Tax Avoidance

Mark Durkan Excerpts

Wednesday 11th February 2015 Commons Chamber

[Mr Gauke]

I will happily deal with that point. Indeed, if the hon. Gentleman will forgive me, I will turn to that very point in a moment or so. He raises a very fair question.

[Mark Durkan (Foyle) (SDLP)]

Will the hon. Gentleman also address the controlled foreign companies rules that were introduced by this Government? Those rules cost revenue here and in developing countries. Sir Martin Sorrell told “Newsnight” that they, and not the change in corporation tax, were the main reason why he was coming back from his business in Dublin.

[Mr Gauke]

The CFC regime is part of corporation tax. The hon. Gentleman makes my point for me. As a consequence of our changes to the controlled foreign companies regime, we are seeing businesses move operations back to the United Kingdom. It was not that long ago—2007 and 2008—when business after business was looking to move its head office out of the UK. That flow has not only been staunched but reversed. We are seeing businesses choosing to locate in the United Kingdom, which is good for business, a successful achievement for this country and something of which we should be proud.

The changes in accelerated payments will bring forward billions in tax revenue in the coming years to help us afford the public services on which the country depends. I am pleased to say that, since the introduction of accelerated payments only a few months ago, avoiders have already agreed to pay more than £185 million to the Exchequer’s coffers, and millions more is being collected from those who, having received their up-front bill, have conceded their tax position and settled.

As well as tackling the end users of tax avoidance, we have also introduced structural changes targeted at the small but persistent minority of promoters who peddle schemes that typically use concealment or misdescription. If those promoters do not change their behaviour voluntarily, HMRC now has powers to monitor, fine and publicly name them. All this has contributed to the fall in the use of tax avoidance schemes over this Parliament. The Opposition motion suggests several areas for further action—this Government will always give a fair hearing to measures that increase compliance and tackle evasion—but they have to be properly thought through and I am afraid that some of their suggestions simply do not pass that test.

Therefore, we will not be abolishing the intermediary relief in contract for difference trading. There is no way to raise sums of the kind mentioned by the Opposition without causing serious damage to London’s position as a global centre for listing companies, as was recognised back in 1997, when the measure was introduced, and again in 2007, when it was expanded. Yes, it is relevant that the Labour party was in government at the time.

Nor will we introduce a deeming test for self-employment in the construction industry. We considered that, but it was not practicable. Indeed, to be categorised as self-employed, a bricklayer would have had to supply their own bricks. Instead, we have addressed false self-employment in construction and other industries through the Finance Act 2014 measures on onshore intermediaries, raising £2.1 billion in the process.

The Opposition motion urges us to close the quoted eurobonds exemption loophole, but it is not a loophole. I have explained repeatedly to the hon. Member for Birmingham, Ladywood that that measure would create an administrative burden, but not raise money. I have even offered a meeting with officials to discuss that, which, once again, she has declined. She set out a new proposal, but it has been looked at and it is simply not practicable.

The Opposition might be trying to recover lost ground, given their failure to get on top of avoidance and evasion, but they have to do better than this. We have led the way not only domestically, but internationally. Let me deal with the point about multinational companies. We originated the base erosion and profit shifting, or BEPS, process and have set out our commitments to multilateral action through the G20 and the OECD. In last year’s autumn statement, my right hon. Friend the Chancellor announced UK action on two of the internationally agreed outputs of the BEPS project. We are introducing legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment.

We are consulting on implementing the G20-OECD agreed rules for neutralising hybrid mismatch arrangements. We have gone further still to strengthen our defences against the erosion of the UK tax base. As a complement to the BEPS process, we have introduced the new diverted profits tax to counter the use of aggressive tax planning by large multinationals that seek to avoid paying tax in the UK on profits generated from economic activity here.

--- Later in debate ---

[Mark Durkan (Foyle) (SDLP)]

In following the hon. Member for Dover (Charlie Elphicke), I am conscious that it is usually Northern Ireland Members who are accused of rehearsing what has or has not happened over a period of decades and engaging in all sorts of historic “whataboutery”. This is one debate where that accusation will not fall to us, but I note the hon. Gentleman’s observations.

I do not disagree with all the hon. Gentleman’s points, not least those relating to wider international matters and the EU. The Financial Secretary put great emphasis on the Government’s commitment to legislating for country-by-country reporting, but we need EU and G20 countries to move seriously in that direction. However, some of the more notorious tax havens happen to be Crown dependencies or Overseas Territories, and various jurisdictions hide behind that as their reason for not moving on full country-by-country reporting. Similarly, we need more transparency on the linked question of beneficial ownership. If the Government are to class themselves as a world leader in the steps they are taking, they need to be leaning on various other countries more heavily.

It might help the Government to develop a better relationship with other EU member states, and one better appreciated by citizens across the EU, if they applied themselves to those questions, rather than the more turgid questions raised around renegotiation ahead of a referendum in 2017. We need public registers on beneficial ownership, but we also have to recognise that the proposals apply to only 10% of multinational companies—those with turnovers of more than €750 million—and that reporting will apply only to the headquarter jurisdictions by treaty. Even the much vaunted country-by-country reporting touches on only a fraction of the problem.

I have tabled questions to the Financial Secretary about other matters, including a spill-over analysis of tax rules and their impact on developing countries—Ireland and the Netherlands have now done them, but we need one from the UK as well. Contrary to the impression he gave, the controlled foreign company tax rule changes, introduced by this Government in 2015, have removed a protection from developing countries, as well as costing us in revenue. The CFC finance company partial exemption allows companies a 75% tax break on the internal profits they make from lending to related companies in tax havens. Surely that is an unfair exemption and should be curtailed.

People have raised concerns about the tax regime in Ireland, and I welcome the curbs on the double Irish and other arrangements, but several years ago, when Martin Sorrell announced on “Newsnight” that he was moving back to the UK from Ireland, he made it clear it was not just about the reduction in the headline rate of corporation tax; the key motive was the change in the CFC rules. He decided that the rules gave him greater tax comfort than the much criticised position in Ireland, which says something about the Government’s actual performance on tax.

I welcome the commitments on which the Government partly led at the G8 summit at Lough Erne, but we need more follow-through. We are not getting real traction in the BEPS process, and there is still too much evasion both within individual countries and jurisdictions and, more importantly, by many multinational companies.