Clause 180 - Controlled foreign companies and foreign permanent establishments
Amendment proposed (this day): 2, in clause 180, page 105, line 19, at end add—
‘(2) Notwithstanding the provisions of Part 4 of Schedule 20, the Schedule will not come into force until a full impact assessment has been prepared in conjunction with the Department for International Development reviewing the effect on developing countries’ tax revenue, and details of aid and technical assistance being provided to developing countries in order to increase the capability and technical expertise in their tax regimes to collect the taxes that are due in their countries, has been laid before and approved by the House of Commons.’.—(Stephen Williams.)
Peter Bone (Wellingborough, Conservative)
I remind the Committee that with this we are discussing the following:
Clause stand part.
Government amendments 46 to 51, 146, 52 to 56, 147, 57 to 59, 187, 60 to 110, 188 and 189, and 111 to 113.
Amendment 3, in schedule 20, page 520, line 31, at end insert—
‘42A Notwithstanding the provisions of this Part, this Schedule will not come into force until a full impact assessment has been prepared in conjunction with the Department for International Development reviewing the effect on developing countries’ tax revenue, and details of aid and technical assistance being provided to developing countries in order to increase the capability and technical expertise in their tax regimes to collect the taxes that are due in their countries, has been laid before and approved by the House of Commons.’.
Government amendment 114.
Amendment 190, in schedule 20, page 522, line 2, at end insert—
‘(3) HM Treasury and HM Revenue and Customs shall publish an assessment of the implementation and impact of the changes made in this schedule each year from commencement for the first three years of operation, including—
(a) the impact of the changes on developing countries and whether any further aid or technical assistance needs to be provided to those countries to safeguard their tax revenues;
(b) the cost of the changes to the Exchequer and whether they are consistent with HM Treasury forecasts;
(c) whether the rules operate as expected and provide certainty to companies.’.
Government amendments 115 to 117.
That schedule 20 be the Twentieth schedule to the Bill.
Nigel Mills (Amber Valley, Conservative)
I want to make some brief remarks in praise of the way the Government have handled this reform. It is a testament to how it should be done. There has been long consultation on a complex area of law that has been in desperate need of reform. The matter has gone backwards and forwards, and there have been several drafts to try to get it right and as simple to work as possible. That is a credit to how tax policy should be formed.
It is, in essence, a necessary part of every developed modern corporate tax regime to try to stop businesses diverting profits into low-tax territories by moving assets or income offshore. We must have a measure that does that, but it leaves us with a rather blunt instrument when every UK company that tries to set up an overseas subsidiary is dragged into complex compliance rules and has to try to work out whether what it has done entirely commercially is treated as tax avoidance.
What we have here is a gateway test; businesses can look at a much simpler, shorter set of rules to see whether they have to apply the longer, more complex ones. That is a decent structure for how those operations should work. All those businesses that should not be caught and clearly are caught will have no tax exposure here. They can work that out pretty quickly and get on with what we want them to do—growing and investing. I do not say that we have simple, clear, easy-to-understand legislation; we have clearly ended up with something long and complex, but that is inevitable given the nature of the subject.
We have had a lot of discussion on various topics today. Where the rules have ended up is pretty good—about as good as we can get. I would hope that the vast majority of innocent businesses that are not trying any naughty tax planning will not have any real problem complying with them, though there will, no doubt, be the odd exception to that. That is where we want to be. It is right that the rules focus on the mischief—that is, businesses trying to avoid paying UK tax on UK-sourced income. We quite rightly do not wish to tax overseas-sourced trading income in the UK; we have all accepted that. The rules do not do that.
We have even accepted that we do not tax dividends from companies based overseas that pay another tax in the UK. They can pay those back to the UK to be reinvested tax-free. It would be bizarre to try to get there through an anti-avoidance measure. On balance, I think the measure is as good as it can be. I commend the Minister on it, and hope that he can speedily get these welcome reforms safely on the statute book.
Stephen Williams (Bristol West, Liberal Democrat)
I apologise to you, Mr Bone, and to Committee colleagues for not being as prepared as I should have been this morning. When we adjourned last week, we were on clause 54. It did not occur to me that in one fell swoop we would go from clause 54 to clause 179 this morning; that is why I did not have my notes with me. We had been moving at glacial pace; I think we had a taste of warp speed this morning.
I tabled amendment 2 after meeting ActionAid and Christian Aid simply to test how joined up policy making is, particularly in the context of a coalition Government; some might say that in a coalition Government, policy making is not always as joined up as it should be. We know that the attitude that the Treasury always knows best has been prevalent throughout many Governments of many political colours over many decades. I tabled the amendment to encourage the Treasury to work closely with a spending Department whose spending envelope is expanding at a great rate over the next few years.
In his helpful remarks, the Minister said that he did not want the Treasury to become the world’s tax policeman—I think that was the phrase he used and, if I may say so, it is Blairite in the scope of its ambition. I agree with him; we would not want our Government to be the world’s policeman in any context. That would be bad in principle, and I do not think that it would work in practice. Indeed, when I discussed the parameters of this amendment with ActionAid, I made it clear that I do not think it fair or reasonable to expect the UK Government to carry out an in-depth assessment of, potentially, 190 tax regimes around the world that might be affected by the provision, and I therefore accept what the Minister says on that point.
I do, however, want to hear that it is the Treasury’s intention to work closely with the Department for International Development to build up capacity among overseas tax authorities so that they can collect the taxes that their Governments decide are due but that are often avoided—I think I heard the Minister mention that issue, and perhaps he will confirm that when he sums up. Tax avoidance has been much in the news today, and as some regimes are perhaps susceptible to corruption and have tax authorities that are likely to be less developed or sophisticated than those in the UK, taxes are even more easily avoided in developing countries than they are in this country.
Since tabling the amendments I have discussed the position with my right hon. Friend the Member for Gordon (Sir Malcolm Bruce), who chairs the Select Committee on International Development. That Committee has since initiated its own inquiry and investigation into the impact of British tax policy and the tax capability of overseas Governments, and we wait with interest to see what the in-depth investigation by that cross-party Committee comes up with when it produces its report later this year.
The Minister has said many useful things that are now on the record and will be useful to ActionAid and other charities and non-governmental organisations that campaign on these issues. I hope that he will write to the Committee and set out in detail what the Treasury is doing in conjunction with DFID, and I am sure that there will be an opportunity to give the issue another airing on Report.
David Gauke (Exchequer Secretary, HM Treasury; South West Hertfordshire, Conservative)
It is a great pleasure to serve under your chairmanship, Mr Bone, and if I may, I will briefly respond to the points raised in the debate, having already set out in some detail earlier today the rationale behind the policy.
Her Majesty’s Revenue and Customs and the Government provide assistance more broadly to developing countries to help them increase their tax capacity, and I would be happy to elaborate on the remarks that I made this morning and set out for the benefit of the Committee some of the work that is done by DFID—or HMRC, because the two Departments work closely together. This country has a proud record in assisting developing countries in developing their tax capacity, and we are keen to continue with that. My hon. Friend the Member for Bristol West pressed me on that point, and I am happy to confirm that the Treasury, HMRC and DFID will continue to work closely on that issue. The Department for Business, Innovation and Skills also has an interest in the area, and we will continue to work across the Government.
Issues were raised about the economic benefit resulting from reform of the rules on controlled foreign companies. I shall refer back to my earlier speech. Once the new rules come into effect, we expect to see even more companies locating or relocating their business activity to the United Kingdom. That will have wider economic benefits, with new jobs created and increased investment in the UK, which I hope all parties will welcome.
How will we assess the benefits of the provision? Of course, the Government routinely publish detailed information on the corporation tax system and detailed statistics on corporation tax receipts. The Office for Budget Responsibility publishes information on corporation tax forecasts and the economic and fiscal outlook. At the Budget, HMRC publishes detailed information on any proposed changes, particularly tax information, as well as impact notes and policycosting documents.
We have introduced a greater degree of transparency and put more information in the public domain than in the past. I understand that the Opposition will press for further reviews, but we have taken substantial steps forward in terms of transparency.
On keeping the regime under review, the Government meet business and professional tax advisers in a number of forums, such as the corporate tax liaison committee, the Business Forum on Tax and Competitiveness, which met this morning, and the Business Tax Forum. Interested parties have the opportunity to raise their concerns about any matter in those forums, including CFC reforms.
I was asked whether we should subsequently make a commitment to an impact assessment. Tax returns for the first three years of this regime will not be available until 2017 or later, and HMRC does not have the power to obtain information about other countries’ tax affairs. I have made that practical point in relation to other amendments.
Behavioural assumptions have been made in estimating the costs, including the cost of restructuring, but no specific assumption of additional tax, in line with the usual prudent basis for cost estimation, has been included.
Any profits derived from UK operations are robustly defended by the rules. Indeed, there is improved targeting of UK profits, compared to the previous regime. We are excluding foreign profits, which is consistent with the overall move to territoriality.
I thank my hon. Friend the Member for Amber Valley for his support on where we have got to. Careful consultation and deliberation have been needed during this long process, and at times there has been criticism of where we have got to. In the previous Parliament, there was significant criticism of what was happening with regard to CFCs. However, we have got to a good place now, where businesses appear to be enthusiastic, and we anticipate their relocating to the UK, which all Committee members should welcome.
In such debates, it is right for Committee members to probe and ask questions, and there have been a number of thoughtful interventions from Members of all parties. However, if the Opposition wish to oppose reforming CFC legislation, that will do them no favours, in terms of business reaction. When there are announcements about businesses locating or relocating themselves in the UK, the Government will be tempted to say that that is happening as a consequence of a policy that was opposed by the Opposition. It is for the Opposition to decide whether, politically, that is a sensible place to be.
I would rather not make such partisan points. I would rather we sent a clear signal to businesses around the world that there is unanimity within the UK and a shared desire to reform our CFC regime to ensure that Britain is open for business, and to say that we want to attract businesses to the UK. Whether we can send that message is up to the Opposition. I can say, on behalf of the Government, that we are pleased with the progress that we have made. This is a substantial step forward, in terms of making our tax system more competitive. I commend the clause to the Committee.
Catherine McKinnell (Newcastle upon Tyne North, Labour)
I will not take up much of the Committee’s time on this matter, but I want to reassure the Minister and Members on the Government Benches that we Opposition Members do not oppose reform of the controlled foreign company rules. We set these wheels in motion and very much support anything that can bring investment and growth to the UK economy.
I shall make a couple of comments on our amendment 190. It does not seek to delay or water down the controlled foreign company reforms in any way, but would monitor three specific impacts on an ongoing basis for the next three years. It is disappointing that the hon. Member for Bristol West has withdrawn his amendment and will not be putting it to a vote.
Catherine McKinnell (Newcastle upon Tyne North, Labour)
Thank you for that clarification, Mr Bone. We will see whether amendment 2 will be pushed to a vote. It asks for a delay in the implementation of the rules. That is not something that we Opposition Members are asking for. We are asking for the impact, particularly on developing countries, to be reviewed. We have discussed the complexity surrounding the rules, the resources that are available, the importance of our own efforts—the Treasury and HMRC, working together with DFID—to analyse the effects of the rules, and how best we can target the aid that the UK gives to developing countries. It would be a shame to give aid that is spent only patching up the mess that we may create, inadvertently and unintentionally, with the changes that we are considering today. That is the purpose of our amendment, and I hope that Government Members, and particularly the hon. Member for Bristol West, will be able to support it.