John McDonnell
Main Page: John McDonnell (Independent - Hayes and Harlington)Department Debates - View all John McDonnell's debates with the HM Treasury
(11 years, 7 months ago)
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Mr Gauke
The “double reasonableness” test was the one we came to after the lengthy process following the Aaronson review. We believe that it focuses attention on aggressive, abusive tax avoidance. Let me be clear: this is an additional tool that HMRC can use; it does not necessarily mean that for those outside the GAAR, everything is fine. I want to make it explicitly clear that that is not what we are saying. There is avoidance that will not fall within the GAAR, but which HMRC would none the less take action against.
The panel will be broad-based, but I see nothing wrong whatsoever in its having commercial expertise to provide reassurance and ensure that the GAAR will not be abused in the way that some Members have expressed concern about this evening, with too much power being placed in the hands of a part of the Executive. It will be broad-based, in just the way the interim panel has been.
The GAAR does not override UK tax treaties. Given the lack of time, I will not go into further detail, but it acts in much the same way as GAARs do for other countries that respect OECD and UN model tax treaties.
John McDonnell
The Minister said that there will be a review of the penalties. When, and will it look at criminal activity as well?
Mr Gauke
Let me deal with that in the context of amendment 8, which looks at the general issue of post-implementation evaluation and seeks to establish a review within two years of Royal Assent. We and HMRC have made it clear that we will manage and monitor the GAAR’s operation centrally, so that all cases and potential cases will be scrutinised and recorded. The deterrent effect, which we will see immediately, will be important, but we must also remember the issues of getting the tax returns in and being able to make a full assessment of the implications. We believe that a two-year period would not be practical for a general evaluation. It will take longer properly to evaluate how the GAAR is working, just because of how our tax system operates, so I will not accept amendment 8.
Amendments 3, 6 and 7, which deal with tax avoidance by multinationals and the impact on developing countries, raise a number of important points. The hon. Member for Birmingham, Selly Oak (Steve McCabe) wanted me to set out the Government’s objectives for the G8. I am sorry that I am not in a position to do that this evening; it will be left to the Prime Minister, who will make the UK Government’s position very clear.
The point about transparency is important and the Government have a good record of encouraging transparency in a number of areas, particularly among extractive industries through the extractive industries transparency initiative. We play a leading role internationally through the global forum. We ensure that jurisdictions comply with the international standard on tax transparency and work with the G20 to maintain pressure on non-co-operative jurisdictions. We have been making a lot of progress in the Crown dependencies, particularly as regards the exchange of information, and in ensuring that the US Foreign Account Tax Compliance Act, or FATCA, arrangements on the exchange of information become the international norm. I can assure the Committee that that will continue to be a key part of what we do and part of our G8 agenda.
Amendment 6 asks the Government to require UK companies to report their use of tax-avoidance schemes that affect developing countries and for HMRC to notify those countries and assist them in recovering the tax owed. Amendment 7 asks the Government to carry out an impact assessment on the effect of the changes to the controlled foreign companies, or CFC, rules on developing countries’ tax revenues. The answer to both points is that as a matter of practicality it is difficult for HMRC to perform the roles required by the amendments as they require assessments not of our tax rules but of the tax rules of developing countries. That takes us outside what HMRC can realistically do. The point was raised that amendment 7 largely repeats the debate we had during last year’s Finance Bill, when a similar, if not identical, amendment was tabled. I refer hon. Members to the speech I gave a year or so ago, in which I stated that simply as a matter of practicality that is not something that HMRC can do.
On amendments 11 and 12, tabled by my hon. Friend the Member for Amber Valley, I do not believe that a de minimis rule would be appropriate as regards the general anti-abuse rule as it would miss the point. We do not want anyone involved in abusive schemes to make use of them, and even if only £100,000 was at stake as a de minimis, that could have a significant effect on a number of people. We believe that that would be unfair.
As I said at the outset, I believe that the general anti-abuse rule is a major new development. It sends a message to those who persist with abusive avoidance schemes that even if they try to dance around the tax law, they will face the tough but plain question, “Is it reasonable?” That is a question that we all understand. Those who think about using the schemes will all understand it and, I hope, those who create the schemes will come to understand it. The GAAR will ensure that the time for their clever games, paid at the expense of the tax-paying public, is at an end. I therefore recommend that clauses 203 to 212 and schedule 41 stand part of the Bill.