United Kingdom Corporate and Individual Tax and Financial Transparency Bill
Debate between Michael Meacher and David Nuttall
Mr Meacher
I was not in any way referring to you, Mr Deputy Speaker; I was saying that the regulations and procedures of the House need to be examined in a way that prevents an abuse of that kind.
Mr David Nuttall (Bury North) (Con)
Will the right hon. Gentleman give way?
Mr Meacher
I am entirely of the same mind, Mr Deputy Speaker.
Tax avoidance and financial transparency, or perhaps I should say the lack of financial transparency, have of course been high on the Government agenda for the past two years. They even led Prime Minister to make tax transparency and trade his central international focus at the G8 at Lough Erne in June. However, having marched his troops up the hill, rather like the Grand Old Duke of York, the Prime Minister has since proceeded to march them down again. Rather little of significance—that is being generous—has happened on the tax and transparency front since then.
At the G8, the UK published an action plan on tackling some of the issues involved, but it is not unfair to say that it was decidedly modest in its ambition. The same can certainly be said of the scope of the subsequently announced consultation on disclosing the beneficial ownership of companies. The Government have, of course, published the general anti-abuse rule, but as has often been said, it will cover only the most egregious forms of tax abuse and is consequently in danger of appearing to legitimise lesser forms. The GAAR is rather like the lobbying Bill that is currently before the House—the Government are extremely keen to be seen to be doing something, but they have no intention whatever of actually doing much. If we are really serious about tackling tax avoidance and the financial opacity of our tax system, a more robust approach is needed. That is what my Bill is intended to offer.
The Bill was drafted by Richard Murphy, who is the founder and director of Tax Research UK and, I think everyone will agree, one of this country’s foremost tax accountants. I am extremely grateful to him, as I believe the whole House should be.
There are two drivers behind the Bill. One is the demand for fairness and social justice. The country is in the middle of a deep economic recession caused by the bankers, yet the Government have imposed on the victims the liability for meeting the ensuing very high national debt and budget deficit.
Mr Meacher
No, I am not going to give way. The hon. Gentleman was one of those who engaged in the filibuster, and I am not giving him any more time.
By and large, those victims are the poorer and poorest households, which bear no responsibility whatever for the crash five years ago. According to the Sunday Times rich list, the wealthiest 1,000 persons in the UK—just 0.003% of the adult population—have increased their gains by a staggering £190 billion since the crash. Most of that has now been squirreled away in tax havens, hidden behind nominee shareholdings or secreted in opaque trusts. Frankly, that is utterly intolerable. It is high time that the very richest people in this country made a fair contribution to resolving the financial crisis. The Bill would help them to do so.
The second driver behind the Bill is sheer, plain, down-to-earth, honest-to-God common sense, if I can put it like that. My right hon. Friend the Member for Edinburgh South West (Mr Darling), the last Labour Chancellor, reduced the budget deficit by about a third by the end of 2010 through his stimulatory measures, but it has now been stuck at about £120 billion after flatlining for most of the past three years.
The current Chancellor has, through his enormous expenditure and benefits cuts, persistently squeezed virtually every last drop of demand out of the economy. That is a counter-intuitive and self-destructive policy if ever there was one, because it has plainly not reduced the deficit, but extended austerity indefinitely. A policy that will reduce the deficit significantly is patently needed. The obvious way to do that is to take public sector-driven stimulatory measures to kick-start real growth, but as the Chancellor has a fetish for cutting and is adamantly opposed to giving the public sector any role in promoting growth, I submit that my Bill is the next best option.
First, following the revelations of which we have heard repeatedly in the past few months of colossal tax scams perpetrated by US multinationals Starbucks, Apple, Facebook and Amazon—I recognise that those scams are more or less exactly the same as those perpetrated by a great many UK multinationals—the Bill proposes that the tax details and implied tax liabilities of both the wealthiest individuals and the biggest corporations are made public, and that the beneficial owners of companies who hide behind nominee shareholdings are also made known. That has repeatedly been discussed but never done. My Bill proposes that it should now happen. The tax enforcement that will result from what is revealed will raise tens of billions of pounds for the Exchequer and significantly deplete the deficit and interest payments on the debt. Therefore, the Bill tackles the extreme opacity in the tax affairs of both the largest companies and the wealthiest individuals in the UK by requiring that the tax returns of the top 250 in each group are put on public record.
Four criteria are used to define the 250 largest companies, starting with the FTSE 100. The Bill will ensure that other companies with substantial sales, profits and numbers of employees are also required to disclose. As a result of my Bill, companies that seek to avoid UK corporation tax but that still have a significant undertaking in this country will, for the first time, be required to disclose the full range of their tax dispositions. On individuals of highest net worth—to use the commonly used phrase—the Bill will reveal how income is commonly shifted into capital gains, and in turn reduced by allowances and relief. In respect of both companies and individuals, the data will enable the tax abuse that, according to Her Majesty’s Revenue and Customs and Treasury data, costs this country at least £35 billion a year, to be effectively addressed for the first time.
Secondly, multinational corporations have, as hon. Members know, hidden their activities behind complex and often secret corporate networks that conceal their tax liability—the networks are set up to do that—especially if a subsidiary is incorporated in a tax haven. The Bill requires any multinational corporation to publish the accounts of all its subsidiaries on public record.
Thirdly, the Bill requires that companies identify their beneficial owners and pass the details to Companies House. That is important because the registered legal owners can easily disguise who is behind a company, and thus present an entirely false view of its structure. For example, many quoted companies list only some of their shares on the stock exchange; the rest are in beneficial ownership. Limited liability partnerships are widely used for tax abuse, because members of an LLP are taxed, but not the partnership itself. If the details of ownership are known and put on the public record, the tax liabilities can be correctly assessed. Unlimited companies are almost routinely inserted into major corporation group structures in order to disguise ownership or control, often in ways that are designed to mislead about the true nature of transactions being undertaken. Obviously, foreign branches must be included if an enormous loophole is not to be created in the disclosure of beneficial ownership.
I would be the first to recognise that to presume that a company bent on tax avoidance or other dishonest purposes will necessarily comply with its obligation to disclose its beneficial owners is, frankly, naive. The Bill would therefore also place a new obligation on UK banks to report the information they collect on their limited company clients under money-laundering regulations, including the real trading address of a company, who its directors and beneficial owners really are, and where they are located. The banks would be required to submit that information to Companies House, which would then be required to publish it. The banks would also have to supply the information to HMRC, which would then be required to demand a tax return from any company with a bank account.
The sanctions—and sanctions are the only thing that will make the legislation work—for failing to supply any information demanded from the company by Companies House or HMRC would be either the removal of limited liability status or making directors and beneficial owners liable for the debts. Under the Bill’s provisions, HMRC would also be granted the power to access the company’s bank account data, so that estimated tax assessments could be raised if the company refused to supply accounts. Again, the directors and beneficial owners would be held responsible and would have to pay the consequential tax.
In order to avoid an obvious loophole, the requirement for a company to have information on its beneficial ownership and its accounts on public record—on its own website, or wherever—would be extended to the tax havens in Britain’s Crown dependencies and overseas territories, although of course only if the company in question had a beneficial owner outside that territory.
Finally, the Bill deals with the question of trusts and would require that they, too, declare the true identity of their settler, the trustees and beneficiaries to HMRC. If they do not, the sanction would be that the trust property would pass to the Crown. Trust data will also be placed on public record, but only in the case of those with significant assets or income, and those that control companies—I am not worried about trusts that are relatively trivial in their economic impact. Those measures are necessary to enforce the requirements. The information has always been available to the Government, but under both parties there has been an unwillingness to use the measures that are patently available to ensure that tax is paid in accordance with what Parliament has determined.
It is no exaggeration to say that the effect of these measures on the UK system’s capability would be nothing less than transformational. We have repeatedly been shocked by multinational corporations and their armies of City lawyers and accountants regularly running rings around the UK tax authorities—sometimes, one might think, with the apparent complicity of Government—but that is not inevitable or irreversible. My Bill will redress a massive injustice in tax burdens, put a stop to enormous tax abuse by large companies which has persisted for far too long and make a huge contribution to reducing the budget deficit. I commend it to the House.
General Anti Tax-Avoidance Principle Bill
Debate between Michael Meacher and David Nuttall
Mr Michael Meacher (Oldham West and Royton) (Lab)
After extensive debate on two consensual Bills, I have 11 minutes left in which to introduce this Bill, so I will make the case as briefly as I can. In a sense, I suppose this is round two after yesterday’s debate on tax avoidance, which was tabled by the Backbench Business Committee.
Yesterday’s debate centred essentially on the divide between the Government’s proposal for the general anti-abuse rule and my alternative proposal for the General Anti Tax-Avoidance Principle Bill. It might seem that there is not a significant difference between the two, but there is. Several hon. Members made it clear yesterday that the GAAR is unacceptably narrow and over-restrictive in range, and therefore very unlikely to cover any more than the most egregious and extreme cases of tax abuse. Indeed, that is indirectly confirmed by the Government’s economic impact assessment in their consultation document, which states—extraordinarily —that the GAAR will have almost no measurable impact.
By contrast, the Bill will have an impact, which might explain why I have only 11 minutes to move it. It will tackle the problem of tax avoidance, which might be costing the UK—the figure is much-disputed—up to £25 billion a year.
Mr David Nuttall (Bury North) (Con)
Will the right hon. Gentleman give way?
Mr Meacher
No, I am not giving way because there is no time.
This is the first time that the GAntiP principle has been set out systematically in a Bill. As I said yesterday, it was drafted by Richard Murphy, a founder of the Tax Justice Network, and a well respected tax accountant—he is one of our foremost tax accountants. The first point of difference between the Government’s proposal and my Bill is that the latter includes national insurance, VAT and other mainstream taxes within the scope of tax avoidance. Inexplicably, the Government have seen fit to leave VAT and national insurance, which are a substantial part of the tax system, out of their proposal, leaving them open to continuing abuse.
Secondly, my Bill explicitly addresses the complex nature of tax avoidance. The Government’s proposal appears to relate only to abuse within a particular tax. Under my Bill, however, shifting a source of income, profit or gain from one category of tax to another is included in the definition of tax avoidance. That would allow Her Majesty’s Revenue and Customs to challenge a transaction in which income is reported as capital, which is a frequent form of seeking a tax advantage. Under my Bill, transactions that should be liable to income tax that are declared as subject to corporation tax, income from employment declared as income from an investment source, or income due for declaration in the UK declared elsewhere, could be considered as being within the range of tax avoidance and so be subject to challenge by HMRC.
That goal is achieved by putting an economic test at the core of the Bill. It is principles-based, and asserts that the GAntiP principle can be invoked, if it appears, having taken into account all the relevant circumstances relating to the economic substance of a transaction, that tax is not being paid by the right person, or in the right amount, or at the right place or time, or that it is not being paid at all. The Bill would, therefore, for the first time in UK parliamentary history, overthrow the rule in the so-called Duke of Westminster case. In that famous 1936 ruling, Lord Tomlin said:
“Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”.
My Bill would change that principle, which has underpinned the tax avoidance activities of the accounting, legal and banking professions for three quarters of a century, and the pre-war culture of abuse that has been swept away in so many other areas of society would finally disappear from tax.
That said, there is no disadvantage in the Bill for the vast majority of UK taxpayers. The great majority of taxpayers do not avoid tax. For others who use certain tax arrangements, the Bill encourages HMRC to publish guidelines for how such arrangements will be interpreted. As a result, the Bill would immediately increase tax certainty—an important principle mentioned yesterday by the hon. Member for Wycombe (Steve Baker).
For those over whom doubt remains, the Bill would provide for a clearance mechanism whereby HMRC could be asked to provide prior indication of whether an arrangement would fall within the scope of tax avoidance. That process is intended to be helpful, quick and binding. Not unreasonably, in exchange the taxpayer would be expected to make a modest payment for the important provision of tax certainty, with a maximum charge of £1,000 plus VAT, or 5% of the potential tax involved in the arrangement. The fee would likely be much lower than that for any accountant’s or lawyer’s advice, yet would deliver a certain outcome for the taxpayer, who would then be willing to live within the ruling. In addition, HMRC would also be encouraged under the Bill to publish anonymised rulings, so knowledge of what might be considered tax avoidance would rapidly become known.
What would be the benefits of the Bill? First, it would outlaw tax avoidance, which is currently being exploited on an industrial scale and which is now widely perceived as a mounting public scandal. This GAntiP Bill would address that situation; the Government’s severely limited GAAR will certainly not. Secondly, because tax avoidance would be cut back significantly, considerably more tax revenue would be collected, meaning that many services now under threat from Government cuts could be saved. Alternatively, without any increase in public borrowing—always a concern of the Chancellor—extra funding would be made available to give a significant boost to job creation, economic recovery and a turnaround towards economic growth, which is the Government’s central objective.
Thirdly, as I have already noted, the UK tax system would be considerably more certain. Fourthly, the pressure on accountants, lawyers and bankers to sell tax avoidance would be curtailed, because they and their clients would know that most of these schemes would fail. That would release significant resources for more productive use in the economy. Fifthly, my Bill would change the rules of engagement for British companies away from competing over who can get the best advantage from the abuse of tax law, and towards competing over who can provide the best price and quality of goods and services for their customers. That could only provide a valuable boost to Britain’s economic effort.
Sixthly, and perhaps most importantly, the Bill would drastically change the culture in British society for the better. Instead of one tiny section of society—the 1% at the top, the big corporations and banks—being widely seen as continually ripping off the honest remainder of the population, a new benchmark would be set declaring that cheating on taxes is unacceptable and wrong, and that honesty and fair play are the basis of a strong modern economy fit for the 21st century. The significance of that in restoring faith in a Britain that we can all be proud of should not be underestimated. For all those reasons, I commend my Bill to the House.
Mr David Nuttall (Bury North) (Con)
I congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on his success in the private Members’ ballot, in which I believe he came 18th.
Mr Nuttall
Excellent; the right hon. Gentleman has done well. Indeed, he has been particularly fortuitous in another way, in that, as I think he mentioned yesterday, speaking opportunities in the Chamber are rather like the No. 77 bus. We do not get many for a very long time and then all of a sudden two or three come along at once. The right hon. Gentleman—