General anti-abuse rule: provisional counteractions

Finance Bill – in the House of Commons at 12:40 pm on 28 June 2016.

Alert me about debates like this

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 12:40, 28 June 2016

I beg to move amendment 114, page 194, leave out lines 12 to 15 and insert—

“( ) notifies the person of the person’s rights of appeal with respect to the notified adjustments (when made) and contains a statement that if an appeal is made against the making of the adjustments—

(i) no steps may be taken in relation to the appeal unless and until the person is given a notice referred to in section 209F(2), and

(ii) the notified adjustments will be cancelled if HMRC fails to take at least one of the actions mentioned in section 209B(4) within the period specified in section 209B(2).”

Photo of Eleanor Laing Eleanor Laing Deputy Speaker (First Deputy Chairman of Ways and Means), First Deputy Chairman of Ways and Means

With this it will be convenient to discuss the following:

Clause stand part.

Government amendments 115 to 174, 178, 175 to 177 and 179.

Clause 145 stand part.

Government amendments 82 to 86.

Amendment 4, in clause 146, page 209, line 25, leave out from “penalty” to end and insert

“shall be 100% unless the GAAR Advisory Panel or an officer duly delegated by that panel considers that there are exceptional reasons for lessening that percentage.”

Government amendments 87 to 99.

Clauses 146 and 147 stand part.

Government amendments 100 to 110.

Government amendments 112, 111 and 113.

Schedule 18 stand part.

Government amendments 69 to 81.

Clauses 148 and 149 stand part.

Amendment 1, in schedule 19, page 516, line 21, at end insert—

‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.

(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”

Amendment 5, page 516, leave out line 39 and insert—

‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.

Amendment 6, page 517, line 1, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 7, page 517, line 5, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 8, page 517, leave out lines 11 to 15 and insert—

‘(5) At the end of that period, the director or directors of the head of the group—

(a) are personally jointly and severally liable to a further penalty of £25,000, and

(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”

Amendment 9, page 517, line 15, at end insert—

‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.

(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”

Amendment 10, page 518, leave out line 24 and insert—

‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.

Amendment 11, page 518, line 29, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 12, page 518, line 33, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 13, page 518, leave out lines 39 to 43 and insert—

‘(5) At the end of that period, the director or directors of the head of the group—

(a) are personally jointly and severally liable to a further penalty of £25,000, and

(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”

Amendment 14, page 518, line 43, at end insert—

‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.

(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”

Amendment 15, page 520, leave out line 12 and insert—

‘(2) The director or directors of the company are personally jointly and severally liable to a penalty of £25,000 if:”.

Amendment 16, page 520, line 17, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 17, page 520, leave out lines 27 to 31 and insert—

‘(5) At the end of that period, the director or directors of the head of the group—

(a) are personally jointly and severally liable to a further penalty of £25,000, and

(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”

Amendment 18, page 520, line 31, at end insert—

‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.

(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”

Schedule 19 and clause 150 stand part.

Amendment 19, in schedule 20, page 534, line 23, at end insert

“, or P has introduced Q to a person R with whom P has a business relationship, where P knows or should know that R is likely to facilitate Q to carry out offshore tax evasion or non-compliance.”

Amendment 20, page 535, line 5, at end insert

“; and P will be deemed to have known if P wilfully or recklessly failed to make such enquiries that a reasonable and honest person would have made”.

Schedule 20, clause 151, schedule 21, clauses 152 and 153, schedule 22 and clause 154 stand part.

New clause 4—Report on the workings of the General Anti-Abuse Rule

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the workings of the General Anti-Abuse Rule.

(2) The report must include but need not be limited to—

(a) the number of meetings held by the General Anti-Abuse Rule Advisory Panel;

(b) the date by which the procedures of the Advisory Panel were published;

(c) the number of cases referred to the Advisory Panel and by whom;

(d) the number of cases on which a decision has been made by the Advisory Panel;

(e) the number of outstanding cases on which a decision has not been made by the Advisory Panel, and the dates on which those cases were first referred to the Advisory Panel.”

New clause 5—Report on the number of deliberate tax defaulters—

The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report containing the number of deliberate tax defaulters whose details have been published, and an estimate of the number of taxpayers who have been deterred from deliberately defaulting as a result of the provisions contained in section 94 of FA 2009 as amended by this Act.”

New clause 6—Report on the asset-based penalty for offshore inaccuracies and failures—

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the asset-based penalty for offshore inaccuracies and failures.

(2) The report must include but need not be limited to—

(a) how much tax revenue has been recouped due to this measure;

(b) the amount of monies paid in asset-based penalties; and

(c) the number of persons upon whom asset-based penalties have been levied.”

New clause 7—Report on the impact of the criminal offences relating to offshore income, assets and activities—

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the criminal offences relating to offshore income, assets and activities.

(2) The report must include but need not be limited to—

(a) the number of persons who have been charged with offences under each of sections 106B, 106C and 106D of TMA 1970;

(b) the number of persons who have been convicted of any such offence;

(c) the average fine imposed; and

(d) the number of people upon whom a custodial sentence has been imposed for any such offence.”

New clause 8—Whistleblowing in relation to tax evasion—

The Chancellor of the Exchequer shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector in relation to the disclosure of suspected tax evasion, and report to Parliament within six months of the passing of this Act.”

New clause 9—Estimated impact of extending the scope of the Register of People with Significant Control Regulations 2016—

The Chancellor of the Exchequer must, within 12 months of this Act coming into force, publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the requirement placed on UK-incorporated companies by the Register of People with Significant Control Regulations 2016 to publish a register of people with significant control to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.”

This new clause would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information about people who have significant control over them to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I begin by expressing my gratitude for your dispensation, Mrs Laing. I will, of course, take interventions, and I hope it will not disconcert Members if I remain standing at the Dispatch Box while doing so. There is a great deal to cover and a large number of amendments have been tabled by Opposition Members, many of which I shall have to cover briefly. I shall try to provide as much information as I can as quickly as I can and respond to points raised in the course of the debate.

Clauses 144 to 146 make administrative changes to the general anti-abuse rule—the GAAR procedure—and introduce a new penalty for those who enter into abusive tax arrangements. Clause 144 allows Her Majesty’s Revenue and Customs to make a provisional GAAR counteraction where it believes additional tax is due but the assessment time limits are due to expire. Clause 145 is an administrative change to strengthen the GAAR’s procedural efficiency. The GAAR procedure currently requires each user of the same type of marketed tax avoidance arrangements to be referred separately to the GAAR advisory panel. This is an inefficient use of HMRC’s and the advisory panel’s resources, so clause 145 corrects this. Clause 146 introduces a new penalty of 60% for taxpayers who enter into abusive tax arrangements that are counteracted under the GAAR.

The Government have tabled 84 amendments to clauses 144 to 146, making minor changes to ensure that the legislation works as intended, but let me respond now to new clause 4 and amendment 4, which relate to the GAAR clauses I have just outlined. New clause 4 asks the Government to conduct a review of the GAAR in a year’s time. The GAAR advisory panel is already required to publish anonymised reports of the cases it considers. It is difficult to see how this new clause could provide a better insight into GAAR cases than this.

Amendment 4 proposes that a penalty of 100% is introduced for the GAAR. While under HMRC’s existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, it is right for the GAAR penalty to sit just below this. Under the new measure, tax avoiders can be charged penalties under the existing penalty rules and the GAAR penalty up to a maximum of 100%. As such, the amendment does little more than what we are already suggesting, and I therefore urge the House to reject it.

Clause 147 and schedule 18 introduce the new serial avoidance regime and a new threshold condition for the existing POTAS—promoters of tax avoidance schemes— regime introduced by clause 148. The new serial avoidance regime will tackle those tax avoiders who use multiple tax avoidance schemes. It will work by putting avoiders on notice when HMRC defeats a scheme they have used. If they use further schemes and HMRC defeats them, they will face serious and escalating sanctions, including a penalty starting at 20% of tax understated and reaching 60% for a third scheme defeat while under notice. Clause 148 introduces a new threshold condition for the promoters of tax avoidance schemes regime so that promoters who have promoted three schemes that have been defeated by HMRC over an eight-year period risk entering the POTAS regime.

The Government have tabled 27 amendments to clause 148 and schedule 18. The amendments to schedule 18 provide for those who try to avoid tax through companies they own or partnerships to be brought within the scope of the new regime. Amendments to clause 148 provide for POTAS to cover circumstances where tax avoidance is promoted through associated persons. The remaining amendments make minor changes to ensure the schemes work as intended.

Clause 149 introduces a new requirement for large businesses to publish their tax strategies, ensuring greater transparency about their tax approach to HMRC, shareholders and the public. Transparency promotes good tax compliance while providing a fairer, more stable and competitive environment in which to do business. The strategy published by businesses must cover the areas specified in legislation, be updated annually and remain accessible. A penalty may be chargeable if a strategy is not published or if the information contained does not meet the requirements of the legislation.

The Government are also committed to tackling cases of aggressive tax planning. Schedule 19 introduces a new special measures process which will apply sanctions to large businesses that persistently undertake aggressive tax planning or refuse to work with HMRC in a collaborative and transparent way. Taken together, clause 149 and schedule 19 will help to reduce the appetite for aggressive tax planning and improve large business tax compliance.

On the amendments tabled by the Opposition, amendments 5 to 18 would collectively introduce a requirement for directors of a business to be personally, jointly and severally liable for a penalty of £25,000 should the business fail to comply with the legislation, rising to a monthly charge of £25,000 after the initial 12 months have passed. Amendments 9, 14 and 18 also propose that the said named directors should not be reimbursed in any way and they would impose further penalties.

These amendments are disproportionate and go against the principle of encouraging behavioural change across businesses. Boards take a collective responsibility for any decisions made on behalf of their businesses and their tax strategy is no exception. Ultimately, this Government believe any penalty is a business responsibility, not one to be pursued across a group of directors. In summary, these amendments would result in less clarity around any sanctions, not more, and I urge the House to reject them.

The amendment to clause 149, tabled by Caroline Flint, seeks to require large multinational enterprises to publish a country-by-country report on their activities within their published tax strategy. As I have set out, this Government fully share her aims of increasing transparency and clamping down on avoidance and evasion wherever it occurs. Indeed, this Government have led the way in calling at an international level for public country-by-country reports. However, I do not believe that her amendment would help to achieve the objectives that we all share. It is technically flawed, and hence would not achieve the stated transparency or pro-business objectives that we all espouse.

The right hon. Lady has said that multinational businesses such as Google would be forced to publish headline information about where they do business, the money that they make and the tax that they pay, but that is not the case. According to Government legal advice, the amendment would, in practice, place such a requirement only on UK-headquartered multinationals. Foreign-headquartered multinationals such as Google would not be caught at all, and that undermines the transparency objective of the amendment.

The amendment also risks putting UK multinationals at a competitive disadvantage by imposing a reporting requirement that does not apply to foreign competitors operating in the same market. For example, a company headquartered in the UK, whether on the mainland or in Northern Ireland, would have to file public reports, but a company headquartered in the Republic of Ireland—or, indeed, pretty well anywhere else—would not. That, I think, contradicts the level playing field objective whose importance the right hon. Lady has emphasised. At a time of increased uncertainty, we should be particularly cautious about disadvantaging UK-based businesses and imposing on them a further commitment that does not apply to their foreign competitors.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

I am grateful to the Minister for giving way, especially as he is in pain. He said earlier that the amendment was “technically flawed”, but that is not the advice that my right hon. Friend has received. It seems to me that, in reality, the Government are more driven by their ideas about tax competition. Will the Minister confirm that that is the case? If it is, I suggest to him that transparency is more important for the British people in particular, and that if any global company chooses to leave the UK simply because of demands for transparency and demands that it pay fair tax, which will be a rare occurrence, it may well be that it is not the sort of company that we want to be headquartered here.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

There are some issues of timing, but I must emphasise that the only companies that would fall within the scope of the amendment would be UK-headquartered companies. The Googles of this world would be unaffected. We believe that all this should be done on a multilateral basis, and—although my timing may be slightly unfortunate—I should point out that considerable progress has been made at European Union level. Indeed, the relevant commissioner has said that we are on the cusp of a deal and that he hopes that it will be concluded during the course of the Slovakian presidency, in the second half of this year. The UK has been leading the way in that debate, and, indeed, we have been calling for the Commission to toughen up its rules.

Several hon. Members:

rose—

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I will just finish what I am saying before I give way. I am being bombarded by distinguished right hon. Members.

We know that the debate on corporation tax tends to focus on companies’ sales, but corporation tax is not based on sales; it is based on activity. If a company takes part in a lot of activity in the UK but makes a lot of sales in another jurisdiction, it is likely to pay a lot of tax in the UK, but not a lot of tax in other jurisdictions where there is little or no activity but a great many sales. If the UK is the only jurisdiction that is putting out this information, or requiring its companies to put it out, there will be many examples of UK companies that are acting completely properly in foreign jurisdictions and not paying a lot of tax in those jurisdictions, but are vulnerable to criticism. It would be very much easier for all businesses to be able to point to an Italian, German, French or Swedish company that is in the same position, with a lot of activity in its own jurisdiction and a lot of sales in another jurisdiction, and is paying its tax where the activity is, not where the sales are. If the UK is acting unilaterally, I worry about unfair reputational criticism of our companies. As Dame Margaret Hodge knows very well, reputational damage to a business can damage its commercial interests,.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

Surely the problem is that so much of what we are finding out about companies—about where they do their business, where their profits are, and where they pay their taxes—is emerging through leaks. Massive reputational damage is being done to those companies. The amendment gives us a chance to put things on a much better footing by providing not all the information about companies, but the baseline headlines about where they do business, where they trade and where their profits are. Surely that is something on which we can lead.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I think that the principle and the destination are pretty clear. We are moving in the direction of companies’ publishing this information, and I believe that the UK should be leading the way in working out a multilateral deal in which a number of countries impose essentially the same requirements. That, I think, would help to improve transparency and would provide a level playing field.

I do not think that the UK should be the last mover in this respect by any means. The United States seems to be some way away from moving in this direction, and I do not think that we should wait for the United States; I think we should be there before it. We should be able to deliver, especially given that such good progress is being made at European Union level. We remain members of the European Union, and there is appetite for this in other EU states. I have no doubt that, if no progress has been made in a year or two, the right hon. Member for Don Valley will come back and ask, “Why has this not happened?”, and in that event her case would be strengthened. However, I think that until we have given the deal a fair wind, it would be premature to act unilaterally.

Photo of Andrew Mitchell Andrew Mitchell Conservative, Sutton Coldfield

The Minister has a perfectly justified and extremely good reputation for being sympathetic in driving this agenda forward. He will recall our discussions, both in opposition and back in 2010, about precisely the point that is addressed in the amendment. We all agree that companies should pay tax where their profits are earned.

The Minister knows as well as I do that some of the poorest people in the world live on top of some of the richest real estate, and that extraction taxes should be paid where those profits are earned. May I ask him to respond fully to the point that is being made by Caroline Flint? If he thinks that her amendment is defective in some way, will he commit the Government to looking at those defects and considering whether they can frame a clause that would address the first part of what she said, with which I understood him to say he agreed?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

The Finance Bill is not the ideal way in which to address this issue fully. I make no criticism whatsoever of the right hon. Member for Don Valley, who has shown much ingenuity in managing to ensure that her amendment was in order, but this is essentially an issue for company law.

We are keen to implement public country-by-country reporting, and we want to do it on a multilateral basis. As I have said, if there was a lack of progress the Government would obviously want to return to the issue, given the concerns that I think are felt by Members in all parts of the House. However, I think that we are in a position to aim for what I am sure we all agree would be the best result: achieving our aims on a multilateral basis.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

It is clear that the Minister has some sympathy with the amendment tabled by my right hon. Friend Caroline Flint and most of the Public Accounts Committee, along with many other Members in many parties. Rather than requiring my right hon. Friend to come back to the House, will he therefore commit the Government to looking at this matter unilaterally if multilateral agreement is not achieved? Or will he go even further today and agree to a sunrise clause to add to the proposals that my right hon. Friend and I, and others, have put forward, so that this can come into action if the multilateral agreement that he is hoping for does not come to fruition?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 1:00, 28 June 2016

We are in quite a fast-moving area, and the progress that has been made in recent months has been considerable. Just at the beginning of this year, it looked unlikely that a deal would be possible, but now it looks as though the EU is heading in that direction. As I have said, the EU Commissioner has said that something is likely to happen by the end of this year. I must add the slight caveat that we will have a new Prime Minister by then, but it is certainly my view that if we have not made progress by this time next year on reaching a multilateral agreement, we will need to look carefully at the issue once again. I do not want to make a full commitment on this because—I am standing here desperately with the Dispatch Box as a source of support—I might no longer be in this position by then. I make that caveat, but I believe that there is every chance of an agreement. I would be disappointed if we did not make progress, but in the event of that happening—I hope it is unlikely—we would need to look at this again. I suspect that there is agreement between us here that it would be better for us to get a multilateral agreement than for us to go off alone.

Photo of David Mowat David Mowat Conservative, Warrington South

I think I have heard the Minister say that there will not be a multilateral agreement that includes the United States. So is it the Government’s position that we do not want to act unilaterally for the UK, but we will act unilaterally within the EU—even if we are not in it—even though the EU itself contains only 20% of the world’s multi- nationals? Is he saying that this does not need to be multilateral, and that it just needs to be EU-lateral?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I do not think that this has to be universal, but there would be disadvantages for the UK if we were the only country to do it. There is a sense that UK companies would be criticised for failing to pay very much tax in jurisdictions where they did not have a lot of activities but had a lot of sales. This comes back to the point about educating the public about how corporation tax works. I think it would be an awful lot easier if there were just a few examples of other countries doing this. I do not think it needs to involve every other country, but if, for example, Germany, France and Italy had the same type of system, every time a UK company was criticised we could say, “What about that French company? What about that Italian company? The same principles apply to them.”

We do not have to move at the pace of the slowest, but if we adopt an isolated position on this, there would be a reputational risk for UK businesses. We do not need to run that risk, particularly as good progress is being made, and I urge the House not to accept this amendment. Instead, I hope that we will be able to implement a measure over the next few months.

Photo of David Mowat David Mowat Conservative, Warrington South

I suppose it depends which multinationals are in which segment of competition, but is the Minister saying that as long as, say, two or three other countries were to do this, the UK would join in?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I do not want to put a precise number on this. There is a threshold, and it depends on which those countries might be, but if I thought that three or four significant economies were going in the same direction, the case for doing this would be much stronger. Or, to put the reverse argument, if I were standing here next year and two or three other countries had gone down this route, the concerns that I am expressing from the Dispatch Box today would clearly carry less weight than I think they do today.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

Perhaps I can help the Minister. On behalf of the Public Accounts Committee, I sent an open letter to the chairs of European finance and public accounts committees or their equivalents. The Minister might have picked up the fact that, to date, the letter has been signed by the chairs of parliamentary finance committees in Germany, Hungary, Finland, Norway and Slovakia, as well as by senior MPs in the Netherlands, the Czech Republic and Bulgaria. We also know that the French Finance Minister, Michel Sapin, is doing some interesting work in this area, as are many others. Does that help to push the Minister in the right direction and enable him to make us more of an offer today?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Well, it supports my optimism that we are on the cusp of a multilateral deal, and that will enable us to work out the legislation in the most comprehensive and effective way. As I have said, our preference would be to do this through company law rather than through a Finance Bill, but the hon. Lady’s intervention supports what I was saying earlier about the comments of the relevant EU Commissioner at the last ECOFIN meeting in Luxembourg, which I attended 11 days ago. He was optimistic that we would reach agreement by the end of this calendar year. If that is the case, it is hugely encouraging, and the point that the hon. Lady has just made supports that proposition.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I hope that the Minister will be willing to channel the leadership and enthusiasm that the UK showed in relation to the diverted profits tax, when we chose to go out alone and not wait for international agreements on base erosion and profit shifting. We introduced a whole new tax, with compliance burdens and penalties, and I suspect that that was a far bigger deal than requiring companies simply to disclose what they are already disclosing but in a slightly different format. I think that that was the right way to go.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

My hon. Friend is right to mention the fact that we went ahead with the diverted profits tax, although doing so was clearly consistent with the direction of the base erosion and profit shifting process. That tax also brought in significant revenue to the UK, which has been very helpful.

If we want to achieve greater transparency, as I believe we all do, it is right that we should focus on driving forward international efforts on public country-by-country reporting. In order to get full information on foreign multinational entities’ global activities, multilateral agreement will be required to enable countries to introduce comprehensive rules with the widest possible scope. This will allow for a comprehensive multilateral approach that applies consistently across UK and foreign multinational entities. We must get this right so that, when it is introduced into UK law, it is effective and enforceable. We will continue to support and drive this multilateral change forward following the result of the referendum, and I share the determination of the Members supporting this amendment not to move at the pace of the slowest.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I will give way one more time, but I am conscious that I am taking up a lot of time in what is quite a short debate.

Photo of Andrew Mitchell Andrew Mitchell Conservative, Sutton Coldfield

The Minister is being extremely generous in giving way. I am sure we all agree with him that this should be done multilaterally—there is nothing between us on that—and I am sure that it will be helpful to his aim of being able to demonstrate strong support for this across the House of Commons when he is dealing with his international partners. I should like to make a suggestion, and I hope that it will be helpful. Would he consider asking his officials to draft a clause for public discussion that is not defective and that he could put to his colleagues multilaterally as a measure that they might wish to include in their parliamentary legislation?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I am grateful to my right hon. Friend for that suggestion. Let me take it away, because there are a number of ways in which this could be done, and we would want to consider it. I believe that this debate will be helpful to our parliamentary and governmental colleagues in other jurisdictions in that it demonstrates our cross-party determination to make progress on this matter. We are committed to acting swiftly to implement international agreements, as we have done with the OECD BEPS recommendations on country-by-country reporting. We are committed to improving the transparency of multinational tax affairs, but we support an effective multilateral approach. At this time of increased uncertainty, a domestic measure of the sort being discussed today would, I fear, disadvantage UK business for the reason that I outlined. I look forward to hearing the contribution of the right hon. Member for Don Valley, but I hope she is satisfied with the assurances that I have provided today.

Clause 150 and schedule 20 create new civil penalties for those who have deliberately assisted taxpayers to evade UK inheritance tax, capital gains tax or income tax via offshore means. The legislation introduces a financial penalty of up to 100% of the tax evaded and public naming in the most serious cases.

I want briefly to respond to Opposition amendments 19 and 20. The intentions of amendment 19 seem twofold. The first would ensure that it is considered enabling to act as an introducer. Schedule 20 already covers acting as an introducer, so that part of the amendment is unnecessary. The second aim is to set a test to check whether it objectively appears that the adviser should have known that the advice was likely to enable offshore tax evasion and is therefore an enabler. The test would introduce a great deal of uncertainty, meaning that it would be unclear how much due diligence should be completed.

Similarly, amendment 20 proposes a test that would ask whether the adviser wilfully or recklessly failed to make inquiries that a reasonable and honest person would have made. The courts generally recognise that knowledge includes so-called “blind-eye” knowledge—where a person has a firm suspicion about specific facts and deliberately decides not to find out more about them—meaning that an enabler cannot bury their head in the sand. If they have good reason to think that they are assisting evasion, failing to make proper inquiries will not help them and they will be penalised under the schedule as it currently stands. Given the restrictions and uncertainty that amendments 19 and 20 would introduce, I urge hon. Members to reject them.

Clauses 151 to 153 and schedules 21 and 22 strengthen the civil sanctions levied on offshore tax evaders. Clause 151 will increase the minimum penalties for deliberate offshore tax evasion to 30% of the tax due. The current minimum penalty is 20% and the maximum penalty will remain up to 300% of the tax due. The clause will require offshore evaders who are seeking to minimise or reduce their penalty to provide more information about their evasion and enabling activities in co-operation with HMRC.

Clause 152 removes the protection from being publicly named for deliberate offshore tax evasion unless an offshore evader comes forward to HMRC voluntarily and makes a full disclosure. In addition, clause 152 allows HMRC to name the individual who controls a company or entity that has participated in offshore tax evasion.

Clause 153 introduces a new asset-based penalty that will apply to the most serious cases of deliberate offshore tax evasion, where the tax loss exceeds £25,000, and will levy a penalty of up to 10% of the value of the asset connected to the evasion. Such assets could include physical property, intellectual property, shares and bank accounts. The asset-based penalty will be levied in addition to any other tax-geared penalties and interest due. Taken together, the measures will provide HMRC with a greater understanding of tax evasion while significantly increasing the penalties on tax evaders and those who help them.

New clauses 5 and 6 concern the reporting of a number of offshore tax evaders who have been named by HMRC and the number of asset-based penalties levied within a year of the passing of this Bill. The asset-based penalties are expected to apply from the 2016-17 tax year and the strengthened naming provisions are expected to apply from the 2017-18 tax year, with the first details published under this clause expected to be in 2019-20. As such, there would be no time for the activities covered by the amendments to have happened by the deadlines set for the Government to report on them.

The Government are taking action to increase penalties on offshore tax evaders and those who enable them. However, there remains a persistent minority of taxpayers who continue to evade UK tax in that way. To tackle the minority, clause 154 introduces a new criminal offence for those persistent offshore tax evaders. Crucially, the offence does not require the prosecutor to prove that the taxpayer intended to evade their UK tax responsibilities offshore, increasing our ability to prosecute offshore tax evaders. A successful conviction under the offence can result in a fine or a prison sentence of up to six months. Those who continue to break the rules should face tougher sanctions and the new offence will help to ensure that they do.

New clause 7 makes a requirement to publish a report on the impact of the new criminal offence within a year of the Bill being passed. The new criminal offence is expected to come into effect from the 2017-18 tax year at the earliest, which is beyond the one-year deadline set out in the new clause, making it redundant. In addition, HMRC already publishes information on tax crime.

New clause 8, tabled by the SNP, proposes a review of arrangements to facilitate whistleblowing about suspected tax evasion in the banking and financial services industry. HMRC values the extensive information provided each year by the public. During the 2015-16 financial year, HMRC received over 125,000 pieces of information from the public. HMRC’s actions are subject to independent scrutiny and regular inspection from the Office of Surveillance Commissioners. I am satisfied that that gives me good assurance that its work in this area is well managed and highly effective. We therefore do not believe a review is necessary and urge Members to reject the new clause.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I will certainly give way. I was about to turn to new clause 9.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

I want to make two points about the response to whistleblowing. First, as I read the clause, it would lead to a review of whistleblowing in the banking and financial services sector. During my period as the Chair of the Public Accounts Committee, we did a lot of work on the whistleblowing from Falciani on the Swiss bank accounts and on the PwC leaks in Luxembourg. What was so interesting was that the only action that the two financial institutions took was to try to pursue the whistleblowers through the courts—trying to get them indicted and jailed. That is unacceptable.

Secondly, the internal HMRC lawyer who gave us the evidence that demonstrated that a sweetheart deal had been entered into with Goldman Sachs could not, in the end, return to his job. Everything of his was rifled through from his wife’s computer to his telephone and everything else. That is not good enough. I urge the Minister to think again and to instigate a review.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I note what the right hon. Lady says, but I will not let her comments about sweetheart deals pass. We have discussed the matter before, and I point her in the direction of Sir Andrew Park’s review of those settlements and his conclusion that there were no sweetheart deals. This is an issue that she and I have discussed before and no doubt will discuss again, and I fear that we will not reach agreement. I note her points, but I am not persuaded by the case for new clause 8.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I am conscious that this is a relatively short debate and that I have already taken up a large proportion of it. I am not quite done, but I will take a short intervention.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

My point is about the NHS, where whistleblowers have suffered exactly the same kind of detriment, but the Government are now trying to change their attitude. I do not understand why we would not want to support whistleblowers within the industry when we have had one scandal after another for the past decade.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

My point would be about the sheer scale of the information provided to HMRC. I quoted the 125,000 pieces of information from the public, but by no means are all of those whistleblowers. HMRC certainly does receive a substantial amount of information from whistleblowers, which is helpful. As for how that works and its contribution to HMRC’s activities, I am not aware of worries that that is not working or that the existing provisions with regards to whistleblowers are ineffective. Of course these matters are always kept under review. If I thought that there was a strong case for returning to this issue, I would certainly be interested in doing so, but I am not hearing that at present.

Dame Margaret Hodge has been waiting very patiently for me to turn to new clause 9, which would require the Government to estimate the impact on the tax gap of expanding our forthcoming register of persons with significant control to companies in the Crown dependencies and overseas territories. I do not believe that the clause would be effective in achieving its aims. It would cast the net too narrowly by focusing on companies with significant levels of trading activity in the UK. As the Prime Minister announced at the recent anti-corruption summit last month, the Crown dependencies and overseas territories have agreed to hold beneficial ownership information on all companies incorporated in their jurisdictions. Importantly, they will share that information with Her Majesty’s Revenue and Customs and UK law enforcement agencies, which means that our authorities will be able to see exactly who owns and controls companies incorporated there.

Although I understand the aims of the new clause, it would be less effective than the steps that we have already taken to improve transparency and tackle tax evasion. I do have some sympathy with the argument that, no doubt, we will hear from the right hon. Lady, but I am not persuaded by it, and I hope that she will not press her new clause to a vote.

I will not take up any more time of the Committee. I have tried to cover as much ground as I can and to anticipate the arguments that we will hear for the rest of this debate. I hope that the Government clauses, schedules and amendments can stand part of the Bill.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

I will try to be relatively brief, but, as the Minister has said, there is an awful lot to get through. I know that many Members wish to speak—indeed today, we have a profligacy of right hon. Members with us, particularly on the Opposition Benches, which is very good—so, perforce, I will have to be brief on various issues.

Labour does not oppose clause 144. On clause 145, which is to do with the general anti-abuse rule, I would like some assurance from the Minister that there are enough staff to deal with this work. I realise that the Government have gone into reverse gear on this, which I welcome, and the number of full-time equivalents has gone up from 57,000 to 60,000 this calendar year. That is a good step, but HMRC was significantly underperforming because it was very understaffed, and clause 145 proposes an additional amount of work for staff to do, so I should like some reassurance on that.

Clause 146 proposes penalties for the general anti-abuse rule. The Chartered Institute of Taxation, which has been extremely helpful to all Members, especially those on the Opposition Front Bench, is concerned that someone might be punished in a rather draconian manner for an innocent error of judgment. However, when my excellent researcher, Imogen Watson, looked at the case to which CIOT referred, she found that it was one to do with customs and excise rather than corporation tax and income tax. Perhaps the Minister can provide some clarification on that.

Amendment 4 on clause 146, which is tabled by me and my hon. and right hon. Friends, deals with raising the penalty from 60% to 100%. I heard what the Minister said about that, but I am concerned that the penalties would not be sufficient to change behaviour and encourage socially acceptable law compliant behaviour, which is what we all want to see.

Clause 147 deals with serial tax avoidance. The Chartered Institute of Taxation has expressed concern, and I understand its point, that this clause might introduce what would be a double penalty for an individual. Generally, we try to avoid double penalties for wrongdoing. Perhaps the Minister could have another think about the clause, or clarify for the Committee today that the CIOT has misunderstood things and there is no such double penalty being introduced. Could the Minister give us an indication—I know that these things are difficult—of how many non-taxpayers will mend their ways as a result of this measure and become taxpayers? Again, there is an issue of funding for HMRC.

Clause 148, which relates to the promoters of tax avoidance schemes, is supported by the Labour Front-Bench team. Although we support clause 149, which deals with special measures and so on, we have put forward amendments 5 to 18 on it—the Minister referred to them earlier. Those amendments deal with increasing the penalty to £25,000 from £7,500 and for holding a director or directors “jointly and severally liable”. Rather strangely, the Minister said that the Government were in the business of “encouraging behavioural change”. Well, so are we. Having higher penalties could encourage behavioural change, by which I mean somebody not indulging in bad behaviour, and filing their reports and so on. That is why we came up with the idea of joint and several liability rather than leaving it to one person. That means that all directors would be aware of what was going on. Furthermore, if the penalties were levied, they would not be reimbursable as is too often the case. Too often, companies simply reimburse their staff when the staff have engaged in non-criminal wrongdoing. That is not an incentive for them to avoid wrongdoing in future—quite the reverse if anything.

With clause 149 comes amendment 1. I will be brief on that amendment, because my right hon. Friend Caroline Flint will no doubt be speaking to it. It is an excellent amendment, which is fully supported by the Labour Front-Bench team. I will say a couple of things very briefly in response to what the Minister said on it. He said that the amendment is technically flawed. That may be the case, but this is the first of almost 200 amendments. If the Government supported it, they could have corrected any technical flaws they saw in it. I also think that they are being a bit timid here, because I do not see how the provisions under amendment 1 will lead to disadvantage to UK headquartered companies or to reputational damage—quite the reverse. Whether the Minister likes it or not, the reputation of Google was adversely affected in the United Kingdom because its tax deal with the UK authorities was not transparent and because people thought that Google was getting away with it. If there had been more transparency, Google’s reputation might not have been adversely affected.

Similarly, provisions in amendment 1 could lead not to reputational damage for UK headquartered companies, but reputational enhancement. I have to say to the Minister—I cannot resist it because he is such a good Minister—that, in our society, talking the talk is seen as hot air, but Gauking the Gauke is seen as being polite and helpful. May I urge him to walk the walk and support amendment 1? If it needs tidying up, he should do it and sort out the technicalities.

Let me talk now about clause 150 and schedule 20—I know that I am going at a bit of a gallop, but there are others who wish to speak. I heard what the Minister said about amendments 19 and 20, which are putative amendments to schedule 20. I defer to his superior knowledge, as this is a very technical area, and I am not an accountant. I think that I understood him to say that what was proposed in amendment 19 was already covered in schedule 20. In relation to amendment 20, he referred to “blind-eye knowledge”, which is a new one on me. I, like him, am a lawyer, and it seems that schedule 20 is introducing civil penalties and not criminal ones, so I accept what he says and will not be pursuing amendments 19 and 20.

Labour supports clause 151, which is to do with penalties in connection with offshore matters and offshore transfers. Clause 152 relates to offshore tax errors and publishing details of deliberate tax defaulters. Helpfully, the explanatory notes say that the clause will amend the Finance Act 2009 to allow HMRC

“the power to publish the details of an individual who controls a body corporate or a partnership”— when it has been—

“charged a penalty for a deliberate failure to notify HMRC of a tax charge or deliberate inaccuracy in a return, and”— when that individual—

“would have obtained a tax advantage”— from it—

“had it not been corrected.”

This must involve an offshore matter or transfer.

That would mean HMRC publishing details of naughty taxpayers or naughty non-taxpayers. In that connection, may I urge the Government again to think about when HMRC, which is under the supervision if not the direct control of the Government and where the Government have a great say on overarching policy matters, to reconsider the question of taxpayer confidentiality? When deals are being done with large companies, as opposed to individuals, those deals could, as part of HMRC’s bargaining, include a waiver of confidentiality on the deal. So, for example, in the notorious Google tax deal, the Chancellor of the Exchequer—understandably —repeatedly said, “I can’t tell you how we got to the deal. That is confidential.” Yes, that was true, but unfortunately that was because HMRC, with the Chancellor of the Exchequer, failed to insert in that agreement with Google a waiver of confidentiality from the taxpayer. If the taxpayer waives their confidentiality, the Government can publish it all. That should be in such settlements, and should have been in the appalling settlement with Vodafone that was done for billions of pounds—I think under a Labour Government, shamefully.

New clause 4, tabled by me and my hon. Friends, relates to clause 152 and requires a report on the workings of the general anti-abuse rule. I am sorry that the Government are apparently not going to accept it. In connection with that, I understand what the Government have said about new clauses 5, 6 and 7 and about the timeframes in them being meaningless because the reports would have to be done before the measures on which they were reporting had been implemented. I quite understand that. I did not understand the Minister to say that about new clause 4, but if he did, he could perhaps clarify when summing up that it is a deadline issue. If it is not a deadline issue, as it was with new clauses 5, 6 and 7, perhaps he could confirm that the Government will support new clause 4, as they should.

Clause 153 is quite interesting for those of us on the Opposition Benches who like to try to think widely on tax measures, because it is a small step towards a wealth tax. That might not be the Government’s intention, and I am not saying that it is Labour’s proposal on taxes. We are looking at things very broadly, but asset-based penalties for offshore inaccuracies and failures are introduced by clause 153 and schedule 22. In that connection, I want to raise an issue that was raised with me by the Law Society of England and Wales. I declare an interest in that I am a member in good standing of that organisation—as is the Minister, I suspect. The Minister might have a ready reply for the issue the society raised: as we are talking about asset-based penalties, how does one value the asset? What is the mechanism for its valuation and what happens for those assets that fluctuate in value?

Labour supports clause 154, on offences relating to offshore income, assets and activities. I think that the Minister has already responded on the question of new clause 7, which, in a sense, would be coupled with the clause. He pointed out that the deadlines would not marry up, with the report being done before measures came into effect, and I quite understand that. I apologise to the Committee for not spotting it.

That brings me on to new clause 9, tabled by my right hon. Friend Dame Margaret Hodge, which is supported by those on the Labour Front Bench. I will let my right hon. Friend explain its necessity and desirability to the House if she catches the eye of the Chair.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury) 1:30, 28 June 2016

In the light of our debate this morning, an appropriate opening remark would be to point out that I believe that in the next hour we are debating the most important part of this year’s Finance Bill. Many amendments have been spoken about already this morning, and I am sure that Members will forgive me if I try to make my remarks brief and to focus only on three matters: the appropriate changes discussed in amendment 1, tabled by Caroline Flint and others; new clause 8, tabled by me; and new clause 9, tabled by Dame Margaret Hodge. Let me say at the outset that the Scottish National party supports both that amendment and that new clause.

I will be brief, because I want to allow more time for the right hon. Ladies to present their case as fully as they can. Let me say something in general about why we are concerned. We all know that there is huge concern among the public about the extent of tax evasion and hidden wealth. It was a growing concern before the release of the Panama papers, and I remember discussing it in this House in the first week in February. I has been fuelled by concerns as people become more aware of the hiding of money in tax havens by individuals, corporations and trusts.

Let us put this debate into a broader context. According to Jason Hickel of the London School of Economics, tax havens hide one sixth of the world’s total private wealth. He has estimated that at about $20 trillion. Whether that is very accurate or not, all observers would agree that the total amount of money involved is absolutely staggering in scale. Indeed, the Panama papers from Mossack Fonseca are just the tip of the iceberg as regards what we face in the world today.

Many issues need addressing. Neither this debate nor the proposed amendment and new clauses address them all, but they are a start. I have been very disappointed by some of the Minister’s reasoning, particularly that on amendment 1. It struck me that he started to redefine on at least three occasions what he meant by multinational. First, he seemed, in my view, to be speaking as though it was almost global in nature, then it became EU-specific, then it became about just a few countries. It struck me that it is not amendment 1 that has not been thought through thoroughly, but the Government’s response to it. If the right hon. Member for Don Valley proposes to press it to a vote, the SNP will certainly follow her into the Lobby.

We know that many different groups are involved. The amendments specifically refer to corporations, but more than corporations are involved. If we had tabled our own amendment, we might have chosen slightly broader amendments to encompass trusts, for example. Being reasonable, we must put ourselves in a position where we make the first step. Sometimes somebody needs to make the first step.

When the Minister was talking, he reminded me of the days when I used to trod through the library at Stirling University, taking students and showing them back copies of Hansard. We could look at back copies of Hansard from the 18th and 19th centuries, and the subject that arose more than any other in debates in the House was slavery. One of the arguments continually used against doing something to make slavery illegal was that it would not create a level playing field.

Somebody has to be first. This is not just about finance and technical considerations, but about fundamental ethical considerations. Those ethical considerations are why we hope that these matters will be pressed to a vote and we will support the right hon. Ladies in that.

Photo of David Mowat David Mowat Conservative, Warrington South

The hon. Gentleman is right that somebody has to go first. I have one thought for him, and I would be interested in his view. His country relies quite heavily on the oil industry. Is he absolutely certain that it is right to impose something on Shell or BP that the Italian Government will not impose on Eni and the French Government will not impose on Total?

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I thank the hon. Gentleman for being interested in my view. Although I understand the point that is being made as well as that being made by the Minister, I think that in these matters, for all large corporations that operate nationally, taking the first step puts them at a reputational advantage because they are seen to lead the way even though there might be occasions on which doing that appears to put them at some short-term commercial disadvantage. So this is not as simple as saying that anyone is necessarily incurring a commercial disadvantage. For those reasons, we would welcome these new clauses, and we are aware that they would also apply to important sectors of the Scottish economy.

I shall briefly say something about Scottish National party’s new clause on whistleblowing. I am particularly grateful to the right hon. Member for Barking for asking the Minister why he would not support that new clause. Indeed, as she spoke, I thought that, rather than our pressing the new clause to a vote here, it might be best to engage in cross-party discussions on how best to construct a thorough way forward. I agree wholeheartedly with the right hon. Lady, because when we look at the number of cases that have involved taking whistleblowers to court, one wonders where the balance of the scales of justice lie.

I recognise that changes have been made to the requirements on whistleblowing, some of which come into effect this September in the banking sector, but the requirements oblige companies to do things such as appoint their own whistleblowers champions and report the amount of whistleblowing to their boards. Those things require a culture of willingness in companies. If the will is not there, the current processes will have next to no effect. We are not saying that we know precisely how to secure effective whistleblowing. That is why it would be useful to have some cross-party discussions, in which I am sure the right hon. Lady would be happy to engage. In that spirit, although we believe in the new clause, we will not press it to a vote and look forward to supporting the votes led by the right hon. Ladies.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I rise to support amendment 1, in my name and those of my hon. Friends the Members for Hackney South and Shoreditch (Meg Hillier) and for Houghton and Sunderland South (Bridget Phillipson) and the hon. Members for Amber Valley (Nigel Mills), for Southport (John Pugh) and for Edinburgh North and Leith (Deidre Brock). I am grateful for the support of six other members of the Public Accounts Committee who signed this amendment: my hon. Friends the Members for Islwyn (Chris Evans) and for Bristol South (Karin Smyth) and the hon. Members for Berwick-upon-Tweed (Mrs Trevelyan), for South Norfolk (Mr Bacon), for Peterborough (Mr Jackson) and for Warrington South (David Mowat). In total, 77 right hon. and hon. Members have signed the amendment, and it is a pleasure to follow Roger Mullin.

Apart from the Labour party’s support, for which I am extremely grateful—particularly that of my hon. Friend Rob Marris, who has been fantastic in his liaison and advice—Scottish National party, Liberal Democrat, Ulster Unionist party, Social Democratic and Labour party, Plaid Cymru, Green party and UK Independence party Members, alongside a number of Conservative Members, and Lady Hermon support amendment 1. There is truly cross-party support, and I am therefore grateful to all those right hon. and hon. Members.

Amendment 1 also has the welcome support of the business-led Fair Tax Mark and the Tax Justice Network and that of development charities such as Christian Aid, the Catholic Agency for Overseas Development, Oxfam, Action Aid, the One Campaign and Save the Children.

It is understandable, given the momentous events of recent days that are creating ripples that reach all corners of our nations and across parties, if Members are a little distracted from the business that we are debating today, so let me be clear about what is at stake. If amendment 1 is agreed to, the Government’s requirement that companies publish their group tax strategy on their websites will include, for large multinational enterprises with bases in the UK, the headline details required on their revenues and taxes paid, in accordance with the OECD requirements for country-by-country reporting. In lay terms, this is Parliament’s Google moment.

I should like to clarify something: the amendment would require companies to publish everything that the Government already require them to report to HMRC. Yes, I agree with the Minister that it would not achieve worldwide reporting for any multinational enterprise, but it would catch not only those parts of a multinational enterprise that are in the UK but those that are over a certain size and have a turnover of more than £600 million.

Photo of Angus MacNeil Angus MacNeil Chair, Energy and Climate Change Committee, Chair, Energy and Climate Change Committee 1:45, 28 June 2016

I hope to be helpful, but the right hon. Lady said that companies would have to publish their tax information on their websites. What if a company does not have a website? Could that give the company a loophole, or would there be a way around that if a company did not have a website?

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I hope that the companies that we are talking about would be big enough to have a website; if not, we might get an opportunity to discuss that later. My goodness, in terms of their reputation, if they do not have a website, they are on a hiding to nothing.

The Minister tried to suggest that the amendment would relate only to UK companies, but it is in line with HMRC guidance that already affects the reporting strategies that the whole House has supported and includes multinational enterprises over a certain turnover. In that sense, we are working with the grain of how the Government have proceeded in these important areas.

There is widespread concern in the House, across all parties, that multinationals operate by different rules from the majority of hard-working, tax-paying businesses, large and small, in the UK. The greatest weapon of multinational enterprises is that their tax arrangements are shrouded in secrecy. The problem is that, in today’s world, as leaks emerge and information comes out, it is death by 1,000 cuts, whereas the amendment is about getting businesses and their reputations back on track. Not only would this be good for business, but it would ensure that those businesses that are playing fair have a chance to set out their claim and what they are doing in a very public way.

Governments across the world face a particular problem with multinationals. The common factor is that revenues are shifted to countries with poor governance, poor monitoring and low or no corporate tax rates. Why in 2010 did Bermuda have total reported corporate profits that were the equivalent of 1,643% of its actual GDP? Could that be because that country has a zero rate of corporation tax? Is there not something odd about a company—let us say, Google—that has huge numbers of sale staff in one country, but all the revenues reportedly received in another? It would surprise no one to find that the revenues are recorded in a country that has a corporate tax rate of 12.5%, as opposed to the UK’s 20%.

The House can take a stand against this entirely lawful but—I think we would all agree—unethical manipulation of different countries’ tax rules. As the OECD has rightly pointed out in its work on base erosion and profit shifting, the impact is to create unfair competition. Multinational enterprises that transfer profits to low-tax dominions gain a competitive advantage over, say, a UK rival, which pays 20% tax on its profits. We can seek to level that playing field today.

The whole House supported the Chancellor’s legislation to require financial reporting to HMRC from UK-based multinationals with revenues in excess of approximately £600 million and UK units of such companies where the parent company is based in a country that does not yet agree to country-by-country reporting. That reporting, in accordance with the guidelines that I have mentioned, would include showing for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued, and their total employment, capital, retained earnings and tangible assets. They would be required to identify each entity within the group doing business in a tax jurisdiction and to provide an indication of business activities within a selection of broad areas in which each entity engages. That information must already be provided to HMRC. We are saying, “Let’s go public.” I want the HMRC to be armed with all the necessary information to secure fair tax contributions from these companies, based on their UK activity, but we need more than the HMRC to have a confidential look; we all deserve to see the bigger picture, and by publishing, we will see that.

Publishing is one way to persuade some of these companies to restore their corporate reputations. Was it because of the extraordinary focus on Google that Facebook announced a welcome change to the recording of its profits in the UK? I believe so. If a company is reporting profits in tax havens where they have only a PO box and a name plate but no apparent staff or activity, do we not want to know that? Let us follow our convictions; let us do what we know to be right. Let us shine a light on the activities of these large multinationals which—let us be honest—run rings around revenue and customs authorities around the world. Let us not flinch, play for time, and hope that some international agreement will eventually be reached by the EU or the OECD.

I remind Members that so often during the referendum on the UK’s EU membership, we heard a lot from both sides about our Parliament’s sovereignty and our power to make laws and to tackle issues big and small. Well, this is the test. Is Britain still a leader or are we followers? This amendment is a pro-business measure. If we adopted it, Parliament would be saying that every business big and small must play by the same set of rules. The tide of opinion is changing in the business world. I am delighted that this week I have received support from SSE for the principle of public country-by-country reporting. I am delighted when major firms such as the cosmetics company Lush, which operates in 49 countries, sign up to the Fair Tax Mark and pledge never to use tax havens. I welcome the fact that since 2014, a quarter of the FTSE 100 companies have published information about their tax arrangements, with long-standing British firms such as Barclays foremost among them.

I commend the Minister for the steps that have been taken in the past six years to improve the level of transparency and for the clampdown on the secretive tax deals that have thwarted fair taxation for so long. In our hearts, do we not all know what the Googles of this world will be hoping? They will hope that we sidestep this issue and duck the opportunity for Britain to set a standard, to lead and to demand more openness. This House knows what those who want fair taxes from large and small businesses alike will want. Every right hon. and hon. Member knows what their constituents would say about these firms shifting their profits to low-tax and no-tax dominions. Let us spare a thought, importantly, for the developing countries, which reportedly lose as much in lost tax revenues as they receive in aid each year. That cannot be right.

Finally, in February, the Chancellor told an international meeting of Finance Ministers:

“I think we should be moving to more public country-by-country reporting. This is something which the UK will seek to promote internationally.”

I hear what the Minister says, but there comes a point when we have to show leadership. Much of our tax rules and other rules affecting companies are not applied worldwide. They are British home-grown rules that seek to provide fairness as well as competition.

I welcome the EU’s activities in this area, although I am not sure where we will fit in. We might have to accept whatever the EU says if we are part of the single market. That is a debate for another day. Unfortunately, the present state of the EU’s negotiations does not tackle the problems of those developing countries that lose out. As I understand it, some of the European discussions have not included the publishing of information on the activities of EU-based companies in developing countries. That does not go as far as what we require from companies reporting to our own tax authority, which we are asking to be put in the public domain.

The change that I am calling for would be part of the Minister’s and the Chancellor’s legacy—a chance to lead where other countries are sure to follow. Let us ensure that the age of secrecy is gone. Let us force the multinationals into the light. I humbly request a Division on this amendment, and I urge the Minister and Conservative Members to join right hon. and hon. Members from nine parties in the Lobby with me today to make a historic change. In years to come, we will ask ourselves why we did not do this earlier. Today is the day. Let us stand up for fairness. Today is a day for lions, not lambs. Let us see the British Parliament roar. I urge the Committee to support this amendment.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

It is a pleasure to follow Caroline Flint and to support her amendment. I shall not repeat the arguments that she made so eloquently, but I shall make a few separate points.

Those of us who regard the UK as a great place to do business, and who want to attract international investment here and encourage our businesses to expand overseas and to export, recognise that we need a business climate which inspires confidence, where firms feel that they can compete fairly and that we have a respected financial system, tax system and market in which those operating here are seen to be behaving properly. Over the past few years we have found out from a series of leaks that large multinational companies have been misbehaving. Those companies are hauled through the press and parliamentary Committees, such as the Public Accounts Committee, on which I serve. That is not the right way to boost our business climate.

We need to move on from that and show the people of the UK and people around the world that companies that are based her and operate here follow the rules, and those that do not follow the rules will be caught and dealt with, and will be strongly encouraged, if not forced, to change their behaviour. That is the way to move the debate further. Running and hiding and waiting for others to do that will not help. It is we who have taken the lead, taken action publicly against those companies and made them change their behaviour. For us to resile from that and say, “We’ve done our bit. Let someone else go first” will not work.

We are one of the main global financial centres. Many companies that come here to list on our stock market were not founded here and are not headquartered or based here. We need to set an example and say, “If you want to come and be based here, you need to follow the highest standards. We want you to behave ethically.” I have no problem with UK-based companies trading in low-tax jurisdictions. If they are trading there commercially, if they have assets there, if they have employees there, that is their right, but they should publish a report so we can see that what they are reporting is commensurate with their activities there, and that they are not simply hiding profit there that was not earned there. I welcome the increased transparency that the amendment would provide.

I do not believe the bleak competition warnings. It is not as though every small company would be required to provide such a report. The requirement would apply only to companies with turnover of more than €750 million. I would not like to guess what that is in sterling. I am sure it will gradually go up as the economy strengthens, now that we have left the EU. I would be surprised if many companies of that size have major trading activities in developed countries without having a subsidiary there which is making the sales. If those companies do have such a subsidiary, they will have to file statutory accounts in those territories. I suspect that in most regimes those will be public, so people will know the turnover of those big corporations in those regimes, and they will know what tax is due. Companies filing UK tax have to provide a segmental analysis that shows where they are operating in the world and breaks down turnover and profit. We are not creating a new set of disclosures that do not already exist; we are trying to enhance the ones that we have and make them work.

I checked some major multinational accounts this morning and found one segment that said, “UK, US and international”. That is of no use to us. The idea of segmental reporting in financial accounts was to provide some disclosure so that we knew who was operating where, how much they were making and what they were doing. I do not believe that for the vast majority of very large companies that are trading ethically and not trying to avoid tax the requirement will be a great hardship. Yes, it may put a little more in the public domain, but it will put that into one document where people can read and understand it, see it transparently and clearly, and get a full picture of what the company is doing.

Everyone will understand that there is no reason why a company based in the UK that happens to make a few sales in France but has no people or assets there should pay French corporation tax. Similarly, there is no reason why a French company selling into the UK would pay UK corporation tax. We can make that clear. What we want to know about is those companies that have a large turnover and very few assets and employees in a very low-tax jurisdiction, so that we can work out whether they are acting legally. Maybe they are.

Perhaps some guy sitting in Guernsey on his own happened to invent a great product and has been receiving royalties. That is fair enough. He is entitled to do that. If he is based in Guernsey, that is rightly his income. I suspect that there are not many such cases, compared with the scale of business activity in those overseas jurisdictions. At least when such activity is transparent the businesses concerned will be able to explain it and defend themselves, or we will all know that those companies are misbehaving and we will be able to choose whether to buy from them or not. The amendment would help us to achieve that. As with all Back-Bench amendments, it is not perfect. The report should be provided in a company’s financial statement so that there is some assurance from the audit process that the data provided are accurate. I urge the Government to bring forward a Bill which would do that, so that the information would be provided in the right place.

It is not perfect for the reporting requirement to be in a tax policy statement that applies only to the UK and without any audit requirement. It may not provide assurance that all the disclosures are absolutely right and that no territories have been omitted or data combined in a way that we cannot understand. I suspect that there will be penalties for failing to publish the whole statement, but no scrutiny of what is published. Perhaps if the same information is provided to HMRC, there will be greater transparency. HMRC may notice that what is in the public domain is not quite the same as the information submitted to it. We could therefore make the proposal better.

It would probably be better if we tackled this issue EU-wide. I am perhaps the only person in the Chamber who thinks we should be making these laws ourselves, rather than having the EU make them for us—tax was always meant to be a member state competency—but if we want to wait a short period to have these things done in a consistent format across the whole of Europe, I would not mind if publication were in 2018 rather than 2017. However, we could at least have a clause that says that we will do these things from 2018 unless the EU has done something that applies here before then, in which case we could repeal that clause.

However, that is not where we are. We have a choice between passing amendment 1 today or waiting and hoping that somewhere else will take the lead on something that we have been leading on. Our Government have rightly introduced a whole new tax to try to stop corporates abusing the global tax regime. I am not sure that a few disclosures are quite as displacing as a whole new tax was, so I am not sure why we are being a little more cautious in this situation.

However, the right way forward is for us to be united on this issue and for the Government to say, “On reflection, we will bring forward a clause on Report,” so that we can tackle this issue in the right way and not in a slightly forced way. That would be the best way forward, and I hope the Minister will agree when he responds to the debate. We could then show that we are all behind the policy I think the Government have. If we cannot do that, I will support amendment 1.

Photo of Margaret Hodge Margaret Hodge Labour, Barking 2:00, 28 June 2016

I am grateful for the support that amendment 1, tabled by my right hon. Friend Caroline Flint, has received from MPs on both sides of the Chamber and a range of charities and voluntary organisations. The way in which she prepared for the debate was excellent, and I wish I had done as well, but I was a little distracted by other issues.

New clause 9, tabled by me and other hon. Members, would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information to companies incorporated in the Crown dependencies and overseas territories that have significant levels of trading activity in the UK. The purpose of the new clause is to take forward the Prime Minister’s commitment to have publicly available registers of beneficial ownership for all the Crown dependencies and overseas territories.

As others have said, it is difficult to estimate the amount held in tax havens. Some estimates have put the private financial wealth held in them at between £21 billion and £32 billion, and that money is untaxed or very lightly taxed. The French economist Zucman estimated that $7.6 trillion was held offshore last year, which is the equivalent of the US budget for two years. The OECD has estimated that tax havens may cost developing countries the equivalent of three times the global aid budget. We are talking big, big, big sums.

We saw from the Panama papers how much of the money that is held offshore is held in UK tax havens. Of the 214,000 corporate entities that were exposed in the Panama papers, more than half were registered in the British Virgin Islands. I draw Members’ attention to another interesting bit of data, which shows the role of tax havens and overseas territories. A World Bank review that looked at 213 corruption cases over 30 years, from 1980 to 2010, found that 70% of those cases involved anonymous shell entities. The UK Crown dependencies and overseas territories were second behind the US on the list of those providing the shell entities that enabled that corruption and money laundering to take place.

I welcome the action the Government have taken and the leadership they have shown on the international stage, and we could just stay where we are, but the purpose of the new clause is to urge them to go further. All these issues are being revealed, and will continue to be revealed, through leaks—we have had the Falciani leaks and the Luxembourg leaks, and we have now had the Panama leaks. I am waiting for the next set of leaks; I bet they are out there—I bet a whole bunch of journalists are working on them now—but is that the way we want to learn about how corrupt individuals and greedy corporations are hiding their money, aggressively avoiding and evading tax? Would it not be better if we did everything within our power and within our authority to open up these issues so that we could see whether people were paying their fair share of tax, based on their profits, wealth or earnings, depending on whether they were an individual or a corporation?

The Minister knows that people are really angry about this issue. It is not something that has been invented by Opposition Members. I receive huge swathes of emails and letters every time I raise the issue of tax evasion and tax avoidance. If he takes the action we are suggesting and closes down the tax havens, that will be not just popular but right. That may damage the interests of a few wealthy individuals or corporations, which I think the Minister holds in awe, but it will be in the interests of the many, many people and small companies here in the UK who loyally pay their tax without any question.

I want to take the Minister through the pledges the Prime Minister has made. I was delighted in 2013 when he pledged at Loch Erne:

“Every one of the Crown Dependencies and Overseas Territories are going to have an action plan on beneficial ownership.”

In 2013 he also told them that it was time to rip aside the “cloak of secrecy” by creating a public register of beneficial ownership. In 2014 he wrote to the overseas territories urging them to consider having public registers of beneficial ownership, saying that

“beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion.”

In 2015—this is the fourth example—he went to the Caribbean and again made clear his determination that overseas territories should open up. He said:

“I say to them all today, including those in this region, if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

We all agree with that, and we urge the Government to take action. They should stop talking and start acting. They should not always hide behind international co-operation. There is stuff that we can do now and that we should proceed with urgently.

If we are to know how much tax we lose from individuals hiding their money in anonymous accounts in the overseas territories and Crown dependencies—it could well be laundered money—and how much money global companies are hiding in tax havens as part of their aggressive tax avoidance strategies, we need every country to have a register of beneficial ownership, as set out in my right hon. Friend’s amendment, and those registers have to be public. That is especially important for developing countries.

As the Minister knows, we have the power to act. I fear that the reason the Government are not using their power is that they are happy to allow this massive tax avoidance and evasion to continue. I hope the Minister will reassure me in his reply that that is not the case, but that is what it feels like.

The Government have used the powers they currently have in other areas. We could therefore use an Order in Council to instruct all the overseas territories and Crown dependencies that are under our control to issue public registers of beneficial ownership. It is easy. The Conservative Government did it in the past when they used such Orders to ensure that capital punishment was abolished in overseas territories and Crown dependencies. A previous Labour Government used absolutely the same powers to ensure that discrimination against gay men was made illegal in overseas territories and Crown dependencies. If both the main political parties have used those powers in the past, why are the Government so reluctant to use them for something that is so popularly demanded and would be so important, and where they themselves agree that transparency has to be the way forward?

Some of the overseas territories are co-operating with the Government’s endeavours. However, newspaper reports tell us that the Cayman Islands and the British Virgin Islands are ignoring requests to meet officials to discuss evasion and avoidance. I understand that the Prime Minister has not met a single overseas territory since he first made the commitment to take action on opening up these tax havens in August 2013. I also understand that the Minister asked the overseas territories with financial centres to have plans for registers of beneficial ownership by 2014, but he was ignored, and he is still doing nothing.

I have here a table prepared by Transparency International that shows the current commitments on beneficial ownership by overseas territories and Crown dependencies. As the Minister knows, it shows that Turks and Caicos has done nothing, the BVI has done nothing, and the Cayman Islands is half co-operating, while Bermuda and others are refusing to have a public central register. The only country in our control that is having a public central register is ourselves. I congratulate the Minister on that—we are setting an example—but let us use our powers to go further.

What we hear and read from the two most important overseas territories—the British Virgin Islands and the Cayman Islands—is a matter of great concern. The British Virgin Islands did not come to the anti-corruption summit; it is against the proposal. Its Premier and Minister of Finance, Orlando Smith, has said:

“The moment we begin housing vast amounts of highly sensitive, private business information and then providing access to that information to a wide array of actors, the risk of a breach goes up immeasurably.

If legitimate businesses fear that their international transactions will be exposed to the world, or, worse yet, accessed by criminals or terrorists”—

I am not sure how that will happen—

“and used as a weapon of extortion or intimidation—then the gears of international finance will start to grind.”

Talking about terrorists and criminals is purely an excuse. The British Virgin Islands simply does not want to open up the books. It does not want us to know what are the beneficial ownerships of companies that have registered there or individuals who hold their money there.

After the Prime Minister said that he had made such wonderful progress in ensuring registers of beneficial ownership that would help us to find out who owned what, where, Premier McLaughlin of the Cayman Islands said:

“This is what we wanted, this is what we have been pushing for three years, for a disaggregated system which leaves the beneficial ownership information intact with the service providers.”

He got away with what he wanted. He was not forced by us to reveal the data that we so desperately need to find out what is hidden there. He went on to say:

“People don’t do business with us because we are nice”.

That is simply not good enough.

I urge the Minister to take this little new clause really seriously. I will request a Division on it. I urge him to do what he says he wants to do and open up to public account the tax havens that we, the United Kingdom, control.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee 2:15, 28 June 2016

I rise to speak briefly to amendment 1. I congratulate my right hon. Friend Caroline Flint, many members of the Public Accounts Committee, and Members across the House who have signed this simple but important amendment, which, as others have highlighted, would require a clear public register of company activity. I pay particular tribute to Nigel Mills, whose expertise on this issue in the Public Accounts Committee has been particularly useful. As he rightly said, this information is mostly public, but one would need to have his qualifications, and there are not many with those, in order to track it down internationally. We on the Public Accounts Committee want a register where it is readily available to the “citizen auditor”. We want to put powers in the hands of the citizen to enable them easily to see where the taxes paid by companies are put.

The Minister spoke of the amendment being defective, but I do not believe that it is. It covers the same large-turnover companies that are covered by other Government reporting requirements. If it is defective, however, I again challenge him to bring back an improved version on Report. He has access to Government lawyers to do this. My right hon. Friend, though a very able woman, perhaps does not have at her fingertips the same expertise in legislative drafting. The power is in the hands of the Government on this issue.

I want to highlight another aspect of our work that I mentioned to the Minister. It is not UK parliamentarians alone who support this measure. In May, I went out to the OECD on behalf of the Public Accounts Committee to lobby and speak to parliamentarians of other nations around the world. We had a very useful and important discussion about the need for greater disclosure for the public benefit, with our citizens pushing our Governments to act decisively. As I said, I subsequently wrote an open letter that I sent to European partners, urging Governments to support the measure that is summarised in the amendment. The letter was signed by the chairs of parliamentary finance committees in Germany, Hungary, Finland, Norway and Slovakia, as well as senior MPs in the Netherlands, the Czech Republic and Bulgaria. Rather than detain the Committee, I draw Members’ attention to the Public Accounts Committee website, which has full details of the letter and information about how we went about it.

My right hon. Friend’s amendment is a really important first step. I appreciate that the Minister is willing to look at a multinational agreement. Unfortunately, however, much to my disappointment and the huge disappointment of my constituency and borough, which had the second-largest vote in the country to remain, we voted to leave the EU last Thursday, and Britain is going it alone, so why not do this now?

New clause 9, tabled by my right hon. Friend Dame Margaret Hodge, follows the same principle. It also follows a theme pursued by the Public Accounts Committee, when she chaired it and currently, on registering the extent of beneficial ownership in tax havens. I do not need to add a great deal to what she amply amplified. She and I, other hon. Members, and, I think, the Minister agree that transparency—sunlight—on activities affects behaviour. Public trust on tax is at an all-time low. We do not have a level playing field. As she says, the Government have the power to act on this very swiftly. The Prime Minister has supported it and the Minister has supported it, so why not act now?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I thank all right hon. and hon. Members for their contributions in this very good debate. Most of them focused on amendment 1 and new clause 9, as I will, but Rob Marris raised a number of points that I will quickly run through before turning to the main issues.

On new clause 4, which relates to the review of the GAAR, this is not a deadline issue. I was not making that point, as the hon. Gentleman rightly observed. I would argue that a review of the GAAR is unnecessary. The principle purpose of the GAAR is to deter taxpayers from entering into abusive tax avoidance in the first place. As I have made clear throughout this process, measuring the number of times that the GAAR has been invoked is not a reliable indicator of its success. I made that point when I brought in the legislation relating to the GAAR, and that remains the case.

On clause 153 and schedule 22 and asset-based penalties, the hon. Gentleman asked how we value the asset. The Valuation Office Agency, which is obviously experienced in that area, will value the asset for HMRC. The date of valuation will be the date of sale. For assets not disposed of, the value will be the market value on the last day of the tax year. That is the standard approach.

On the number of people affected by clause 147, the measures are aimed at a small but persistent minority of taxpayers who remain undeterred by the Government’s continued strategy to bear down on tax evasion and tax avoidance. We expect that the total number of taxpayers affected by the measures will be a small proportion of the total avoidance population; I do not wish to indicate anything other than that. This is a principled approach and it is right that that shrinking minority is properly dealt with.

The hon. Gentleman also raised a concern about a double penalty. I hope I can reassure him that the offset provision will apply to ensure that there will be no double penalty apart from the new GAAR penalty, whereby the combined total is capped, in most cases, at 100%.

We could have a longer debate, as we have done in the past, on the wider, familiar issue of HMRC resources. At the summer Budget, the Government provided HMRC with an extra £800 million to fund additional work to tackle evasion and non-compliance by 2020-21. That will enable HMRC to recover a cumulative £7.2 billion in tax over the next five years by tackling evasion and non-compliance. I also point out, as I tend to do in these circumstances, that HMRC’s yield is at record levels and that the tax gap is at record low levels. Although I do not think that the best measure is the number of staff working in a particular area, it is the case that the number in enforcement and compliance has consistently gone up. I accept that that is not the case across HMRC as a whole, although, as the hon. Gentleman has pointed out, the number is increasing at the moment, including in enforcement and compliance.

To return to the issue of penalties and whether they are sufficient, the GAAR penalty has been set at a rate high enough to act as a clear deterrent while being proportionate to the behaviour concerned. As I have said, under the existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, and it is appropriate for the GAAR penalty to be below that range.

Let me respond to the intervention by Dame Margaret Hodge about whistleblowing. In October 2015 the Financial Conduct Authority published a package of rules designed to encourage a culture in banks whereby individuals feel able to raise concerns. Those rules require a senior manager to be appointed a whistleblowing champion, internal arrangements to handle all types of disclosure, and a requirement to inform the FCA if an employment tribunal with a whistleblower is lost.

Given that I have responded to one point raised by the right hon. Lady, I will now address some of her other points about new clause 9, which seeks to provide more information about the tax gap numbers. My argument is the practical point of whether it is likely that HMRC could estimate or measure the impact of such a specific measure on the tax gap, particularly given that the basis is hypothetical, since the register of persons with significant control is not yet operational. That is, therefore, a challenge, but I accept that the new clause also enables us to have a wider debate about the Crown dependencies and overseas territories. That is an important issue and I want to focus more on it.

We have made extraordinary progress in the past six years with regard to Crown dependencies and overseas territories and, indeed, more widely. When I first took over this role some six years ago, the big campaigning issue for many outside organisations was automatic exchange of information. My predecessor, Stephen Timms, is held in very high regard by Members on both sides of the House. He was a dedicated Financial Secretary and tax Minister who energetically pursued that agenda, but I can remember him saying in 2010, “That’s very much what we want to do, but we think it’s a long way away.”

The progress that has been made over the past six years, for various reasons, is considerable. The automatic exchange of information, which was once seen as a laudable objective but not something we were going to reach any time soon, has now been reached. It applies to Crown dependencies and overseas territories, which were all early signatories to the common reporting standard, and that is now coming into force. It is fair to say that the UK Government encouraged them to do that, and that is an example of how working in partnership with the Crown dependencies and overseas territories can result in quicker and more effective implementation, whereas imposing legislation reduces that co-operation and can ultimately harm our ability to tackle and deter corruption, tax avoidance and tax evasion. The approach we have taken over the past six years has been successful in making substantial progress, which people of good will on all sides did not think would be possible. The common reporting standard is a good example of that.

Although I accept that Crown dependencies and overseas territories have not signed up to public registers of beneficial ownership, we have to put the issue in context. The UK is pretty much the only jurisdiction that has done that. Of course we should expect Crown dependencies and overseas territories to meet international standards. As a Government, we continue to press the case for ever higher international standards, but failing to have a public register of beneficial ownership is not a breach of international standards. We would like the international standards to be such, but they are not at present. We have to consider the issue in that context.

I do not want to rerun everything I said earlier about amendment 1. I believe that we all share the same objectives and that the question is about how we get to where we want to be. I want to make it absolutely clear that, although there are some technical concerns and flaws in the legislation, the fundamental point is that there is a limit to the extent that we can require a foreign multinational entity to disclose information on its global activities under UK law. That is why we believe that the best way forward is through international efforts on public country-by-country reporting. Even if those flaws can be addressed, we still face that problem.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

In his earlier contribution, the Financial Secretary suggested that UK-headquartered companies would be disadvantaged, but my amendment is completely based on the information already required by HMRC, as laid down by this House with cross-party support. That includes multinational enterprises that are not necessarily UK headquartered but have a turnover of more than £600 million a year. Of course, the amendment does not catch everybody, but it is within the existing remit and range in the statute book. That is why I find it difficult to understand why there is a technical problem with my amendment. All we are saying is, “Make it public.”

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

The issue is that foreign multinational entities would not be caught by the amendment. That is the advice I have received. It means that the public will get information only on the taxes paid and profits made by a multinational entity headquartered in the United Kingdom and not on those paid and made by foreign multinational entities such as Google. That is the clear advice I have received on the right hon. Lady’s amendment.

Photo of Caroline Flint Caroline Flint Labour, Don Valley 2:30, 28 June 2016

I feel I have to pursue this point. Amendment 1 would insert two new subparagraphs in schedule 19. The first would mean that a

“group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.”

The qualifying group referred to is based on what the Government have already legislated for. The second subparagraph is very clear:

“In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”

That qualifying group, then, includes UK-headquartered companies but also companies from elsewhere whose turnover is more than £600 million a year, as I have said. It would affect not just UK companies but those companies with activity here that are headquartered elsewhere. I urge the Minister to ask civil servants whether they have got that advice right.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I assure the right hon. Lady that I have asked civil servants about this particular issue—she will not be entirely surprised to learn that there have been fairly extensive conversations with civil servants about it. We believe that the amendment as drafted would not apply to foreign multinational entities. The challenge is that the information is, essentially, held in the UK and relating to UK-headquartered companies, so only UK-headquartered companies are well placed to provide it. She has highlighted one of the problems with a unilateral approach.

I have a huge amount of sympathy with the right hon. Lady’s argument, as she knows. We have discussed this before. I am pleased that the United Kingdom is leading the way in making progress on this at a number of international forums. I urge the House to consider that we do not need to go it alone at this point. We can work with other countries, given the progress that is being made, quite often at the UK’s instigation.

Another important point was touched on by my right hon. Friend Mr Mitchell as well as the right hon. Lady, namely developing countries. I have a lot of sympathy with that point. It is worth noting that 39 countries, including the United Kingdom and developing countries such as Nigeria and Senegal, have signed the OECD mechanism for country-by-country reporting. That means that the information produced by companies and provided to tax authorities—not published, but already produced and provided to authorities—is shared with every one of the 39 signatories. I want to encourage other developing countries to sign that agreement, so that they have access to the information. The right hon. Lady made the point earlier that the EU proposals could go further on ensuring more information. I agree. That is the UK position and we have been arguing that case at EU level.

I never want to miss the opportunity to highlight what we do as a country to help developing countries’ tax authorities build up their tax capacity. That work does not get the coverage it deserves. The previous Labour Government also did such work, but we have built on that. The Department for International Development and HMRC do considerable work on helping developing countries ensure that they have the information they need and the capacity to do something with it.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

May I make this offer on amendment 1? My right hon. Friend Caroline Flint and I are quite happy to meet the Minister and Treasury officials to iron out any technical deficiencies there may be. I make that offer today so that we can do so before Report. Secondly, I urge the Minister to think a little more broadly, in terms of the world that we live in now after the Brexit vote. If the United Kingdom, having left the European Union, chose to make it a condition of trading in the UK for multinational enterprises not headquartered here that they disclose that information, we could do so.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I am not sure about the practicality of that. I will also make the point that we remain members of the European Union. There does not seem to be any likelihood of our leaving the EU within two years. Given the progress currently being made on public country-by-country reporting, I hope that the process will conclude while our membership continues.

As I have said, there are some technical issues that could be ironed out in amendment 1, but the fundamental issue of not being able to access information from foreign multinational entities that are not headquartered in the UK would remain a problem. Even with the best will in the world—and the best lawyers and parliamentary counsel—we will not be able to solve that problem.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I am always happy to discuss this issue with the hon. Gentleman, but that underlying problem still exists.

In the light of all that, I will say that yes, we want to make progress on public country-by-country reporting, but that needs to be on a multilateral basis. Amendment 1, despite some considerable ingenuity to get it in order to be debated today, does not do what is needed. I therefore urge hon. Members not to support it, in the knowledge that this Government want to make progress on this matter and expect to make considerable progress over the next few months.

Amendment 114 agreed to.

Clause 144, as amended, ordered to stand part of the Bill.

Clause 145