Tax Avoidance and Evasion

Debate between Grahame Morris and Nigel Mills

Tuesday 14th November 2017 Commons Chamber

[Nigel Mills]

I agree with the hon. Lady exactly, but the point I was trying to make was that I do not think that the size of the tax gap is down to a lack of effort or attempts to introduce new rules or measures. The problem is that the avoiders and evaders are perhaps one step ahead and move on to different things. That is why the Panama papers and the Paradise papers show that people are now just going offshore, or finding artificial ways to go offshore, rather than trying to do artificial domestic planning to get around the rules.

[Grahame Morris]

Is it not the case that the problem lies in our tactics of applying these complicated rules and regulations and in the fact that expensive minds—the accountants—can devise a way around them? Should we not be looking at a general principle, because people cannot get around a principle?

[Nigel Mills]

I agree with that view. The Government did introduce the general anti-abuse rule. It was quite a large step for them to take, as it said that HMRC can effectively ignore what is written in the law and apply what should have been written in the law. There is scope to extend that and to improve behaviour. It is right that we now expect large businesses to publish their tax strategy. It means that we can get the board to say that it does not condone such behaviour, it does not engage with it and it does not want its tax advisers to do such a thing. That is the way that we change the behaviour and the culture. We have seen advisers changing their codes of conduct, which is welcome. Some now say that artificial and aggressive abuse will not be committed under their management, but, clearly, there is still a long way to go.

Before I talk about the various measures that we could take, I should be clear that we will not be able to close the whole of the tax gap by tackling aggressive avoidance by the rich and the large multinationals. Obviously, we should narrow the gap by as much as we can, but the fact is that it is the small and medium-sized enterprises that form the largest group of companies not paying tax. Of a tax gap of £38 billion, £15.5 billion can be attributed to SMEs. The single biggest reason for the tax gap is not aggressive avoidance, which accounts for only £3 billion, but failure to take reasonable care. Therefore we cannot look at the whole tax gap of £38 billion and say that that is all being lost to us because of the awful behaviour of large corporates. Sadly, it is much more to do with individuals in the UK who are working and not declaring VAT, or who are working in the hidden economy. It is not quite fair to say that this is not about ordinary people, because, sadly, quite a lot of it is. We need to find ways of tackling that issue as well.

What has been exposed by these papers is a crisis of confidence. We need our tax system to be fair and our financial system to be legally compliant and as clean as we can make it. There are some further measures that the Government can take to improve the reputation of our financial system and to increase the confidence of our constituents in the tax regime. The good news is that most of these issues are Government policy already. It is just a matter of bringing them forward and perhaps finding some implementation dates. Let us get country-by-country reporting by multinationals in the public domain so that we can all see how much profit they are making and in which territory and compare that information with their turnover there, how many employees they have and what assets they have. That is perfectly fair information. It is not greatly enhanced disclosure.

If we look at the accounts of large plcs, we will see that they are required to disclose segmental information and tax reconciliation from their profits down to what tax they are paying. We want that information made available in a meaningful and useful way, so that we can work out how they are not paying the right amount of tax. That measure is on the statute book. Let us have a date when we require that information to be put in the public domain. It does not have to be tomorrow, or even next year. Let us have a date in 2019 so that we can see that information.

The other issue of transparency is related to who is buying the very expensive properties in the UK. We need to know who they are and how they have raised the money to buy those properties. It cannot be right that someone can buy a property here for £15 million or £50 million and not live in it and we have no idea where they got the money from to do that. Let us go ahead with the promise we made to have a transparent register of overseas owners of very expensive property in the UK. That will help to show that we are not encouraging kleptocrats or Russian oligarchs or people who have stolen from developing countries to put their money here in a safe UK asset.

Let me turn now to the overseas territories. The papers revealed some really shocking behaviour. For example, when Apple, one of the world’s largest and most reputable companies, was being chased by the EU through Ireland, it chose to try to move its affairs to Jersey to avoid the tax we all think it owes. Again, that shows why we need to get transparency into those territories of ours so that we know who is operating there and where their money has actually come from. Those territories have a right to exist, a right to choose their own tax rates and a right to be competitive, but they do not have a right to hide money that has been stolen from elsewhere in the world or to move profits that are not being earned there and try to give them a beneficial rate.

If we get transparency in the territories and we show who is operating there and where the money is coming from, those territories can show how clean they are and whether their claims are true. They can then compete on their reputation. They do not need to compete on being closed and dirty. They all assure us that they are not after dirty, corrupt, illegal and laundered money but are after real business. If they go ahead with that transparency, they will get a competitive advantage. As a country with so many territories, we cannot say that we will follow the herd; we are the herd, so let us set an example.