Finance Bill

Debate between David Gauke and Caroline Flint

Tuesday 28th June 2016 Commons Chamber

[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.

--- Later in debate ---

[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.

HMRC and Google (Settlement)

Debate between David Gauke and Caroline Flint

Monday 25th January 2016 Commons Chamber

[Mr Gauke]

The information is in the public domain that HMRC launched an inquiry into the tax affairs of Google in 2009. This is a complex matter, but I am pleased that that inquiry has reached a conclusion. It would be fair to say that the progress made on bringing in a diverted profits tax and the reforms involved in the base erosion and profit shifting project appear to represent a shift in the behaviour of a number of companies, which is to be welcomed.

[Caroline Flint (Don Valley) (Lab)]

I am sure that my other colleagues on the Public Accounts Committee will be looking forward to hearing from Google and HMRC about this deal. The inquiry into the tax situation that many of these companies seem to be applying to what they should pay in a fair way to the UK public purse was started under Labour, and yes, it continued over the last five years, but last year, in the Budget before the general election, the Chancellor said that he would not tolerate this behaviour, declaring:

“Let the message go out”—[Official Report, 18 March 2015; Vol. 594, c. 772.]

and claiming that there would be an end to this sort of play. Given the £24 billion-worth of UK revenues over this period, experts have said that Google should have paid taxes of almost £2 billion, so does £130 million really meet the test of no tolerance?

[Mr Gauke]

I want to address this point and engage seriously with Members on the calculations that we have seen in the press, suggesting some of these very large numbers. As far as I can see, those calculations are based on looking at the profits attributed to the sales in the United Kingdom, and there is a very important distinction between profits attributed to sales versus profits attributed to economic activity and assets. The UK is a country that is very creative. We have a very strong scientific base. As a country, much economic activity goes on here that is involved in then exporting goods and services, and the profits from those exports should, I believe, be taxed in the UK where the economic activity occurs, not in the countries where the sales may occur. If we accept that principle, it does, I have to say, rather discredit the claims of a 3% tax rate.