Revenue Scotland and Tax Powers Bill

– in the Scottish Parliament at on 19 August 2014.

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Photo of John Scott John Scott Conservative

The next item of business is a debate on motion S4M-10822, in the name of John Swinney, on the Revenue Scotland and Tax Powers Bill.

Photo of John Swinney John Swinney Scottish National Party

The Revenue Scotland and Tax Powers Bill has two main purposes. First, it will establish revenue Scotland as the tax authority responsible for the collection and management of the two devolved taxes—the land and buildings transaction tax and the Scottish landfill tax—when they come into operation on 1 April 2015. The first two tax-specific acts are, of course, already on the statute book.

Secondly, the bill sets out in one place the statutory framework within which revenue Scotland will operate. That includes revenue Scotland’s constitution; the relationship between the taxpayer and the tax authority; revenue Scotland’s investigation and enforcement powers; and the new two-tier Scottish tax tribunals that will hear appeals against decisions that revenue Scotland has taken. It also includes a robust and distinctive approach to tackling tax avoidance, which I will say more about in a moment.

I am grateful for the very detailed and thorough scrutiny that the Finance Committee undertook at stages 1 and 2. Many of the amendments to the bill that have been agreed to at stages 2 and 3 reflect recommendations from the Finance Committee and the Delegated Powers and Law Reform Committee. The bill has been significantly improved during its parliamentary passage as a result. I put on record my thanks to both committees for the work that they have done.

We took the opportunity to lodge at stage 3 a significant number of minor and technical amendments that are designed to improve the clarity and consistency of the bill and the interface between the overarching framework and the first two tax-specific acts. I believe that those final amendments provide greater clarity, coherence and consistency across the full package of devolved tax legislation.

I would like to take a few moments to highlight some of the distinctive aspects of the new framework for the collection and management of devolved taxes.

Part 2 of the bill provides for the establishment of revenue Scotland as an office-holder in the Scottish Administration. That means that it will be directly accountable to the Parliament, not ministers. The bill sets out revenue Scotland’s statutory functions, with an emphasis on providing a service to taxpayers and their agents, and not just on collecting the devolved taxes.

The bill also places a duty on revenue Scotland to prepare and publish a charter that sets out the standards of behaviour and values that will be expected of taxpayers and which taxpayers can expect of revenue Scotland. Revenue Scotland is required to consult on the terms of the charter. That will provide a genuine opportunity for input from stakeholders and the wider public on the nature of the relationship between the taxpayer and the tax authority.

Part 4 establishes the Scottish tax tribunals, which will comprise a first tier and an upper tier under the leadership of a president. As colleagues will recall, the Parliament recently passed the Tribunals (Scotland) Act 2014, which paves the way for the establishment of the new unified Scottish tribunals. The intention is that, early in 2017, the tax tribunals will become part of the Scottish tribunals. However, arrangements need to be in place to hear appeals about the devolved taxes from 1 April 2015, so we need to establish self-standing tax tribunals for an interim period until the new unified arrangements are fully operational.

Part 5 sets out a general anti-avoidance rule, or GAAR. I am sure that I have support across the chamber for establishing a Scottish general anti-avoidance rule that takes the most robust approach possible to tax avoidance in relation to any devolved taxes. Artificial tax avoidance arrangements are unacceptable, and part 5 provides powers for revenue Scotland to take effective counteraction against any such schemes.

The bill provides two separate definitions of “artificiality”—condition A and condition B—to ensure that our approach is as wide ranging and comprehensive as possible. Condition A allows revenue Scotland to take counteraction where a tax avoidance arrangement is not a reasonable course of action, having regard to the principles and policy objectives on which the relevant tax legislation is based and to whether the arrangement is intended to exploit any shortcomings in that legislation. That will allow revenue Scotland, the Scottish tax tribunals and the courts to look at the spirit and intention of tax legislation, and not just the strict letter of the law. I believe that that purposive approach to legislation, supported by clear guidance from revenue Scotland to which the courts and tribunals must have regard, will make it possible to defeat ingenious but artificial and contrived avoidance schemes far more effectively than has previously been the case.

Condition B allows revenue Scotland to take counteraction against tax avoidance arrangements that lack either economic or commercial substance. It also sets out a number of examples that might indicate that an arrangement lacks economic or commercial substance—for example, if it is carried out in a manner that would not normally be employed in reasonable business conduct or consists of transactions that are circular in nature.

The amendments agreed to by Parliament at stage 3 further reinforce that approach by making it clear that the test relating to a lack of economic or commercial substance applies to transactions between individuals as well as to commercial transactions between companies. I am grateful to Malcom Chisholm for raising that point at stage 2.

The approach that we have adopted to tackling tax avoidance is based on straightforward, commonsense tests that ordinary taxpayers would understand and endorse. I envisage that we would extend very much the same robust approach that we have adopted to tax avoidance in the bill if we were to take the opportunity to become responsible for other taxes.

Throughout the bill we have tried to strike a fair balance between the taxpayer on the one hand and the tax authority on the other. With that in mind, the bill ensures that taxpayers will have various opportunities to challenge decisions that are taken by revenue Scotland without having to resort to expensive legal action. First, they will be able to ask revenue Scotland to carry out an internal review, which will be undertaken by a person not associated with the original decision. If that does not resolve the dispute, revenue Scotland and the taxpayer will be able to enter into independent, third-party mediation if both parties agree to do so. Secondly, there will be a right of access to the new, two-tier Scottish tax tribunals and, ultimately, on a point of law, to the Court of Session. Those arrangements are robust and credible and will provide Scottish taxpayers with confidence in the administration of devolved taxes.

Part 8 sets out a penalties regime. In response to recommendations from both the Finance Committee and the Delegated Powers and Law Reform Committee, we lodged amendments at stages 2 and 3 to set out the detail of the penalties regime in full, including all penalty amounts. At the same time, the bill provides the flexibility for changes to the penalties regime to be made by order subject to the affirmative procedure, should that prove necessary in the light of experience.

The bill’s implementation will involve putting in place a significant amount of subordinate legislation by 1 April 2015, which is when revenue Scotland will come into being. Later this year, I intend to publish a consultation paper accompanied by drafts of all the subordinate legislation that needs to be in place by 1 April 2015. That will provide a full opportunity for consultation with interested parties well before the draft orders are laid before Parliament early in the new year. We have already published consultation papers setting out the proposed subordinate legislation for the land and buildings transaction tax and the Scottish landfill tax.

Although we are assuming responsibility for the collection and management of only a small portion of taxation, this is a new and exciting opportunity for the Scottish Parliament. Throughout the process there has been extensive consultation with the tax and legal professions as well as other stakeholders. The tax consultation forum and the devolved tax collaborative that we established have been closely involved throughout the process. We will maintain that open and consultative approach as we move towards the implementation of the devolved taxes on 1 April 2015.

I thank the Finance Committee once again for the very positive and constructive approach that it has taken throughout the bill’s parliamentary passage. The bill as passed is much the better for it. It provides a robust framework for the collection and management of the first two devolved taxes when they come into force on 1 April 2015. It also provides a solid foundation on which we can build in the event of this Parliament becoming responsible for a wider range of taxes.

I move,

That the Parliament agrees that the Revenue Scotland and Tax Powers Bill be passed.

Photo of Iain Gray Iain Gray Labour

In the stage 1 debate, I quoted Albert Einstein, as I do whenever I am given the opportunity. Einstein said:

“The hardest thing in the world to understand is the income tax.”

I doubt that Einstein ever had to worry about land and buildings transaction tax, and he certainly did not have to worry about landfill tax, so we can probably assume he was talking about the complexity of tax in general. When I looked back at that stage 1 debate, I saw that most of us began by noting how dull tax legislation is considered to be and how complicated it turns out to be—although I have spotted one accountant of my acquaintance who has been drawn to the public gallery by our deliberations, so these things are a matter of taste.

Perhaps it is a sign of the times that we live in that today’s debate—technical, pragmatic and, above all, consensual—feels rather like light relief from what passes for political discourse the rest of the time at the moment. The fact is that although we began with the shared purpose of creating revenue Scotland to administer and manage the devolved taxes—the landfill tax and the land and buildings transaction tax—it still turned out to be a complex task to get right sometimes, despite that consensus and shared purpose. That is all the more reason to congratulate the bill team on its work in drafting and redrafting the legislation to get us to the position that we are in today, where I think that we can be sure that the bill will be passed overwhelmingly—indeed, unanimously—at decision time.

The Finance Committee, on which I do not sit, deserves our thanks, too: first, for taking comprehensive, complicated and exhaustive evidence on the bill at stage 1; and, secondly, for dealing with some 300 amendments at stage 2. Perhaps unusually for me, I also want to praise the cabinet secretary for his efforts in steering the legislation through, including the further 140 amendments dealt with today. There have been almost 450 amendments since the bill was introduced and although we dealt with the 140 amendments in pretty short order this afternoon, they included some significant improvements in response to the committee’s scrutiny of the bill. I will mention some of them in a moment.

As the cabinet secretary noted, today marks not just the completion of the passage of the Revenue Scotland and Tax Powers Bill but the completion of a trilogy of linked bills that create the first devolved national taxes and the body that will administer and manage them. Therefore, we are completing a significant task today, and I am tempted to say to the cabinet secretary that, apart from pursuing the important matter of a future for the Ferguson shipyard, perhaps he should take the next few weeks off, put his feet up and stay out of trouble. However, I expect that he has other plans, which is a pity in a way because the task that he is completing today is real proof of the power and flexibility of the devolution settlement that I fear he will spend the next four weeks trying to destroy.

The three bills, of which this is the third, derive, of course, from the Calman process and the consequent Scotland Act 2012. They constitute a significant step forward in rebalancing the devolution settlement by securing new fiscal powers and decision making for this Parliament without breaking the social, economic and political union with the rest of the United Kingdom that provides us with such significant opportunities. Nonetheless, we have consensus for today on the bill

That consensus started with the approach that was taken to creating a new tax system—the fundamental principle. The cabinet secretary made much of his starting point being Adam Smith’s four maxims for a tax system: certainty, convenience, efficiency and proportionality in relation to the ability to pay. He was right, and has had support across the chamber for that principle-based approach to the legislation.

It has been interesting to see how turning those maxims into detailed legislation is less straightforward than might have been assumed, as they can sometimes contradict themselves, but I think that some of the 400-odd amendments have taken us in the right direction. For example, we now have on the face of the bill greater certainty over penalties. More important, amendments both at stage 2 and at stage 3 today have made the definitions of what constitutes tax avoidance much clearer and more certain.

As the cabinet secretary knows, we have supported his approach to tax avoidance from the start. We agree with him that we should have a general anti-avoidance rule rather than a general anti-abuse rule. We agree that the double reasonableness test should be avoided, that the test should be of artificiality rather than of abusiveness and that arrangements where tax avoidance is one of the purposes—not just the sole or main purpose—should also be caught by the general rule. In other words, we agree with the cabinet secretary that the net should be cast wider than in previous legislation—as, indeed, it has been.

However, we have pursued further clarity, notably through Malcolm Chisholm in committee, and I am glad to acknowledge once again that the cabinet secretary has put it beyond doubt that the general rule applies to transactions between individuals as well as companies or businesses.

In his speech, the cabinet secretary referred to the consultation, guidance and secondary legislation that will follow the passing of the bill. We should acknowledge that there is still work to be done. Indeed, we will not know whether the bill meets the maxim of efficiency until it is tested in action; of certainty until consequent guidance and secondary legislation are completed; or of proportionality until tax rates are actually announced, which will have to happen quite soon, as the cabinet secretary must know.

However, we can claim a good piece of legislation—one that has been improved by the legislative process and which can, should and will, I am sure, be supported at decision time.

Photo of Gavin Brown Gavin Brown Conservative

It has been interesting and rewarding to be involved with the bill. I am extremely grateful to Professor Gavin McEwen, who gave expert advice to the Finance Committee, and to all other stakeholders who participated in round-table discussions, gave formal evidence and wrote in to try to explain some of the finer complexities of tax.

Iain Gray quite rightly quoted Smith’s maxims. All those maxims have great merit on their own, but it has been very interesting to see that it is far trickier to obey them all at the same time in practice than in theory.

Although there was praise for most of the bill at stage 1, the biggest criticism that was made related to the provisions on penalties. Things had not been done quite rightly in that area and there was a strong view among stakeholders that the circumstances, amounts and factors to be taken into account ought to be on the face of the bill, and that procedure and administration could be left to secondary legislation. The bill team and the cabinet secretary acknowledged that during stage 1 and, helpfully and rightly, the cabinet secretary lodged a raft of amendments at stage 2.

The penalties provisions are now far clearer and have far broader support than they would have had if they had been left as they were at stage 1. For example, section 150, on failure to make a return, previously had no amount attached and simply gave the Government the power to produce regulations. Now, after amendments were agreed to at stage 2, firm amounts have been put against what would be paid in the absence of a return. The provisions have been helpfully divided into time periods: returns that are three, six or 12 months late will be treated differently and receive different penalties. Also, penalties have been split between the two taxes: the regime for land and buildings transaction tax is slightly different from that for landfill tax. Section 150 now does what it ought to do and gives some certainty, but, as the cabinet secretary said, the bill still allows the Government a degree of flexibility to make changes by order, should circumstances prove that to be necessary.

Another example relates to section 160, which is about penalties for an error in the tax return. Previously no penalty amount was set out; it was simply the case that regulations could be brought forward at some point. Now a clear percentage has been set out on what the penalty might be in relation to the tax. Indeed, it is quite helpful that the bill now splits the penalty into two categories: one for deliberate inaccuracies by the person completing the return; and one for inaccuracies that are deemed to be careless as opposed to deliberate. Those two categories are treated separately, as most people would argue they ought to be.

We now have consistency: the regime hangs together and makes sense to taxpayers. All those changes were welcomed when they were made and I welcome them again.

During this afternoon’s discussion of amendments, the cabinet secretary touched on the issue of a penalty for failure to pay tax. Everyone in the chamber agreed to today’s amendments in that regard. Previously, I had some concerns over the provision: there would have been, in effect, an instant penalty if the tax was not paid on or before the due date, which was a little harsh. The cabinet secretary agreed to reflect on the matter, and what has emerged is a good set of amendments that we considered today. They provide that, at least in the case of LBTT, taxpayers will have 30 days to pay the penalty.

There was criticism of the proposals for a charter of standards and values. The bill as introduced seemed to put a slightly greater obligation on the taxpayer than it did on revenue Scotland. Taxpayers had to obey; revenue Scotland had to “aspire” to the standards in the charter. The Government changed the wording, quite rightly, to provide that both sides must “adhere” to the charter. There will be reciprocity, as opposed to the balance being in favour of revenue Scotland.

Both the committees that considered the bill thought that ministerial guidance to revenue Scotland must be made public. That, too, has been provided for in an amendment that we considered today, which makes it clear that ministerial guidance will be laid before the Parliament.

The bill started well and has been improved, as the cabinet secretary said. We will happily support it at decision time.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

I thank the people who have been involved in the bill’s progress: the members of the Finance Committee; committee clerks; the committee’s adviser, Professor Gavin McEwen, who was mentioned by Gavin Brown; and the organisations and individuals who took the time to respond to the consultation and give evidence on the bill earlier this year.

It has been a long road, and from the outset the Finance Committee was aware of the complexities that are involved in a bill of this nature. As the committee’s convener, I was conscious of the need for close scrutiny. The technicalities of the bill are reflected in the large proportion of committee time that we dedicated to it.

As members know, the Scotland Act 2012 devolved the power to raise taxes on land transactions and waste disposal to landfill. With the passage of the Revenue Scotland and Tax Powers Bill, important changes to the Scottish taxation landscape will be implemented. The bill makes provision for a Scottish tax system to collect and manage the land and buildings transaction tax and Scottish landfill tax.

Furthermore, the bill will establish revenue Scotland, which will be a new non-ministerial department. As of 1 April 2015, that department will be the new tax authority responsible for collecting Scotland’s devolved taxes. [Interruption.] The bill also provides for Scottish tax tribunals. [Interruption.]

The Deputy Presiding Officer:

Microphone, Mr Gibson.

The Deputy Presiding Officer:

That is much better. We can hear you now.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

I can see how much attention members have been paying to my speech, given that I am about a third of the way through and I have only just realised that they could not hear me.

The Deputy Presiding Officer:

Everyone was just enjoying you being quiet.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

That is a great vote of confidence. Perhaps I should sit down now.

Under the bill, the relationship between the tax authority and taxpayers will be clarified. I am optimistic that the bill creates a strong statutory framework for devolved taxes, clearly defining the duties, rights and powers of the tax authority and taxpayers.

The framework is strongly underpinned by the principles of anti-avoidance, and the establishment of the anti-avoidance rule will enable the new body, revenue Scotland, to combat avoidance schemes that permit tax advantages. The approach is strongly supported by the Finance Committee and the Cabinet Secretary for Finance, Employment and Sustainable Growth.

Since the Parliament last debated the bill, the Finance Committee has considered amendments at stage two—more than 300 of them, as Iain Gray said. That involved a lengthy session with the cabinet secretary and his officials. The cabinet secretary demonstrated the importance of keeping fit as he nimbly responded to the myriad of amendments.

Many amendments related to minor technical or consequential issues and most concerned the drafting of the bill. For example, there was clarification that members of the Northern Ireland Assembly and National Assembly for Wales, like their Scottish and UK equivalents, are not eligible to stand for appointment to revenue Scotland, and that revenue Scotland must specifically address taxpayers and their agents in providing assistance and information. Tribunal procedures were clarified, in accordance with the Tribunals (Scotland) Act 2014.

Other amendments were lodged as a result of the committee’s scrutiny and recommendations. Of note are amendments to section 10, “Charter of standards and values” and section 13, “Use of information by Revenue Scotland”. Amendments were agreed to that will further protect taxpayers’ confidential information and ensure that revenue Scotland performs in an ethically sound manner.

Importantly, the general anti-avoidance framework was simplified following feedback from the committee’s consultations. Previously, three types of revenue Scotland officer had been proposed, but that has been refined and reduced to one. Revenue Scotland officers will now have the required specialist skills and level of seniority to adequately deal with the matters before them, which will ensure that procedures are dealt with and will eliminate unnecessary bureaucracy.

With the support of the committee and the cabinet secretary, as well as contributors such as the Scottish Trades Union Congress and Unison, further amendments were added to the general anti-avoidance rule. As it is the fundamental cornerstone of the bill, the amendments were carefully considered. In all, the changes will better secure the robustness of the legislation and ensure that it is fair.

I conclude by restating my firm support for the transfer of financial powers to the Scottish Parliament and by reiterating my thanks to my fellow committee members and all other contributors, notably the bill team and the Cabinet Secretary for Finance, Employment and Sustainable Growth. I believe that the bill is an important milestone that caters for the provision of future tax decisions being made in Scotland. It has been taken forward in a positive way by all parties in the Parliament, which was exemplified by the fact that there were no divisions at stage 3. I am sure that I speak for all my Finance Committee colleagues when I say that the bill has only whetted our appetite for further tax legislation in the months and years ahead.

Photo of Michael McMahon Michael McMahon Labour

According to Denis Healey,

“The difference between tax avoidance and tax evasion is the thickness of a prison wall.”

The former chancellor was absolutely right because, although tax avoidance is simply clever financial planning, tax evasion is illegal. It is understandable that, at a time when high-profile millionaire celebrities and multinational companies have been highlighted, the focus of deliberations on taxation is on that issue. It has become apparent that the public care more deeply than ever that we do not have a tax system that permits freeloaders.

The Scottish Government has got the balance just about right in legislating on how revenue Scotland will be tasked with dealing with avoidance and evasion within its responsibilities. There is flexibility in the rules but enough clarity to ensure that the rules are firm enough to follow. The amendments that the cabinet secretary has made and accepted have helped to clarify some areas in which there was originally some doubt. We had to get it right, because tax avoidance could have serious implications for business as a whole. There could also be implications for the public perception of our tax system. The system must maintain public confidence, and the perception that others can avoid their responsibilities can damage that confidence.

The clear view of the tax professionals who gave evidence to the Finance Committee was that the level of public scrutiny 10 years ago was much less than it is now. We heard that tax avoidance is not necessarily any greater than it was in years gone by, but that the greater public awareness of all the issues means that, when certain individuals or companies do not contribute their fair share to the public purse, there is a heightened sense of outrage. Those concerns are justified, which is why, when avoidance occurs, we have to make it easier to take action. I believe that the bill will do that.

In relation to the landfill tax, any avoidance could create economic distortions, as a business could seek a competitive advantage by acting illegally to avoid paying tax. I have visited the new Scottish Environment Protection Agency premises at the Maxim Park development at Eurocentral in my constituency and was pleased to meet the dedicated team of investigators who have been tasked with pursuing companies that, by many and varied means, seek to avoid paying landfill tax. That effort is already bearing fruit and I am confident that, increasingly, we will clamp down on those who try to dodge their responsibilities.

I therefore have no hesitation in endorsing the bill and I congratulate the cabinet secretary on guiding it so effectively to this point. I also thank the convener of and adviser to the Finance Committee for their efforts to ensure that this technical and complex bill passed through the parliamentary process as smoothly as possible.

From an exchange that I had with the cabinet secretary earlier this afternoon, I know that he gets concerned when I break the consensus, so I will not let him down. I will ask a question that has occurred to me. This bill and the two others that resulted from the further devolution of tax powers under the Scotland Act 2012 sailed through the legislative process on a sea of good will and widespread agreement. When the cabinet secretary came to the Finance Committee last week, his exasperation was evident that closure on the technical details of the block grant adjustment that is required under the new tax laws has not yet been achieved.

If the cabinet secretary cannot conclude in 18 months the process for a system that covers only 1.7 per cent of Scotland’s income, with all the parties involved in total agreement on its desirability and efficacy, how on earth does he expect to negotiate, agree and deliver an entire transfer of powers, set up and conclude applications for membership of NATO, the European Union and other bodies and set up a currency union all within 18 months of a yes vote in September? I do not expect the cabinet secretary to answer that, or to have to answer it, because it is a purely hypothetical question.

I thank him for his efforts in bringing the devolved taxes to fruition and I look forward to seeing how revenue Scotland uses the powers that have been given to it to the betterment of our system of taxation in Scotland.

Photo of Willie Rennie Willie Rennie Liberal Democrat

I am grateful to the committee, the advisers, the clerks and the Government officials for their detailed work over a long time.

It is striking that this afternoon’s debate contrasts remarkably with the debates on the bill that we had a few months ago. It also contrasts with debates earlier this afternoon, when we were all heated. I felt the early adrenaline rush evaporate as this debate commenced.

The bill shows the effectiveness and value of devolution and the effectiveness of the Parliament. It is a direct consequence of the Scotland Act 2012. It is also a precursor to what I want to see: more powers being transferred to the Parliament here at Holyrood—perhaps only if there is a vote next month.

The bill also sets an important foundation for the expansion that I want of the Parliament’s powers on income tax, capital gains tax, inheritance tax and many other areas so that the Parliament raises the majority of the money that it spends. I also presume that, for SNP members, it sets a foundation for independence.

When the bill and revenue Scotland were first proposed, the aspiration was set out to save significant sums of money—I think that £250 million was mentioned—because we would have a much simpler, more flexible, more agile system of tax collection in comparison with Her Majesty’s Revenue and Customs. Those ambitions will be tested on the two relatively small taxes for which we will be responsible initially. Everybody will watch closely to ensure that those bold ambitions are met, even if it is in a minor way.

As Iain Gray eloquently pointed out, the 450 or so amendments that have been made to the bill have revealed that raising tax is not a simple business. The people on the other side who want to avoid tax are smart and will spend a lot of time and money trying to avoid it. Therefore, we will have to work extremely hard and be extremely agile to ensure that we are as effective as, if not more effective than, HMRC.

HMRC has made some progress in recent years. It has managed to make 40 changes in tax law since 2010 and many of the loopholes have been closed. However, it is an on-going process to ensure that those who want to avoid tax are caught and make their contribution. Ultimately, we want public services to be properly and adequately funded to ensure that we get the services that we deserve and need.

I have great hopes for the bill. It is a great piece of work. I hope that it will be as effective as those who proposed it initially claimed that it would be.

With that, I pledge my party’s support.

Photo of John Mason John Mason Scottish National Party

I am pleased to be able to take part in the debate. Taxation may not be everyone’s most exciting topic, but I find it extremely interesting, and the bill is particularly significant, as it is to become the underpinning legislation as we move forward, whatever the constitutional settlement.

As I said when I spoke on the subject in May, one of the problems of UK tax legislation has been its emphasis on the letter of the law as against the spirit or intention of the law. As a result, we have had situations in which the wider public has been clear that tax should have been paid, but some taxpayers have avoided tax quite artificially. That has been referred to already.

That is particularly galling for ordinary members of the public who, whether employed, self-employed or retired, are pretty strictly regulated by the various tax authorities. Therefore, I welcome the more principles-based approach in the legislation. I hope that that approach will also be taken in future Scottish tax bills.

On the subject of principles, like others, I am happy to welcome the emphasis on Adam Smith’s maxims, including, in particular, the one that says that taxes should be proportionate to the ability to pay. In the committee, we discussed the intricacies of that approach, and the differences between proportionate and proportional. I admit that those differences have now escaped me. However, it is clear that there are some taxes, such as council tax, that are not really linked to the ability to pay, except in the loosest possible sense. I hope, as we move forward, we can remember that principle, and that new and amended taxes will be more proportionate.

The issue of certainty has come up many times as we consider the bill. That is one of Adam Smith’s maxims that we all support. However, I continue to think that the demand for certainty can sometimes be a smokescreen and can mean only more certainty for those who want to avoid paying tax. Therefore, I support the cabinet secretary’s insistence that we stick to a principles-based approach, including having a wider general anti-avoidance rule than seems to exist in the UK.

Only two relatively small taxes are being fully devolved, while income tax is not really being devolved at all, as we will have only partial control over one aspect of it. That could, frankly, give us the worst of both worlds, with an already complex UK income tax system becoming more complex and therefore more expensive to operate. That is the downside of devolution and, in particular, of sharing a tax rather than devolving it.

Another factor in this is the block-grant adjustment that Michael McMahon referred to. It is disappointing that, having promised to devolve those two taxes, it now seems that Westminster is attempting to backtrack and keep its hands on as much of them as it possibly can. That does not bode well for the vague assertion that more tax powers might—or may; or could; or should possibly, at some stage, given the right circumstances and the right Government at Westminster, and on the assumption that the UK does not leave the EU and does not go completely bankrupt—be devolved in the event of a no vote.

However, I prefer to be optimistic and look forward to our taking control of the whole range of taxes, as normal countries do. We will probably have to start off by modifying the UK system but, at some stage, we will have the challenging opportunity of writing our own legislation for those major taxes. I look forward to that exercise.

The great thing about what we are doing today is that we are setting out a direction of travel. We want to do things our way, in a way that fits Scotland’s needs. The bill is a good start, and I whole-heartedly support its approval.

Photo of Elaine Smith Elaine Smith Labour

That brings us to the closing speeches. I call Gavin Brown.

Photo of Gavin Brown Gavin Brown Conservative

If that was John Mason being optimistic about the tax system, I hope that I am not here on the day when he is pessimistic.

Quite rightly, this has been a broadly consensual debate, with little to divide the chamber, either at stage 2 or at stage 3.

I was struck by something that the cabinet secretary said earlier. He pointed out just how much subordinate legislation will have to flow from not only this bill but the other tax bills that we passed earlier this year and at the end of last year. For all three, there is bound to be a raft of legislation. In some ways, today is only a starting point. There is more work to be done than we have done so far, and all of it has to be completed by 1 April next year. There is a huge amount to be done over the coming months by the Government, the Parliament and all those who are involved in taxation in Scotland.

Probably the first true test of revenue Scotland’s performance and way of doing business will involve the charter to which the cabinet secretary referred. Under section 10 of the bill, revenue Scotland has to create a charter of standards and values. As I indicated earlier, the section has been boosted by bringing in reciprocity between revenue Scotland and taxpayers. In pulling the charter together, revenue Scotland is to consult those whom it thinks are relevant. That will be its first challenge: how will it consult on what the charter ought to look like, who will it consult and will it take a proactive or a reactive approach? Everybody will be watching very carefully, because how the charter is constructed will tee up how revenue Scotland performs over the coming years.

I do not know whether there is information on this at the moment, but if the cabinet secretary has any information on the timing of the consultation on the charter we would certainly welcome hearing it in the chamber today.

I have a couple of other points to bring up. Section 3 refers to revenue Scotland’s resolution of disputes with taxpayers. The section contains the phrase “including by mediation”. Individual cases between taxpayers and revenue Scotland will clearly be operational matters and decisions on them will, quite rightly, be for revenue Scotland to take. However, I wonder whether including that phrase is a hint or a steer from the Government that, as a policy, it would like to see mediation being used by revenue Scotland. Perhaps I have read too much into that. I would certainly welcome any clarification on it from the Government.

A couple of members have talked about the block grant adjustment mechanism. This is not strictly and directly part of the stage 3 debate, but the cabinet secretary gave evidence to the Finance Committee last Wednesday about how things have moved forward in that regard. Perhaps the answer to this question is no, given that that was only a week ago, but has anything happened in the interim period and is there anything else that the cabinet secretary can share with the Parliament, so that we can see that process moving forward as fast as possible? That adjustment mechanism must be sorted out in the coming months, but everything else underpinning the bill—and indeed the other two tax bills—must be in place by 1 April next year. There is much for us all to do in the coming months.

Photo of Malcolm Chisholm Malcolm Chisholm Labour

Iain Gray began his speech by quoting Einstein, to the effect that

“The hardest thing in the world to understand is the income tax.”

To be perfectly honest, and at the risk of being expelled from the Finance Committee, I think that the hardest thing in the world to understand is the Revenue Scotland and Tax Powers Bill. In view of that, I thank all those who helped me and, no doubt, others to understand better—namely, the adviser in particular, the clerks, the witnesses, the bill team and the cabinet secretary himself.

I also thank the cabinet secretary for taking on board so many of the committee’s recommendations in his stage 2 amendments and, of course, in further amendments today. I should thank him particularly for the amendment in which he picked up a point that I made in committee. Referring to artificiality in the GAAR, I asked why the reference to “reasonable business conduct” in section 59 should not be extended to include personal conduct. I welcome the amendment that the cabinet secretary lodged to deal with that issue.

The word “reasonable” has haunted our discussions. I even found myself at one point saying that the UK double reasonableness test was quite reasonable. In the end, I am quite happy to defer to the Government in that regard.

On the general anti-avoidance rule, there were some concerns that the bill had been drawn too broadly and that the language that was used in defining what constitutes a reasonable action was too vague. Part 5 of the bill outlines that any activity that has the obtaining of a tax advantage as the main purpose, or one of the main purposes, of the arrangement may be deemed unlawful. I believe, however, that it is right to draw the rule quite widely as, historically—and specifically in the case of HMRC—the use of a more targeted or narrow approach has led to the emergence of loopholes that can be abused by businesses. Having the principles of the GAAR enshrined in the bill will, I hope, mitigate the need for any targeted rules for tax avoidance in future.

Further to that, although I recognise that the double reasonableness test may be construed as being unnecessarily complicated, its absence from this new legislation means that we must make absolutely certain that channels are made available to challenge any decision in a timely and fair manner. Therefore, a vigorous approach to tax avoidance must be balanced by a fair appeals system. I raised that issue at stage 1 in the committee with the cabinet secretary, and the committee recommended that he reconsider the restrictive rule governing appeals in the Court of Session and the number of members of the upper tax tribunal for appeals. I would welcome reassurance from the cabinet secretary, in his wind-up speech, about the fairness of the appeals system.

Another issue of fairness concerns the contrast between the advice that is offered by lawyers and accountants and to what extent it should be privileged. I believe that what is and is not privileged advice should apply equally to all advisers, whether or not they are lawyers. I would welcome a statement of the Government’s most up-to-date thinking on that matter.

Finally on fairness, equality between taxpayers and revenue Scotland is also important. Part 2 of the bill addresses the establishment of revenue Scotland and provides for its general functions and responsibilities as we take forward the devolution process. Looking at the final draft, it is reassuring to see that a number of the recommendations that were made at the committee stage have been taken on board by the cabinet secretary with regards to that process. That includes putting taxpayers and revenue Scotland on an even footing in the expectations that are placed upon them in the charter. That was not the case in previous stages of the bill. The change of language to

“standards of behaviour and values which revenue Scotland is expected to adhere to”, rather than “aspire to”, will not only reassure taxpayers but firmly cement the duties of the new body on the face of the bill.

Section 10(3A) of the bill should also be welcome as it offers the assurance that the charter will be drafted and subsequently redrafted only after revenue Scotland consults such persons as it considers appropriate. That is good news, as the charter should not be skewed towards the interests of revenue Scotland but, rather, should represent the best practice for the widest number of stakeholders. I would, however, welcome a little more in the way of reassurance that revenue Scotland will engage with as many stakeholders as is practically possible, making it absolutely clear to Parliament who has been involved and for what reason.

With regard to the delegation to Registers of Scotland and the Scottish Environment Protection Agency of duties relating to land and buildings transaction tax and landfill tax respectively, I welcome the pledge to publish information concerning the nature of that delegation and to lay it before Parliament, and the fact that revenue Scotland will still be ultimately responsible for carrying out delegated functions. Those powers may be delegated as and when revenue Scotland sees fit. Although I support the theory behind that, I was somewhat concerned by some of the evidence on the balance of responsibilities and the pressures that that may bring. The Faculty of Advocates was keen to point out that certain powers, such as the power to levy a penalty or to make an assessment, are inherently the concern of the taxing authority, and that revenue Scotland should not be given carte blanche to delegate at will. Powers must be delegated according to what works best where. Some responsibilities are best kept within the remit of revenue Scotland.

The tax system that a country adopts goes fundamentally to the heart of what sort of society we wish to create. I believe that, within the framework of devolution, it is possible to achieve the best outcomes for Scotland. In co-operating so well, the Finance Committee and the cabinet secretary have provided Parliament with an effective foundation stone for fiscal devolution. The bill that is before us, with its enshrined charter of responsibilities, will encourage a relationship of respect between the taxpayer and the authority, based on transparency and accountability. I congratulate all members who have been involved with this process and hope that, in future years, the same approach will be applied. I support the bill and thank the Government for bringing forward this landmark legislation.

The Deputy Presiding Officer:

I remind Parliament that our debates this afternoon are on a follow-on basis and therefore I trust that all members will be in the chamber for the next debate.

Photo of John Swinney John Swinney Scottish National Party

Iain Gray said that today marked the conclusion of the trilogy of bills. That got me thinking. There is Peter May, that great Scots author, responsible for the Lewis trilogy of “The Blackhouse”, “The Lewis Man” and “The Chessmen”, and there is John Swinney, responsible for the trilogy of the Land and Buildings Transaction Tax (Scotland) Bill, the Landfill Tax (Scotland) Bill and the Revenue Scotland and Tax Powers Bill. It is not much of a sequel to other trilogies, but it is nonetheless very important legislation.

Photo of Iain Gray Iain Gray Labour

In the spirit of the famous game “Scissors, paper, stone”, the fact is that Peter May’s product will eventually end up in landfill and be subject to the landfill tax that Mr Swinney has introduced.

Photo of John Swinney John Swinney Scottish National Party

It will not for a long time, I hope.

Today’s debate has been a welcome conclusion to a really good parliamentary process. I thank the bill team for their work—as Malcolm Chisholm said, this area of activity is complex, and just as I have had to navigate the Finance Committee through it, the bill team has first had to navigate me through it. The team has been exceptional in supporting me in developing the legislation.

In doing so, we have—as has been the case with all three tax bills—had an enormous amount of consultation of external stakeholders on its contents and provisions. On most of those, we have managed to reach agreement with external stakeholders, but on some we cannot get agreement.

I assure Malcolm Chisholm that the approach of engaging in maximum consultation and dialogue with external stakeholders will be the hallmark for progressing further dialogue and discussion on issues related to the charter. I also assure Gavin Brown that we will engage in extensive consultation and allow adequate time to ensure that the issues can be properly considered.

As Malcolm Chisholm said, the design of the tax system very much reflects the approach that we as a country want to take to our taxation arrangements. I initiated the process with reference to the Adam Smith principles of certainty, convenience, efficiency and proportionality to the ability to pay, in a way that was designed to set out how we could, in our 21st-century thinking, reflect some of the great foundations of thinking that Scotland has contributed to the world. Those values are an important consideration in setting out what we want to achieve from our tax system and the impact that we want it to have on our society.

We will take that approach in reflecting on the further provisions that are to be progressed in subordinate legislation. There will be a lot of subordinate legislation, and we will of course engage with Parliament on its contents.

One innovation in the bill has been, as we progress the great principles of Adam Smith, to design new mechanisms that are appropriate for the times. That is how I would characterise the general anti-avoidance rule. I made it clear to Parliament at the outset that I wanted the bill to define emphatically the intolerance that we in Scotland would show towards tax avoidance. I want us to err on the side of tax maximisation in the way in which we structure our legislative framework.

I invited Parliament to challenge the Government’s thinking with regard to whether we were able to translate that lofty aspiration into practical legislative form. We have listened carefully to the challenges that have come from Parliament in various areas, and we have responded significantly to them at stages 2 and 3.

The current constitutional debate has crept into the discussion today. My friend Michael McMahon did not disappoint in today’s debate, and he would be disappointed in me if I did not get on to some of that territory before I conclude my own contribution.

Michael McMahon and Gavin Brown spoke about the block grant adjustment process, which is an interesting contrast to the legislative process that we have undertaken in Parliament. Across the political spectrum, with all our different opinions on how we view the world, we in this Parliament have all managed to—I assume that we will, from what I am hearing this afternoon—reach a point of unanimity on the Revenue Scotland and Tax Powers Bill when we vote later today.

We have considered the issues in our own space, according to our own values and principles, and we have come to this conclusion. I have compromised on certain things, and we have reached agreement, and Parliament will unanimously support the bill.

I think that that serves as an interesting illustration of the fact that, when we as members of the Scottish Parliament work together on legislative provisions, we can come to good, logical and sensible conclusions. If we can do that on the Revenue Scotland and Tax Powers Bill, why cannot we do it on issues such as welfare reform, other measures on the tax system and how we should speak to the world through our international policy?

Mr Chisholm said that he felt that

“the word reasonable has haunted our discussions” on the bill. I consider myself to be an entirely reasonable person, and I have tried my level best to display that reasonableness in getting to a position of unanimity. If we can have that reasonableness across the chamber on the bill that we are debating, why cannot we have it on all the issues on which such reasonableness would allow us to advance our constitutional agenda in fulfilment of our mission to deliver the very best for the people of Scotland?

We would, of course, be able to make progress on the block grant adjustment if all my reasonableness were absorbed by the other party to that discussion—Her Majesty’s Treasury. The lesson that I take from our consideration of the bill is that, when we in Scotland all work together to use the legislative framework that we have, we can take good decisions that will be the hallmark of how we should be governed in the years to come.

I have expressed my remarks in a way that is entirely consistent with my reasonable style and with the optimistic tone of Mr Mason, which came to the fore in the debate. I am sure that the people of Scotland will reflect on the points that I have made in the weeks to come, and that they will come to the right—and the sensible—conclusion.