much is lost to the Exchequer through some of the schemes we seek to address in clause 66. Over the scorecard period, which takes us to 2020-21, it is expected that the changes will yield about £20 million of tax that would otherwise have been avoided and that they will potentially protect much more. This is not the largest measure by any means, but it is, none the less, a contribution. By way of background, the relevant case law is the 1948 House of Lords decision, Gold Coast Selection Trust Ltd v. Humphrey—no doubt familiar to the hon. Member for Wolverhampton South West. It has been suggested that this is no longer good law as it predates generally accepted accounting practice and the enactment of current legislation setting out the rules for the calculation of trading income. Let me be very clear that HMRC does not accept this proposition. [Interruption.] As the hon. Member for Wolverhampton South West mutters, it is a case of belt and braces. HMRC’s view, and the Government’s view, is that we should change the law now as a response to the potential risk, which is in the region of £125 million in one case alone. The challenge we have seen seeks to suggest that the current case law that dictates the tax treatment is outdated. I hope that clause 67 helps to address this risk.
Rob Marris
I asked the Minister for reassurance that this would not affect the barter economy. He might wish to write to me later.
Mr Gauke
I think I can provide that reassurance, but perhaps it would be best if I wrote to the hon. Gentleman—again, on a belt and braces basis.
The hon. Gentleman raised the concern that had been put to him that clause 68 might force businesses to claim capital allowances and that that might complicate the system. He gave the example of a saw, with a carpenter potentially encountering complications in his or her tax affairs . The answer is that that is very unlikely. Most small businesses will find that their capital spending on equipment is fully relieved by the £200,000 annual investment allowance, which is now at a record permanent level. Accordingly, they would receive a full deduction for their expenditure in the year and would not usually have to calculate annual writing-down allowances. The changes will ensure that tax relief for expenditure incurred by business on replacement and alteration of tools means that all capital expenditure on equipment is dealt with in a fair and proportionate way.
I was asked whether clauses 69 and 70 will cause some complication in the old 10% wear-and-tear deduction, which was simple. Of course, Labour Members highlighted the wear-and-tear allowance as a potential saving within the tax system. It is interesting that, despite its simplicity, a significant number of interested parties agreed with the Government that the wear-and-tear allowance was not fair. It applies only to landlords of fully furnished properties, and provides relief even where landlords have not had to meet any actual expense. We have carefully considered the different ways in which a relief based on actual expenditure could be designed and implemented, and we have legislated for the simplest possible basis.
Turning to clause 42 and the wider issues, I am grateful for the supportive contributions by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Macclesfield (David Rutley), and by the hon. Member for East Antrim (Sammy Wilson). If the hon. Gentleman had argued a different case, I might have pointed to the many conversations that we have had over very many years in the context of devolution of corporation tax to Northern Ireland. I was struck by his point about how, when talking to international businesses, people often note the headline rate of corporation tax; international investors are aware of that. It is certainly my experience, having met many international businesses over a number of years when promoting the UK as a place in which to do business, that our low corporation tax rate, and our destination towards an even lower rate, attracts attention and a fair degree of admiration, and ultimately attracts jobs and investment to the UK. That is why we have taken steps to reduce the corporation tax rate, and I think that that has played a significant role in the fact that business investment is up significantly; that employment numbers are as high as they are; and that foreign direct investment in this country has been so strong. Of course, that is not the only factor; there are others. This country also faces particular challenges in the light of recent events, but, as my hon. Friends the Members for Amber Valley and for Macclesfield have said, it is absolutely right that we have a competitive corporation tax rate.
The Temporary Chair (Mr George Howarth)
With this it will be convenient to discuss the following:
That schedules 11 and 12 be the Eleventh and Twelfth schedules to the Bill.
Government amendments 30 to 35.
Clauses 73 to 75 stand part.
Government amendments 36 to 38.
That schedule 13 be the Thirteenth schedule to the Bill.
Clause 76 stand part.
Government amendments 39 to 64.
Amendment 181, in schedule 14, page 432, line 45, at end insert—
“169VS Expiration of Chapter V provisions
(1) The provisions of Chapter V of part 5 of this Act shall remain in force until five years after their commencement and shall then expire, unless continued in force by an order under subsection (2).
(2) The Secretary of State may by order made by statutory instrument provide—
(a) that all or any of those provisions which are in force shall continue in force for a period not exceeding 12 months from the coming into operation of the order; or
(b) that all or any of those provisions which are for the time being in force shall cease to be in force.
(3) No order shall be made under subsection (2) unless—
(a) a draft of the order has been laid before and approved by a resolution of both Houses of Parliament,
(b) the Secretary of State has laid the report of a review of the operation of Investor’s Relief before both Houses of Parliament.”
Government amendments 65 to 68.
That schedule 14 be the Fourteenth schedule to the Bill.
Amendment 182, in clause 77, page 135, line 17, leave out “£100,000” and insert “£50,000”.
Government amendment 184.
Clauses 77 to 81 stand part.
New clause 2—Review of remuneration of investment fund managers—
“The Chancellor of the Exchequer must commission a review of ways in which the law could be amended to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income, and must publish the report of the review within six months of the passing of this Act.”
New clause 11—Entrepreneur’s relief: value for money—
“The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish a report giving HM Treasury’s assessment of the value for money provided by Entrepreneur’s Relief.”
Mr Gauke
The final session of today’s debate considers a number of changes to capital gains tax, along with Government amendments and one Opposition amendment.
Clause 72 will provide an incentive for people to invest in companies by reducing the main rate of capital gains tax from 18% to 10% and 28% to 20% on most gains made by individuals, trustees and personal representatives. The Government want to ensure that companies can access the capital they need to grow and create jobs, and want the next generation to be backed by a strong investment culture. We believe the best way to encourage this is to let investors keep more of the rewards when their investment is successful. At 28%, our higher rate of capital gains tax is among the highest in the developed world. We do not want high tax rates to deter investment. The lower capital gains tax rates introduced by this clause will make it more attractive for people to invest in companies, helping those companies to access the capital to expand and create jobs. Gains made on residential properties that do not qualify for private residence relief, and those from carried interest, will remain subject to the 18% and 28% rates. Retaining these rates will create an incentive for individuals to invest in companies rather than in property.
Clauses 73 to 75 make changes to ensure that entrepreneurs relief on capital gains tax rewards business owners and entrepreneurial investors while safeguarding the effect of measures introduced last year to prevent abuse of the relief. The Government are committed to supporting enterprise and entrepreneurship, but they are equally committed to fairness in the tax system. Entrepreneurs relief allows certain capital gains to be taxed at 10%, rather than the normal rates, and plays an important role in supporting the enterprise culture of this country, but, as with all tax reliefs, we need to make sure that it is not being claimed in circumstances where it does not achieve its intended purpose.
These changes will improve the targeting of the anti-abuse rules introduced in 2015. The changes in clause 73 will allow relief for gains on disposal of a private asset used in a business in cases of genuine retirement or where members of the claimant’s family succeed to the claimant’s business. These changes will level the playing field for family-run businesses and allow them to be passed to the next generation without an unfair tax charge.
The changes in clause 74 will allow someone selling their business to a limited company to claim relief on the goodwill of that business, providing they have only a small stake in the company. The relief will still be denied where the former proprietor or partner could continue running the business through the company and benefit directly from future profits and business growth. Entrepreneurs relief on gains on shares is due only where those shares are in trading companies or the holding companies of trading groups. Clause 75 amends the definition of a trading company to ensure that relief is available for shares in a company that has no trade of its own but which holds shares in a trading joint venture company where the investor effectively holds 5% or more of the joint venture company. The further changes made by these clauses will be backdated to the date on which the 2015 changes came into effect, meaning that no one who has made a genuine disposal for commercial reasons should be disadvantaged by the new rules.
The Government have tabled several minor amendments to the clauses. Amendments 30 to 33 simply move one of the new conditions introduced by clause 73 to a different place in the relevant statute. Amendments 34 and 35 correct two unintended retrospective effects of clause 73. Without the amendments, someone who made a disposal after Budget day 2015 and was eligible for entrepreneurs relief could find themselves deprived of that relief by changes announced at Budget 2016. Amendments 36 to 38 clarify the commencement provisions for the new rules introduced by clause 75 and ensure that the new definition of a trading company supersedes the definition used by the Finance Act 2015. These amendments do not reflect any change in policy and will have no impact on the costings of the measures.
Now is an appropriate time to address new clause 11, tabled by Opposition Members, which proposes that my right hon. Friend the Chancellor of the Exchequer publish within six months of the passing of the Act a report of the Treasury’s assessment of the value for money provided by entrepreneurs relief. Opposition Members will be aware that the Government keep all tax policy under review. This includes entrepreneurs relief, as demonstrated by recent action taken to ensure that the relief is effective, well targeted and not open to abuse, and we will continue to act where appropriate. I can inform the Committee that officials have for some time been developing a detailed research programme designed to identify taxpayers’ motivations for using entrepreneurs relief, and I expect the results to be published at some point in 2017. I do not believe it is necessary to legislate for a review, so I hope that the Opposition will not press the new clause.
Clause 76 and schedule 14 introduce investors relief and apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an external investor in an unlimited trading company for at least three years. Many companies struggle to attract the long-term external investment they need to grow and expand, and this can be particularly difficult for unlisted companies, which is why, on top of cutting the capital gains tax rates, the Government are introducing this additional financial incentive to invest in these companies over the longer term. Investors relief has been designed to help unlisted companies attract inward equity investment from external investors. This clause and schedule apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an investor in an unlisted trading company or trading group. The investor must not be an employee or officer of the company at the time of subscription. In addition, the shares must have been newly issued after 17 March 2016 and held for a period of at least three years starting from 6 April 2016. The amount of relief is capped, with individuals subject to a lifetime cap of £10 million on qualifying gains.
We are today making a number of amendments to this clause to ensure that the rules surrounding the relief are fair and clear, and to extend the scope of the relief to prevent market distortions and unlock further sources of capital. Amendments 39 to 41, 43, 44, 50 and 61 will ensure that trustees of a settlement as well individuals who choose jointly to subscribe with other individuals are able to subscribe for investor relief qualifying shares. In the case of trusts, amendment 51 includes rules that prevent individuals from creating multiple trusts, each with a £10 million lifetime limit.
Amendments 45 to 49 clarify how to determine the number of shares that qualify for investors relief when a disposal is made that consists of a mixture of qualifying and non-qualifying shares. Amendments 52 to 60 and amendments 65 to 68 clarify the provisions that deal with share disposals, share exchanges, elections, subscriptions and the distribution of value to existing shareholders.
Finally, some investors may wish to monitor and protect their investment through a seat on a company’s board. Amendments 42 and 62 to 64 allow such an investor to become a director after their investment has been made as long as they are not remunerated in that capacity. They also allow an individual who becomes an employee of the company to access relief in most situations after 180 days of the share issue. Investors relief is designed to attract new capital into unlisted companies, enabling them to grow their business. It will help to advance this Government’s aims for a growing economy driven by investment and supporting businesses to grow.
Let me turn to the Opposition amendment that was tabled by the hon. Member for Feltham and Heston (Seema Malhotra), but is now being taken up by her successor—and may I congratulate the hon. Member for Salford and Eccles (Rebecca Long Bailey) on her promotion? Amendment 181 seeks to end the relief after a period of five years, with the option of an additional 12-month extension if agreed by both Houses, subject to the Chancellor laying a review of the operation of the relief before both Houses. The amendment is unnecessary when the Government rightly keep all tax policy under review in line with normal tax policy-making practice. There would be limited merit in conducting the review within five years; the first data on the uptake of the relief in its first year of operation would not be available to HMRC until 2020-21. The Government believe that legislating for a review within five years is unnecessary and inappropriate. I therefore hope that amendment 181 will be withdrawn.
Clause 77 relates to shares given to employees who accept employee shareholder status. It places a lifetime limit of £100,000 on the capital gains tax exempt gains that a person can make on disposal of those shares. The limit will apply to shares received under arrangements entered into after 16 March 2016. The change will enable employee shareholders to realise the significant growth in the value of their shares without paying any capital gains tax, while helping to ensure that the status is not misused. The clause provides for fair and consistent treatment of transfers of shares to a spouse or partner. The change will benefit the Exchequer by £10 million in 2019-20 and £35 million in 2020-21.
It is also an appropriate point to address amendment 182, which was tabled by Opposition Members. It proposes that the lifetime limit be £50,000 rather than the Government’s proposed £100,000. This is not a change that the Government would welcome. The introduction of a cap of £100,000 where there was none before is, we believe, a significant change. The level of the cap is a matter of weighing up two policy objectives—ensuring that employee shareholder status is not misused, and encouraging and rewarding entrepreneurship. The Government believe that setting the cap at £100,000 strikes the right balance. It encourages entrepreneurship by allowing an exemption from capital gains tax which is still generous while reducing the likelihood of abuse by ensuring that the benefits for individuals are proportionate and fair. I therefore invite hon. Members to reject amendment 182.
Roger Mullin
It is not quite as short as that.
I want to speak to new clause 2, which is in my name, and I will begin with a quote that I have used before in this House:
“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”
I entirely agreed with the Chancellor of the Exchequer when he said that in April 2012. That is precisely why we are bringing this new clause to the Floor of the House today. Many people in remunerated employment, working hard every day of the week, will be surprised to learn that the managing director of an average European firm can expect to receive around £8 million in remuneration. Private equity fund managers are able to shrink their bills by paying, as we have heard, only 28% in capital gains, rather than 45% in income tax simply because it is classified as carried interest. In effect, they are getting a remuneration for managing other people’s money, and therefore they should be taxed in the same way that other people are taxed—through income tax.
A fund manager’s ability to pay capital gains instead of income tax allows them to avoid paying national insurance on part of their income. I am well aware of the Minister’s technical explanations about why we are dealing with a different form of gain. However, that does not wash with people in society who are undertaking their work in most other occupations in life. The Government yesterday indicated that they were content to squeeze yet more money out of the contractor sector, affecting teachers, nurses, people in rural communities and the like. These are not the people who are aggressively avoiding tax. The people who are aggressively avoiding tax are people working in the City of London. They are avoiding paying the income tax that the rest of the people in society are quite happy to comply with.
The loopholes that continue are simply an example of the over-complication of our tax system, a matter that has been referred to by hon. Members on both sides of the House. As we look at the thousands upon thousands of pieces of paper in the tax code, it is clear that the bigger we make it the more we create the possibility of loopholes. Surely the time has come for a more fundamental review of all forms of business taxation, a matter that I know the hon. Member for East Antrim (Sammy Wilson) has raised in the past.
Indeed, some of the people gaining considerable sums of money have great sympathy with this. I would like to quote not some of the campaigners but one of the highest-paid people in the country, the head of the private equity firm Cerberus, Stephen Feinberg. He said in 2011, tellingly:
“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”
I do not think that we should allow this gentleman, the head of an investment fund, and others to be embarrassed any more. I think we should end their embarrassment by making sure that in the future they pay appropriate levels of income tax.
We also find ourselves in agreement with the OECD, which in May 2014 recommended in its position on tax
“taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options”,
and that this should be paid as income tax.
We have evidence not just from campaigners but from people in the City who admit that this is an anomaly that needs closing, so I ask the Minister to give further consideration to this important move. I would also say in general that we welcome quite a lot of the technical changes that have been made on investment, entrepreneurs relief and the like. We want to encourage an entrepreneurial economy, but not at the cost of heightening income inequality and of further division in society.
Mr Gauke
I shall be relatively brief in responding to the debate. I addressed one of the issues that we have debated in my fairly lengthy remarks earlier and there is also a certain sense that these are issues we have debated in the past. I certainly remember debating the issue of carried interest with the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) in last year’s Finance Bill. He made very similar points and I am inclined to make very similar points in response, so I will not necessarily run through all that once again. I remind the hon. Gentleman that where we are talking about remuneration that is income, we are determined to ensure that it is taxed as income. As a Government we have shown a willingness to make changes in this area.
Let me turn to the wider issues of capital gains tax and yet again welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her position. I wish her a long and distinguished period as shadow Chief Secretary, given that I understand that there might be uncertainty more generally on the Labour Front Bench. It is extremely important that our tax system is competitive and encourages investment, which will drive our economy forward in the future. A number of external bodies have welcomed the steps that we have taken in reducing CGT rates. The CBI and the Institute of Economic Affairs have welcomed these cuts as means to encouraging entrepreneurship and growth. A number of internal studies indicate that lower rates of CGT support equity investment in firms and promote higher-quality investment in start-ups. That is an important source of innovation and growth.
David Rutley
I am sorry that my hon. Friend is in so much pain when he stands up.
I am surprised by some of the things said in this debate. We all recognise the importance of enterprise and of encouraging further enterprise, particularly in the northern powerhouse, as the hon. Member for Salford and Eccles (Rebecca Long Bailey) recognised. We can achieve the aim of encouraging enterprise by using exactly the mechanism that my hon. Friend talks about. Does he agree that that is why the bodies he mentions have made this proposal? It will make a material difference to our enterprising spirit and economic growth.
Mr Gauke
My hon. Friend makes an excellent point. We must create wealth in this country to be a successful economy. We need to have an entrepreneurial and dynamic economy. He made this point earlier in the context of corporation tax, but similar arguments can be made in the context of CGT as well.
On the criticism that entrepreneurs relief is badly targeted, I argue that, of course, as with all tax reliefs, it is entirely appropriate that the Government keep it under review to ensure that it is well targeted and not open to abuse, but we believe that it is right to incentivise individuals to set up and expand their businesses. Entrepreneurs relief plays an important part in our pro-growth agenda. It is a highly popular and widely used relief, which supports about 40,000 entrepreneurs a year, according to our latest data. We do not believe that this support should be withdrawn. The latest published cost of entrepreneurs relief is £3 billion, but that is a static figure; the true cost will be different, due to potential changes in the disposals and behavioural change. That behavioural change is very important. On when the data for 2014-15 will be released, these statistics are published annually, and the new release is due in October 2016.
On rates going up and down, let me point out that the 28% higher rate of CGT was introduced in 2010, by the coalition Government, and this is the first change since then. The Government have published the “Business tax road map”, setting out plans for business taxes over the entire Parliament and providing some certainty and stability to businesses.
On the argument that employee shareholder status should be withdrawn, we believe that ESS provides vital flexibility for early-stage firms and that it is right that employee shareholders receive tax benefits on shares awarded in exchange for relinquishing certain employment rights. The purpose of the lifetime limit is to ensure that small firms can offer attractive tax benefits to employees, while ensuring that the benefits are proportionate and fair.
I hope that, with those remarks, I can seek to dissuade the Labour party from voting against the reductions in CGT and the SNP from pressing its amendment to a vote, but if I have been unsuccessful in persuading them not to do so, I urge my right hon. and hon. Friends not to support such measures.
Question put, That the clause stand part of the Bill.