Draft Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019

Jonathan Reynolds Excerpts

Thursday 31st October 2019 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

As ever, it is a pleasure to see you in the Chair, Mr Stringer. I thank the Minister for his explanation of the instrument, and wish all Members good fortune in the forthcoming general election. It is something of a highlight for me to be allowed to scrutinise a statutory instrument that does not relate to Brexit; however, this is reasonably familiar ground, as we addressed in Committee a number of clauses in the 2018 Finance Bill that related to intangible fixed assets and intangible property.

We know that intangible assets have been used unscrupulously in the past by multinationals that have sought to exploit the provisions to minimise their tax bill. Any loopholes of that kind urgently need closing. I am sure that we are all familiar with some high-profile examples of profit shifting, where profits from intangible property are moved internally within corporations to lower-tax jurisdictions, despite having limited, or no, connection with the location. Members have suggested companies that have had those allegations levelled against them.

The Opposition are clearly supportive of any manoeuvres that seek to improve our tax transparency and close down the exploitation of the existing rules. However, as we said in Committee on the Finance Bill, our worry is whether the measures go far enough. That is why we tabled an amendment at the time, for a full review of the impact of the measure, and for it to be assessed in the light of our exit from the European Union.

The Opposition believe that there is a significant concern about the Government’s approach. I understand—and the Minister has confirmed—that the measure does not apply to any country with which we have a full tax treaty. So we are tightening our laws, but not in relation to any country with which we have a full tax treaty. However, the UK has one of the largest networks of double taxation agreements in the world. The list extends to jurisdictions including the British Virgin Islands and the Cayman Islands, which begs the question how effective the measure will be. The Minister seemed to suggest that there was a degree of nuance and that it was not entirely a binary decision, but if he could provide clarity about what jurisdictions are being tackled, that would be useful to us all.

Equally, we need to look at the bigger picture when it comes to tax collection. Closing tax loopholes with one hand while taking resources away from HMRC with the other is likely to prove ineffective. I could speak at length about the Opposition’s view on the subject, and ask for the Government’s plans, but I am mindful of the brevity of the parliamentary Session and that Parliament will soon be dissolved.

Last Sunday my right hon. Friend the shadow Chancellor backed a unitary approach to taxing multi- nationals, whereby multinationals would be taxed more comprehensively on the basis of where economic activity occurs and where value is created. That is a practical approach, which would go further than what is proposed today. I recognise that many Conservative colleagues are also interested in that area. The hon. Member for Thirsk and Malton referred to such an approach, and the Minister mentioned the digital services tax. I think that everyone in Parliament will be particularly interested in how that will fare in the light of a potential US trade deal.

There must be zero tolerance of tax avoidance. We shall continue to advocate that and make it a priority when we return in the next Parliament, whatever the result of the forthcoming general election.