Draft Customs Safety and Security Procedures (EU Exit) Regulations 2019

Nigel Mills Excerpts

Monday 25th March 2019 General Committees

[Nigel Mills (Amber Valley) (Con)]

Am I right that the EU requires declarations on the import of goods into the EU and the export of goods out of the EU? Does the Minister have any indication of whether the EU will reciprocate in not requiring declarations for six months? Will we merely just not have the UK side of a declaration? Either way, the thing will have to be made anyway, so we will not achieve quite the work saving that we are hoping for.

[Mel Stride]

My hon. Friend is right in the sense that, as is the case for our exports to and imports from the rest of the world—in other words, outside the EU’s customs union—there are safety and security requirements. What the European Union will do in the event of a day one no-deal situation is for it to determine; clearly, exactly what happens is not within our control. In exactly the same way, the arrangements that it may or may not put in place at its ports across the short channel straits, in relation to customs declarations, duties and tariffs, will be for it to decide. We can focus on what we can do to make sure that the day one no-deal scenario is as comfortable as possible for businesses impacted and that, wherever possible, trade flow is prioritised across our borders.

The hon. Member for Stalybridge and Hyde drifted to some degree into the issue of taxation raised, by which I think he meant the customs duties on trade with the EU27 that may be applicable at our border in a day one no-deal scenario. We have always made it clear that trade flow will be our priority. There will still be arrangements in place to collect customs duties, but those customs duties are new duties—they are not levied at the moment. In terms of revenues forgone, this is the forgoing of revenues that we are not entitled to under existing arrangements.

The hon. Gentleman also asked whether the customs declaration service would be ready for the increased trading volumes that would be involved in a day one no-deal scenario. He is right to raise the issue of increased activity; we estimate that there are 145,000 VAT-registered businesses who trade solely intra-EU at the moment, and probably another 100,000 who are below the VAT threshold, making almost a quarter of a million in total. That will mean an increase in the requirement for CDS, but we have made it clear that in parallel with CDS we have upgraded and maintained the ability of the CHIEF—customs handling of import and export freight—system to keep up with those increased volumes.

The hon. Gentleman then asked what will happen at the end of the six-month phasing in of those measures, and what is to stop Parliament deciding to go for a further period of delay in bringing in the measures. As I am sure he knows full well, there is nothing to stop Parliament doing virtually anything it wants when it comes to legislation, but it will have to do that via due process, coming back to a Committee of the House in order to do so. On that basis, I commend the draft regulations to the Committee.

Tax Avoidance, Evasion and Compliance

Nigel Mills Excerpts

Monday 4th March 2019 Commons Chamber

[Mel Stride]

I assure the right hon. Lady that I always listen extremely carefully to what she has to say, as I have done in the context of her current two questions. She asked why we are delaying—as she terms it—the implementation of public registers of beneficial interest for overseas territories. The short answer is that it is important that we allow time to ensure that we get these things right, not least because our Parliament is legislating on behalf of another jurisdiction—albeit one that is closely related to ourselves. It is important that we are considered and measured in that way.

The right hon. Lady’s second question relates to the Crown dependencies. She made the quite legitimate point that the amendment to the legislation that was due to go through this afternoon was indeed in scope and in order. However, that is not the same as saying that that contradicts my earlier point that that particular amendment would have considerable and significant constitutional ramifications for our Crown dependencies. For that reason, as I stated earlier, the Government feel that it is important to reflect carefully upon that before we come back with the legislation in due course

[Nigel Mills (Amber Valley) (Con)]

I welcome the statement before us—if not its existence, at least its content. The Minister says that he wants to support individuals. Can he create a mechanism whereby someone can have their standard contract precleared by HMRC so that, if they engage with half a dozen customers a year, they will not get half a dozen different treatments chosen by those companies when they put the contract through their tool, or something similar?

[Mel Stride]

The issue of ensuring that we make it as simple as possible for employers to be able to assess the employment status of employees or contractors providing services is extremely important. It is central to the consultation that I have announced will open tomorrow and run for several weeks, and I urge my hon. Friend to contribute to it with his specific idea.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 17th April 2018 Commons Chamber

[Alex Chalk (Cheltenham) (Con)]

1. What progress has been made on reducing tax avoidance and evasion.

[Nigel Mills (Amber Valley) (Con)]

8. What progress has been made on reducing tax avoidance and evasion.

[The Chancellor of the Exchequer (Mr Philip Hammond)]

Since 2010, Her Majesty’s Revenue and Customs has secured more than £175 billion that would have gone unpaid and introduced more than 100 new measures to crack down on tax avoidance, tax evasion and other forms of non-compliance, so that the tax gap is now at a record low, and one of the lowest in the world, at 6%.

[Mr Hammond]

I am grateful to my hon. Friend for raising this issue. It is a great achievement to have got the tax gap down to one of the lowest in the world, but we are not complacent. We are currently calling for evidence on whether online platforms should play a greater role in ensuring tax compliance by their users; we are consulting on an innovative split payment method to tackle online VAT fraud; and we will continue to lead in the G20 and other forums on seeking agreed multilateral solutions to the challenge of where and how to tax global digital companies, which are particularly difficult to tax under the current system.

[Nigel Mills]

I echo the praise for HMRC’s performance in tackling tax avoidance and evasion over recent years. Is the Chancellor becoming more convinced of the importance of having public country-by-country reporting, so that not only HMRC but customers and campaigners can see where multinationals are making their profit? That way, we can make sure that they are paying the right tax in the right countries.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 16th January 2018 Commons Chamber

[Elizabeth Truss]

My hon. Friend is absolutely right that maths is vital for the future of our economy. We know there is huge demand for people with science, technology, engineering and maths skills, which is why at the Budget we allocated a £600 maths premium that schools will receive for every student who does maths from age 16 to 18.

[Nigel Mills (Amber Valley) (Con)]

13. What progress he has made on reducing the level of corporate tax evasion and the tax gap.

[The Financial Secretary to the Treasury (Mel Stride)]

The Government have an outstanding record on clamping down on tax avoidance, evasion and non-compliance. We have brought in and protected £160 billion since 2010, and no less than £8 billion in 2016-17 alone, from the UK’s largest companies. Currently at 6%, the tax gap is one of the lowest in the world, and lower than any year during the last Labour Government.

[Nigel Mills]

Does the Minister agree that an international approach is needed to really tackle tax evasion by big multinational companies? Will he therefore say whether the interesting ideas on which he has consulted since the Budget have found favour in his discussions with the OECD and may be adopted on a more international basis?

[Mel Stride]

As my hon. Friend will know, we are right at the forefront of the OECD’s base erosion and profit shifting project, and of the common reporting standards that are being rolled out at the moment. We have taken further measures in the Budget to consult on the taxation of digitally based companies, particularly in respect of withholding tax on royalties going to zero-tax or low-tax jurisdictions. That consultation will report back in February, and we will take an appropriate decision thereafter.

Taxation (Cross-border Trade) Bill

Nigel Mills Excerpts

2nd reading: House of Commons
Monday 8th January 2018 Commons Chamber

[Mel Stride]

My right hon. Friend, who has been a doughty campaigner for the interests of business, is absolutely right to raise this issue, with which the Government and the Treasury have sympathy. We do not want over 100,000 businesses to be disadvantaged in cash terms in the way she describes, so this is certainly something that we will be looking at closely going forward. The Bill itself does not prescribe any particular end point in this context. It will be for the Government, after the passage of the Bill, to decide exactly where we wish to end up.

[Nigel Mills (Amber Valley) (Con)]

My right hon. Friend said that the Treasury might be inclined to be generous to businesses that had their cashflow disadvantaged by this change. Would he perhaps be less generous to large businesses that wholly disadvantage their small UK suppliers by forcing them to accept 120-day payment terms, thus effectively putting many out of business? It would be rather generous to let such businesses off earlier VAT payments on their purchases from within the EU if they were not paying their UK suppliers to a decent timetable.

[Mel Stride]

The issues that my hon. Friend raises are probably slightly beyond the scope of the Bill, but they are none the less important. If he would care to write to me, I should be happy to consider them, and, indeed, to meet him if he so wishes.

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[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the hon. Member for Stoke-on-Trent Central (Gareth Snell). I concur with many of his remarks on the ceramics industry, although I am the MP for Denby Pottery, so we may have a slight disagreement on the premier manufacturer of such products. Perhaps we should move swiftly on.

I welcome this important Bill. It is absolutely right that the Government have brought it forward at a relatively early stage in the Brexit process, and it is important that it clears this hurdle tonight. If we are going to leave the EU’s customs union when we leave the EU, it is a simple fact that we will need to have our own customs arrangements and rules in place for that day. By doing so, we can keep collecting the tariffs we get from non-EU imports. As well as keeping that revenue, we can keep important trade matters flowing and the important reliefs in place.

A Bill like this can be quite frustrating because there are lots of interesting customs issues that we would like to debate, such as what the EU deal and any new tariffs will or will not look like, what the administration process will be and how we will fix the Irish question—if we can perhaps refer to it as that—but this Bill does not answer all those questions. Instead, it puts in place the architecture that we can then use to answer those questions when we know what our deal with the EU will be. It is right that this Bill goes through because we need to get all the nitty-gritty detail of our new customs process in place as early as we can, so that it can be understood by all the businesses out there that will need to comply with it and all the software producers that will need software in place. A lot of people will need to be trained on the new duty codes, including which ones apply to their products, how they comply with all these rules, what software systems will be needed and how they will interact with the new HMRC ones. All those things have to be done as early as possible if this is going to work on the day that we finally leave.

I have some comments on specific parts of the Bill. I was not really trying to find in the Bill the detail of what the customs rules will be and exactly what the text says. I think that what we have pretty much mirrors the EU customs rules, and we are just creating our own regime to do much the same thing. That is probably the spirit of the European Union (Withdrawal) Bill, and I appreciate we have to do this as a separate Bill for ways and means purposes. Most people who operate in this area will understand the mechanics that the Government are trying to produce, but what we want to understand is how we can make complying with the burdens of that as easy, straightforward and cheap as possible for the businesses that have to do it. A key part of that is the authorised economic operator system.

When the Public Accounts Committee took evidence on authorised economic operators, it found that about 604 businesses in the UK had that status. Now, that is not a very large proportion of the existing importers that could be using that status. It is about a 10th of the number that Germany has. There needs to be a real impetus during the passage of this Bill and afterwards to ensure that HMRC is doing everything it can to get businesses signed up to that process, so that we have as many of those operators in place as we possibly can when we really need them. That will help those businesses, but it will also help HMRC because it will know which businesses they do not have to check and which will be compliant, rather than having to do risk assessments on them all. What is not entirely clear in the Bill is the status of a business that is already an AEO. If someone has been approved under the EU regime, will that approval grandfather into our regime, or will they have to reapply for it? If someone signs up now, will they be in the same position? I think we should be very clear that if we think a business has that status now, there is no reason why they cannot have it going forward as well.

The Select Committee on Northern Ireland Affairs, which I serve on, has been doing quite a lot of work on customs issues, including visiting Switzerland to see how the border with the EU works. We saw that we can actually minimise the amount of declarations needed if we can make the systems mesh, synchronise and talk to each other. We do not want to see a business making a declaration in the UK for the export of something and then making an equivalent declaration in France when that is imported into the EU system. If a system is designed so that businesses can make one declaration for both regimes, it will halve the work and make things a lot easier. I cannot quite see in the Bill a provision whereby we can take the power to create a system that talks to the other regime in that way. I cannot see a measure whereby, for example, a business could make a declaration in France and where we could then get that data and deem that business to have complied, and vice versa—if a company makes an export declaration here, can that be passed on to the French? Clauses 25 and 26 are about co-operation, but I hope that in drawing up these rules the Government have thought through how we can get a simplified, joined-up system so that we can minimise the amount of compliance we need for those compliant businesses.

Clause 27 is an interesting provision, as it will give the Government the power to create fees in connection with the import process. Perhaps the Government could just reassure us that they are not planning on charging an import fee for the pleasure of complying with these new rules; that might be an unnecessary cost to trade. Will the Government be clear exactly where they see the role of fees and what they think those fees might be? I just cannot see that every time someone imports a widget, they should pay HMRC a fee for that pleasure.

There was some debate on clause 31 in the opening remarks. That clause is about forming customs unions. I have some concerns about what the Government are trying to achieve here. I can see that it is attractive to have the power in place, if we want to create a customs union with our overseas territories as we all leave the EU at the same time in our various different ways; I have no particular objection to that. I can also see that when we do a transitional deal with the EU, we want to be able to bring it into force effectively. But we are supposed to be agreeing the transitional deal by March, which will give us a year to put it into place before we actually leave. I am not quite sure why we need such a broad-ranging power in the Bill because, as far as I can tell, there is no time limit or geographic limit on this power. In theory, we could do a customs union with the trans-Pacific trade area in 25 years’ time, and it could go through on the affirmative resolution process. I am not sure that that is what we intend.

Customs unions are generally quite significant and powerful things, where we agree not only not to charge tariffs on the other side and vice versa, but to have a common set of external tariffs. Indeed, there is a provision in clause 31 that says we will accept that when a Government change dates on a tariff, that change can apply in the UK. Now, I suspect that we are not envisaging the Jersey Trade Minister setting our tariffs for us. I am guessing that that is aimed at some kind of EU arrangement.

If we do have a year to put in place a transitional provision, it would be better to do that in a considered way through primary legislation so we understand what it means rather than have it go through by some kind of parliamentary back-door process where we cannot talk about the detail or try to amend the substance. These things can be very significant. There can be large amounts of revenue at stake, or issues about which industries we choose to protect. We need to try to clarify exactly what the Government are trying to do in clause 31, and exactly how long this power needs to exist for and what geographical extent we are prepared to give to it.

On the Irish customs question, we cannot expect anything in this Bill to look at that specifically. One of the proposals that we have come up with for fixing the customs border is to exempt all micro, small and medium-sized businesses from needing to comply with the customs rules, presumably so that they would not need to do the declarations or pay any tariffs on goods going across the Irish border. However, I cannot see where in the Bill the Government have taken the power to do that. One could argue that it is covered by the reliefs in clause 19, but is that really the solution that we are expecting in the Northern Ireland context? Perhaps the Government should sensibly take the power to deliver this in the Bill and make sure that it can be achieved if negotiated.

I have some final points on the VAT issue, which was raised earlier. It is clearly perfectly fair for importers from the EU to point out that they are going to be cash-flow disadvantaged compared with their current situation if they have to pay VAT immediately when they import the goods rather than on their next VAT return once they have processed the transaction. That would put them in the same position as somebody importing from outside the EU. It is encouraging that the Treasury, for once, is prepared to be generous in that situation and create a regime where those businesses may not face that cash-flow implication. We ought to think very carefully about whether we want to treat an import from France differently from one from the USA in this situation. Will this generosity on cash flow apply more widely than the EU?

A lot of the lobbying on this has come from the British Retail Consortium. Businesses in my constituency that trade with the large retailers tell me that they are being pretty brutally squeezed on the amount of credit that they have to give to those large retailers—up to 120 days in some cases. If the Government intend to create a targeted, generous regime to help the cash flow of people importing goods from outside the UK, perhaps they should make it available only to businesses that treat suppliers within the UK with some kind of fairness, to have a level playing field. It would be a bit crazy for it to be better for their cash flow to import goods from the EU than to buy them from the UK supplier round the corner. I hope that could be another stick to encourage large businesses that treat their small suppliers quite badly by saying, “Yes, we accept that there is an issue, but we will only let you have this cash-flow advantage if you’re behaving fairly to others in terms of their cash flow.”

I welcome this important Bill and hope it gets a speedy passage through the House.

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[Richard Graham]

On that specific detail, the hon. Gentleman may well be right, but, ultimately, Parliament will decide the shape of any future agreement.

[Nigel Mills]

Will my hon. Friend give way?

[Richard Graham]

Let me respond to the intervention, if I may, and I will then come to my hon. Friend.

The key thing in all the arrangements for a future customs union is that the precise nature of its structure has not yet been decided. It is all still up for debate, and the Bill is therefore an enabling Bill that puts in place the future mechanisms.

[Nigel Mills]

I was just trying to help my hon. Friend. The answer is in clause 32(10), which states that the Order in Council cannot happen unless this House has approved the order first.

[Richard Graham]

Precisely. I am grateful to my hon. Friend. Everything comes back to this House.

The point about the options that the Government have set out and the new customs partnership is that this will have huge practical benefits. Let me give a couple of examples. We could apply our own tariffs to goods destined purely for the UK. For example, for mangoes from India and the Philippines, which are not really a competitive product with anything we grow in this country, there is no reason why the EU should determine what tariff we apply. However, if a basic bicycle was made in another part of the Commonwealth and then exported to the UK for further modifications for onward export to the EU, it would make absolute sense for us to mirror the EU trade and customs arrangements.

The future customs arrangements, which are being negotiated, will therefore have profound implications for our future trading opportunities, and the Bill provides the way forward and opens the door to success, whatever the outcome of the negotiations. That is why the Liberal Democrat amendment, seeking a guarantee that the UK’s trading relationships with the EU and the rest of the world are not damaged, is so bizarre. How can anything like that be guaranteed, particularly during a negotiation? That was doubtless the reason why the amendment was not selected for debate.

This evening, one Opposition party is concerned about guarantees while a negotiation is going on, and another—the main Opposition party—is complaining about being denied any detail about the same negotiation, which has not yet properly started, while a third has already decided, regardless of the results of that negotiation, that it is all a terrible mistake. This evening therefore provides us with an opportunity to back a Bill, which should be entirely uncontroversial politically, that enables the businesses and manufacturers in all our constituencies to know with certainty that, whatever the results of the negotiation, we will have in place the mechanisms for their future exports. It is precisely because the Bill is practical and flexible and because it caters for all outcomes, while making sure that there is no cliff edge, that all of us should support it this evening.

Draft Risk Transformation Regulations 2017 Draft Risk Transformation (Tax) Regulations 2017

Nigel Mills Excerpts

Wednesday 29th November 2017 General Committees

[Nigel Mills (Amber Valley) (Con)]

I have a few words on the regulations before us, rather than generally on the insurance market. I warmly welcome the fact that we are trying to reform our regulatory rules and tax rules to make sure that this kind of work can be done onshore in the UK, rather than offshore in a collection of our overseas territories and Crown dependencies. The right answer for our economy has to be to try to have this work carried out in the UK, rather than risk it all being done offshore. I would hope it would be the right answer for all the investors who would like to get into the market: to realise they can now do the work in a well-regarded, well-reputed, transparent and clean financial market, rather than risk being tainted by the various scandals that sadly seem to exist in some of our overseas territories, where we cannot quite yet convince them to have the levels of transparency that we would like. Perhaps I will not drag the Minister down this line; we will leave it for another day.

I always get a little nervous when we create new tax exemptions. The important thing is to make sure that it applies only to those entities that are carrying out this work and which we intend this perfectly sensible tax treatment for. This market does not work if we tax the investment vehicle rather than the investors.

The definition in the regulations is that it is a company that

“carries out the activity of insurance risk transformation”.

Will the Minister confirm that he is happy that that definition is sufficiently tightly defined so that other people cannot pretend that another activity can be done by one of these companies and be done tax-free, and groups cannot reinsure their own costs and somehow disappear that money from UK tax? I am sure it all links to how the regulations works. The definitions are there, but I cannot see, from what is written in the order, that they are as strong as I would like them to be.

Public Country-by-country Reporting

Nigel Mills Excerpts

Wednesday 22nd November 2017 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered public country-by-country reporting.

I thank the Minister for being here. Today is a busy day for the Treasury, so I am grateful that he has found the time to respond to the debate. I also thank him for some of the measures that we heard earlier in the Budget, especially on the challenge that the digital economy and large companies pose to our tax system and the further measures to try to ensure that they pay all their VAT. We have been asking for those measures and it is great to see some progress. It shows that we all share the same goal: we want the largest companies to pay their fair share of tax in all the countries in which they operate. Any measures we can bring into force to do that will be greatly welcomed and that is exactly what we are trying to achieve here.

We are pressing the case for the largest companies operating in the UK to publish the country-by-country reporting that they are already required by the Government to do privately for HMRC, so that we can all see exactly where they are making their profits, where they have employees, where they have sales revenues and what tax they are paying on a territory-by-territory basis in all the key territories in which they operate. I strongly believe that the only way we will make real progress on these issues is to make companies publicly accountable so that they have to publish what they are doing and where, so that we can all see it and challenge them. If there are no adequate explanations for why they are reporting large profits in territories with very few employees, very low revenue and very few assets, perhaps we will have to conclude that they are doing that just to avoid paying their fair share of tax. We can all make a sensible buying decision on whether we wish to use those companies at all.

We will not achieve the solution that we want—everyone paying their fair share—by expecting HMRC to do all the compliance work and to challenge every company that is out there operating in the UK. We have to find a way to change the behaviour of the largest companies and to show that we do not believe that the use of aggressive tax avoidance, artificial structures or territories in which they have no substance is an acceptable way to behave. If we can achieve that behaviour shift, it will be far easier for us to collect the taxes that we want. I do not think there is any disagreement on that between hon. Members here who campaign on this subject and the Government; it is what we all want to see. The Government have followed exactly that approach in recent years.

This year, the Government are requiring very large businesses to publish their tax strategy and set out their approach to tax risk, tax compliance and tax planning. The reason for that was not to put an exciting document out there for tax professionals to argue about, but to make the highest levels of management at those companies think through their tax policy and their relationship with HMRC and set those out in a public document that we can all read and challenge. The aim was to improve their behaviour on the basis that the more sunlight we can shine on such issues, the more likely it is that we can change behaviour. We are not asking for a quantum shift from the Government’s existing approach, or for a huge amount of extra work on behalf of those companies, or for companies to put incredibly sensitive commercial data in the public domain. We are asking for an extension of the existing process, so that it includes this most important information: exactly how much money they are making in each territory and how much tax they are paying there.

[Dr David Drew (Stroud) (Lab/Co-op)]

The hon. Gentleman makes a compelling case. I asked two parliamentary questions last month about the Government’s strategy on country-by-country reporting. In both answers, the Government referred to the fact that they are making deliberations within ECOFIN, which is fine while we are members of the EU. Does he know what the Government’s strategy might be when we are no longer members?

[Nigel Mills]

That might be slightly above my pay grade, but I am grateful for the hon. Gentleman’s questioning of that situation. That is the challenge we put to the Minister today.

The Government have already imposed a requirement on the largest companies operating in the UK to give that information to HMRC. Two years ago, they accepted an amendment from the right hon. Member for Don Valley (Caroline Flint) to take the power to make that information public. Today, we ask the Government to set the date by which they will start to require that information to be in the public domain, maybe as a backstop so that if EU discussions on doing it multilaterally have not worked by—I do not know—the middle of 2019, we will require UK companies to start doing it and we will take the lead in that situation. That would be consistent with the timing of our departure from the EU.

I think we all agree that the ideal situation would be multinational and multilateral—preferably an OECD or a G20 requirement—so that most of the developed world was doing it. If we cannot have that, we would like the EU to do it. We would like the EU proposal to do something similar to what we want, but it does not entirely do that because it includes disclosures only for EU countries and countries it prescribes as tax havens. We would like a proper territory-by-territory disclosure of all the countries that are material to a company’s operations. That EU proposal is stuck, however; it is not happening any time soon. We want the UK to set an example and show the EU and the world that we are prepared to lead on this. We are the largest financial centre. We have huge numbers of very large companies listed on our stock exchange. It is right that we set an example and say, “This is the kind of transparency we expect if you want to operate in the UK and be listed on our stock exchange.”

The Minister and his predecessors have argued that public reporting could be a bad thing for the UK for various reasons, such as that it would make us less competitive. I am not convinced by those arguments. I will run through some of the disclosures that we already expect from our largest companies. Under international financial reporting standard 8 on operating segments, large companies must produce in their financial accounts an analysis by the key operating segments of their revenues, profits and all manner of other things. I am sure that before that standard came in they would have argued that that was incredibly sensitive commercial information, which they should not have to produce—but they do. Paragraph 33 of IFRS 8 sets out that companies need to provide

“analyses of revenues and certain non-current assets by geographical area—with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments”.

There is already a rule out there for very large companies, especially those listed on the stock exchanges that use IFRS, that they have to publish that information in some form. We are not expecting them to do something dramatically different, but to publish that in a coherent format where we can see and understand it.

I would go further and say that over the last few years, we have so increased the requirements for what we expect large companies to disclose that that level of information by territory would not be a significant increase. In 2013, statutory instrument No. 1970 introduced a requirement for companies to produce a strategic report that has to include

“a fair review of the company’s business, and…a description of the principal risks and uncertainties facing the company.”

It must be

“a balanced and comprehensive analysis of…the development and performance of the company’s business during the financial year”.

It must also set out

“key performance indicators, including information relating to environmental matters and employee matters.”

To expect companies to come out and say what their KPIs are, how they performed against them, and set out the key risks facing them—they are quite wide-ranging disclosures. It shows that we have moved ever onwards in expecting companies to report on their corporate social responsibility, hence all the requirements that we have imposed on companies such as giving details of their employees and the gender pay gap, commenting on their environmental performance, and the transparency requirements about corruption, bribery and anti-modern slavery. I do not think that most of our constituents regard tax as different from corporate social responsibility; they see paying a fair share of tax as part of a company’s responsibility. If we require companies to report on so many other worthwhile things, why not require them to report how much tax they pay in each territory? If they are paying the right amount, they can show that transparently; if not, they can explain why not.

The concern that requiring public country-by-country reporting would dramatically disadvantage UK companies or scare them off from having head offices here is an overreaction. In fact, it would be a sensible extension of existing requirements, including those for segmental reporting or for a tax note that explains the difference between the rate paid and the statutory rate. The information currently published is so limited, hard to understand, condensed and—some might say—twisted that no one can make any sense of what companies are doing. In cases where a company operates in a jurisdiction with an average effective rate of 25% but pays 3%, that information is not readily available to us.

The advantage of requiring public country-by-country reporting is not only that it would change companies’ behaviour, but that it would restore people’s confidence that our tax system is fair, that companies are paying the right amount of tax, and that we are doing all we can to collect it. If we imposed such a requirement on the large companies that are sheltering their profits in places where they have no real presence, I suspect they would stop doing it. That would boost confidence by allowing us to see from companies’ disclosures whether they have been caught by the rules and required to pay extra tax. It would also show us the exact scale of aggressive tax-abusive behaviour. Most multinational companies are probably not engaging in such behaviour; they probably just want to know the right amount of tax to pay per territory and get on with running and growing their business.

Restoring confidence and belief in our tax system is extremely important, particularly to the UK as an outgoing, exporting, global economy with a lot of intellectual property assets and a commitment to science and research. We do not want the world to move to an aggressive tax that attempts to clobber companies on turnover without looking at their real profits per territory. Our UK businesses will lose if we do not get the level of confidence right. If we cannot find a way of enforcing our rules, changing behaviour and restoring public confidence, Governments around the world will have to take other action to recover revenue. In the long run, it is absolutely in our interests to get this right, which we can achieve only with sunlight and transparency.

I commend the Government for the position paper they published today on the challenge to our tax regime posed by the digital economy. It includes some sensible ideas, such as charging tax on royalties paid offshore. Its second paragraph points out that the Government have taken

“bold unilateral action where needed”

to tackle the issue. That is exactly what we need on transparency: bold unilateral action. If we cannot agree on an EU-wide approach within a sensible timeframe, let us set a date for taking the lead and setting an example. I am not fixated on any particular date—if we need until 2019 or 2020 for negotiations, I accept that—but will the Minister tell us the Government’s backstop date for getting a multilateral deal? If they cannot get such a deal, when will they act, unilaterally if necessary, to impose this policy in the UK?

--- Later in debate ---

[Nigel Mills]

I thank you, Mrs Main, and all those who have participated in another interesting debate on this issue. Yes, we are all disappointed that we have not managed to move the Government to at least set a backstop date; I suspect that is something that we will have to come back to. Until somebody takes the lead, I suspect this will never happen. We have set an example—we have taken unilateral action on this issue in various other areas. It could be asked, why would a company come and operate in this country if it had to pay a whole new tax that did not apply anywhere else? Well, we have set that example. We probably have a bit of a case to make. We hear the Minister’s arguments and we will keep making our counter-arguments, and I suspect we will be talking about this again sometime soon.

Question put and agreed to.

Resolved,

That this House has considered public country-by-country reporting.

Tax Avoidance and Evasion

Nigel Mills Excerpts

Tuesday 14th November 2017 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the hon. Member for Hackney South and Shoreditch (Meg Hillier), and I join in the congratulations to the right hon. Member for Barking (Dame Margaret Hodge) on her securing this important debate. I absolutely agree with the conclusions she came to, but I probably took a slightly different route to get to them.

I should start, though, by saying that I do not think it is fair to say that over the past 15 years or so, HMRC, the previous Labour Government and the current Conservative Government have not tried to tackle aggressive avoidance. Look at the number of measures that have been introduced, ranging from disclosure rules for artificial schemes through to more recent measures. Look at a Finance Bill and count up how many targeted anti-avoidance rules have now been added. We have been trying everything we possibly can to tackle the most outrageous behaviour. Many of the schemes that 15 years ago used to be possible or, indeed, quite widespread just cannot be done in the UK at all now.

[Catherine West]

Does the hon. Gentleman agree that there is a cultural issue and a whole machinery that enables and facilitates these sorts of arrangements, which the 99% of us have nothing to do with, and that we have to be very aggressive in tackling that 1%?

[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.

Paradise Papers

Nigel Mills Excerpts

Monday 6th November 2017 Commons Chamber

[Mel Stride]

As the right hon. Lady knows, there are many good reasons why, for perfectly honest and decent purposes, individuals use trusts. She also knows that we have made a great deal of progress on the common reporting standard across 100 different countries, including those to which she alludes. We are also bringing forward the registers of beneficial ownership across those jurisdictions so that HMRC has the information that it requires.

[Nigel Mills (Amber Valley) (Con)]

Will the Minister use the latest leak as a spur to the publication of certain things for which we have been waiting for a while? The anti-corruption strategy was promised for last December, but it got lost when the then champion stood down at the election. We are still waiting to know whether we will have a public register of the ownership of properties here by overseas companies. Can we move forward with those things, to give people confidence that our regime is robust?

[Mel Stride]

My hon. Friend will know that we are examining several areas. He will also know that in June of this year—very recently—we brought in the money laundering regulations to make sure that banks, lawyers and accountants are properly focused, in real time, on ensuring that corrupt practices are identified and borne down on as appropriate.

Finance Bill

Nigel Mills Excerpts

Tuesday 31st October 2017 Commons Chamber

[Mel Stride]

Government amendments 12 to 16 fix a small technical error that could otherwise result in an outcome that was not intended. They will ensure that landlords who stop renting out a property and move in rather than sell it are not unintentionally disadvantaged when using the cash basis.

I now turn to the Opposition’s amendments. New clause 4 requires the Chancellor to review the impact of the provisions on households at different levels of income, the impact on people with protected characteristics, and regional impacts. The Treasury considers carefully the impacts of its decisions on individuals and groups with protected characteristics in line with both its legal obligations and its strong commitment to promoting fairness. The Government have published distributional analysis of measures contained in the Finance Bill in the “impact on households” document which accompanied spring Budget 2017. The Treasury and HMRC also published tax information and impact notes for individual tax measures that include an assessment of expected equalities impacts. I therefore urge the House to reject new clause 4.

The Bill includes provisions for the introduction of Making Tax Digital programme. The tax gap resulting from errant carelessness currently stands at £9.4 billion. The Government’s plans for Making Tax Digital aim to address the tax gap and provide a more modern digital service that will help businesses to get their tax right. However, as discussed in Committee, it is also important to do this in a way that works for business. My announcement of 13 July allows a small business more time through a phased implementation of Making Tax Digital. This change has been widely welcomed and stakeholders are now working hard to prepare for MTD.

Opposition Members have, as we have heard, proposed amendments that would make three changes to the implementation of Making Tax Digital. First, they propose that the programme should be delayed until 2022 at the earliest. As I have said, I have already made changes to the timetable of Making Tax Digital, so that businesses have longer to prepare. Secondly, Opposition Members are seeking to prevent mandatory quarterly updates for VAT under MTD. Most businesses paying VAT already report quarterly. Businesses that are mandated to use MTD for VAT will not be required to provide updates to HMRC more frequently than they do currently, or to provide any more information. Finally, the Opposition have pressed for a report on the suitability of software at least 90 days before MTD for income tax is mandated. The Government are already committed to ensuring that a full range of software is available for MTD and that these have been tested thoroughly. I therefore urge the House to reject the amendments tabled on these clauses.

[Nigel Mills (Amber Valley) (Con)]

At a Public Accounts Committee sitting last week on the future customs border and the software upgrade for that, the permanent secretary appeared to suggest that Making Tax Digital was the highest priority IT programme for Her Majesty’s Revenue and Customs. Would the Minister agree with that, or does he think that we should prioritise making sure that our systems can cope with the many changes that may come about through Brexit?

[Mel Stride]

Of course there are a number of HMRC-led IT programmes; Making Tax Digital is but one of them. A new system for customs, the customs declaration service system, will replace CHIEF—the customs handling of import and export freight system—and that has very high priority. We are on target for full roll-out in January 2019; we will begin the CDS pilot in August next year. I am satisfied that the balance is correct at the moment.

[Mel Stride]

As that programme relates to DWP, the question would be best directed in that direction, but I assure the hon. Gentleman that, to the extent that the Treasury and HMRC impinge on the programme, it is for us a very high priority.

I turn to new clause 2, which, although not debated, was tabled by the hon. Member for Walthamstow (Stella Creasy). I would like to deal with it, because I know that from her perspective it was a very important new clause. I understand why she suggests extending the rules on the taxation of capital gains from commercial property disposals by UK taxpayers with a foreign domicile, but I fear that the new clause and the discussion it has prompted have fallen foul of the complexity inherent in this area. I would like to clarify some of the issues.

First, contrary to the new clause, it is residence and not domicile that determines whether the disposal of an asset in the UK is within the charge of capital gains tax. UK residents, including non-doms, will always be liable for CGT on the profits from selling UK land, whether that land is residential or commercial. Also, it does not appear that the change that the hon. Lady proposes would apply to foreign companies owning UK commercial property, as domicile does not apply to companies.

These elements of confusion mean that it is far from clear that the review proposed would work. I remind the hon. Lady that this Government in 2015 started taxing non-residents on their gains from UK real estate—something that previous Governments had ducked. Those changes give a sense of the amount of revenue that an extension of them to the commercial property market would raise. The Office for Budget Responsibility certified that the 2015 changes will raise £40 million this financial year and £70 million in the next. That gives a more realistic sense of the order of magnitude of the amount that this change could raise than the figures suggested in previous debates.

The hon. Lady has also suggested that taxpayers are designating residential property as commercial property to avoid paying the residential charge. Let me be clear: if residential property is being designated as commercial property, that is a matter of tax avoidance or evasion, not of the scope of CGT. HMRC has not seen any evidence of this practice.

The hon. Lady has provoked a good debate on this issue. Although I urge the House to reject new clause 2, which confuses too many of the issues at stake, I recognise that a number of points in this area are worth consideration, and we will certainly continue to look closely at the issue of non-residence and CGT on commercial property.

New clause 3 seeks to commit the Government to carrying out and publishing a review of the tax treatment of income provided through third parties, in particular in relation to sports image rights. Image rights payments have long been taxable. There have been cases where employers have tried to inflate payments for image rights and to reduce salaries accordingly, to deliver a tax saving to both employers and employees. I thank my hon. Friend the Member for Dover (Charlie Elphicke), whom I see in his place, for the insights, advice and support that he has given me on this issue.

The courts have ruled that genuine image rights payments to an employee are not taxable as earnings. It is therefore for HMRC to ensure that image rights payments are genuine and taxed in the right way. At spring Budget 2017, this Government committed HMRC to publishing clear guidelines for employers who make image rights payments for the use of an employee’s image, and HMRC has done that. HMRC undertakes extensive compliance activity to ensure that employers play by the rules and image rights payments are taxed in the right way. The new clause is not necessary, so I urge the House to reject it.

New clause 5 asks for a review of the conditions of registration for third country goods fulfilment businesses. The review would also need to consider the case for imposing either joint and several liability or direct liability on third country goods fulfilment businesses for the unpaid VAT of their overseas clients.

The Government are proud of their record in tackling online VAT fraud, a complex international problem. The UK has led the way with a package of measures that Government first announced at Budget 2016. It includes the fulfilment house due diligence scheme provided for in the Bill and powers for HMRC to hold online marketplaces jointly and severally liable for the unpaid VAT of overseas traders.

The Government have already undertaken extensive consultation on the scheme in the past 18 months. I assure hon. Members that we will continue to monitor the impact of the legislation. I therefore urge the House to reject new clause 5.

[Nigel Mills]

I commend to the Minister the better solution to this issue: making the online marketplaces themselves liable for the VAT on sales outside the EU. In the Public Accounts Committee, Amazon thought that that was a better solution and it would be happy to implement it. The EU wants to do it. The Government have consulted on split payment. Is it not time to push ahead to ensure that we get all the revenue we deserve and need?

[Mel Stride]

My hon. Friend rightly raises one of the approaches that could be deployed to ensure that VAT is paid: the split payment system, whereby the platform itself is responsible for collecting the VAT and passing it on. That is certainly something, along with other measures, that we are considering.

It has been a pleasure debating this group of amendments. I hope that hon. Members are satisfied on the points we have discussed and I urge the House to reject the amendments and new clauses tabled by Opposition Members.