Review of tax treatment of Scottish Limited Partnerships

Finance Bill – in the House of Commons at 8:15 pm on 5th September 2016.

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‘(1) The Chancellor of the Exchequer must undertake a review of the impact of the tax regime which applies to Scottish Limited Partnerships on levels of tax avoidance and evasion by such partnerships, and lay the report of the review before both Houses of Parliament within six months of the passing of this Act.

(2) The review must take into account the views of the Scottish Government, HMRC and interested charities.”—(Roger Mullin.)

Brought up, and read the First time.

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

I beg to move, That the clause be read a Second time.

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:

New clause 12—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 coming into force of the provisions in TMA 1970 relating to criminal offences relating to offshore income, assets and activities introduced by section 165 of this Act publish a report on the impact of the introduction of these offences.

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

(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 13—Report into the UK Tax Gap—

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, prepare and publish a report, in consultation with stakeholders, on the UK Tax Gap.

(2) The report must include the following—

(a) details of the UK Tax Gap (including individual breakdowns for figures relating to tax avoidance and tax evasion) for the financial years—

(i) 2015-16;

(ii) 2014-15;

(iii) 2013-14;

(iv) 2012-13; and

(v) 2011-12;

(b) a detailed summary of the model used by HMRC for estimating the UK Tax Gap;

(c) an assessment of the efficacy of HMRC’s performance in relation dealing with the UK Tax Gap, including—

(i) a breakdown of specific HMRC departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap;

(ii) details of the numbers of staff in each of the years listed in paragraph (a) who are located within departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap;

(iii) details of the budgets allocated to departments or units dealing with investigation above; and

(iv) details of the numbers of prosecutions or the amount of tax recovered in each financial year listed in paragraph (a) as a result of the work of HMRC departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap in those financial years.

(d) a review of the impact on tax revenues of requiring non-public organisations involved in public procurement processes to—

(i) be registered in the UK for tax purposes;

(ii) have paid UK tax for a period of at least five years prior to the date the relevant contract is awarded;

(iii) publish full details of beneficial ownership for the period of five years prior to the date the relevant contract is awarded; and

(iv) provide company accounts (including those of any beneficial owners) for the period of five years prior to the date the relevant contract is awarded.

(e) a comprehensive assessment of the efficacy of the General Anti Abuse Rule in discouraging tax avoidance;

(f) an assessment of the impact on tax revenues of introducing a set of minimum standards in relation to tax transparency for all British crown dependencies and overseas territories including (but not limited to)—

(i) placing a statutory duty on British crown dependencies and overseas territories to observe a system of good governance and practice in relation to tax enforcement; and

(ii) requiring British crown dependencies and overseas territories to maintain a public register of owners, directors, major shareholders and beneficial owners;

(g) an assessment of the impact on tax revenues of establishing a public register of all trusts located within the UK, British Crown Dependencies and overseas territories, including but not limited to—

(i) details of the names of beneficiaries to such trusts;

(ii) details of the addresses of beneficiaries to such trusts;

(iii) details of assets held by such trusts;

(iv) details of any trustees registered within the UK who have transferred that main residence to non-UK jurisdictions;

(v) details of tax avoidance schemes involving trusts which are currently disclosed to the HMRC.

(3) For the purposes of this section, the “UK Tax Gap” means the difference in any financial year between the amount of tax HMRC should be entitled to collect and the tax actually collected in that financial year which derives from tax avoidance and tax evasion.

Government amendments 136 and 137.

Amendment 167, in clause 163, page 293, line 25, leave out “may” and insert ”must”.

Amendment 168, in page 293, line 41, leave out “may” and insert ”must”.

Amendment 171, in clause 165, page 295, line 9, at end insert

“and that the person had an honest belief that all of the information included was true and accurate”.

Amendment 172, in page 295, line 26, at end insert

“and that the person had an honest belief that all of the information included was true and accurate”.

Amendment 173, in page 295, line 40, at end insert

“and that the person had an honest belief that all of the information included was true and accurate”.

Amendment 145, in schedule 19, page 589, line 29, at end insert—

‘(6) The Treasury may by regulations require the group tax strategy to include a country-by-country report.

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

Amendment 163, in schedule 20, page 609, line 34, at end insert

“or 100% of any fee paid by Q to P in respect of enabling Q to carry out offshore tax evasion or non-compliance”.

Amendment 164, in page 609, line 40, at end insert

“or 100% of any fee paid by Q to P in respect of enabling Q to carry out offshore tax evasion or non-compliance”.

Amendment 165, in schedule 21, page 618, leave out lines 27 to 34 and insert—

Amendment 166, in page 621, leave out lines 8 to 15 and insert—

Amendment 170, in schedule 22, page 627, line 5, leave out “10%” and insert “15%”

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

To those with little knowledge of Scottish limited partnerships, it may seem strange that I rise in this House to move new clause 7 in my name and those of my colleagues, but, despite what the name suggests, Scottish limited partnerships have limited connection to Scotland, and none to the Scottish Parliament. They were introduced in 1907 by the Chancellor of day, Herbert Asquith; despite rumours to the contrary, I was not present at the debates at the time, but the regulation, operation and dissolution of SLPs remain the exclusive preserve of Westminster, hence our moving this new clause.

Scottish limited partnerships have their own distinct legal personality. As a result, SLPs can, for example, hold assets, borrow money and enter into contracts. However, Asquith could never have foreseen that they would become a financial vehicle abused by international criminals and tax dodgers.

Great credit must go to the journalists of The Herald newspaper, particularly David Leask, for doggedly uncovering the truth about SLPs—and isn’t it good that for once we can praise journalism of the highest order delving into important matters, rather than merely dealing in tittle-tattle? Although some users of SLPs no doubt operate appropriately and responsibly, it is claimed that up to 95% of SLPs are mere tax evasion vehicles, including for criminal assets.

While SLPs may be registered in Scotland, they are often owned by partners based in the Caribbean or other jurisdictions that ensure ownership secrecy and low, or no, tax regimes. People operating outside the UK are exploiting opaque ownership structures to hide their true ownership. As Oxfam, too, has recently pointed out, brokers in countries such as Ukraine and Belarus are specifically marketing SLPs as “Scottish zero per cent. tax firms.”

The number of SLPs is growing apace. Data from Companies House revealed by The Herald show 25,000 were in place by the autumn of 2015 and new registrations have been increasing by 40% year-on-year since 2008.

To give an example of what can happen, in 2014 allegations emerged that SLPs had been used to funnel $1 billion out of banks in the former Soviet Republic of Moldova. The use of an SLP and a bank account in an EU country allows dodgy groups, for example from the ex-Soviet Union, to move their ill-gotten gains to tax havens under the cloak of respectability.

I am aware that the Scottish Government’s Finance Secretary, Derek Mackay, has recently written to the UK Government about SLPs. He sensibly pointed out in his letter that

“it is critical that due diligence checks are able to be made when SLPs are initially registered and when there are changes in partners, and that penalties are imposed on partners where the SLP does not comply with the relevant legislation”.

He went on to point out:

“The threat of serious organised crime does not respect borders and with the significant increase in cyber crime, it is essential that we take every step open to us to reduce this threat as much as possible”.

To that end, our new clause seeks an urgent review of SLPs that would, importantly, include taking evidence from the Scottish Government, from HMRC and from interested charities. We have crafted the new clause in the hope it will attract cross-party support, and I see no reason why anyone, other than those interested in encouraging criminality and tax evasion, would wish to oppose a review of this nature. I therefore urge the Minster to accept our new clause.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I hope that the hon. Gentleman will forgive me if I missed him saying this, but I do not think I did. Subsection 2 of his new clause states:

“The review must take into account the views of the Scottish Government, HMRC and interested charities.”

Is it because of the nature of SLPs that the new clause does not make reference to the Government of Wales and the Government of Northern Ireland?

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

I thank the hon. Gentleman for his intervention. Technically, the SLPs are registered in Scotland, but they have ownership in tax havens all over the world and will therefore operate differently, given the way in which they were set up in 1907. As far as I am aware, the arrangements have not been reviewed in any significant detail since then.

Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman is making the powerful case that some SLPs are being used for criminal or money-laundering purposes. Those are serious crimes and they should be reported. Has he reported them? Is not this an enforcement issue?

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

It is certainly a very important issue, but I think it would be better if we could get the Government to carry out the kind of detailed scrutiny that would enable them to enact the necessary legislation. Their voice would be far more powerful than mine in this regard.

I should also like to pass comment on amendment 145, tabled in the name of Caroline Flint, which we will certainly be supporting. I am sure that she will have much more to say about it in a moment. It is a modest amendment to encourage much-needed country-by-country reporting for corporations, and I look forward to hearing her remarks. She can be assured that her actions have the full support of Members on these Benches. Similarly, we hope that the Opposition will press new clause 13 to a vote. We also intend to support that proposal.

This whole section dealing with tax evasion is very important, and it is vital that the UK as a whole lives up to its responsibility to ensure that we do not get a name for encouraging tax dodgers. I want to mention the remarkable and brave journalist Roberto Saviano, who has been admired for exposing the murderous criminal underworld of the Italian mafia. In a recent article in The Daily Telegraph, he warned that the UK financial world was effectively allowing what he called “criminal capitalism” to thrive. Surely we must take steps today to ensure that that is not the case.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

In speaking to amendment 145 today, I am grateful for the chance once again to put the case that large multinationals should co-operate with public country-by-country reporting in the UK so that we can all gain greater insight into the trading activities that determine the amount of corporation tax being paid.

As a new member of the Public Accounts Committee in February, I heard first hand Google and Her Majesty’s Revenue and Customs try to explain how £130 million represented a good deal after a decade’s-worth of unpaid taxes and reasons to justify non-payment. This cross-party Committee of the House felt that the way in which global multinationals play the system denies a fair take for HMRC, having an impact on our public services, and is unfair to British taxpayers and businesses, for whom such a complicated organisation of tax affairs is not an option.

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham 9:00 pm, 5th September 2016

Does the issue not go further than that? Our constituents’ money generates the revenues and therefore the profits of such companies. It is not just unfair to them because they pay their taxes; their money funds the profits that generates the taxation that ought to be paid to the Revenue.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I congratulate the hon. and learned Gentleman, who is a former colleague on the PAC, on his promotion.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

The Chair of the PAC has corrected me. The hon. and learned Gentleman is absolutely right; it is almost a double whammy. Customers of such companies pay for their services in good faith and expect, as both taxpayers and consumers, big companies to play fair by them and by the country in which they operate.

The PAC is not alone in worrying about how such companies organise themselves. Around the world, people and their Governments are questioning the loopholes and convoluted legal arrangements that create inaccurate descriptions of multinationals’ trading activities in individual countries. The problem is not confined to tech firms such as Google, but their massive global presence has exposed the fault lines of an old-fashioned tax structure that has not kept up with today’s online business world. Many of today’s high-tech household names were not always so big or so profitable. The investigation into Google began under the previous Labour Government, and the coalition Government continued the work to get on top of these relatively new business models, both nationally and internationally. Tax policy is not easy. Once one tax loophole is closed, another one opens up.

Photo of Wes Streeting Wes Streeting Labour, Ilford North

I commend my right hon. Friend’s work on this issue over a long period of time. Does she share my concern that even when the Government have tried to take the initiative, such as through the diverted profits tax—the so-called Google tax—that has not delivered the expected revenues? Indeed, Google does not pay a great deal through that tax. A measure such as that proposed by my right hon. Friend would clearly help to make companies do the right thing.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I hope so, because transparency is an important ingredient in ensuring that the rules we apply have some bite. It sometimes seems as though we are trying to catch jelly.

The whole debate has brought into question the legal and moral difference between tax evasion and tax avoidance. Companies often rightly defend themselves on grounds of working within the rules, but politicians and civil servants are often caught out by clever manipulation of those rules. That is not illegal but cannot be said to be in the spirit of what was expected.

I have no illusions about having a perfect tax system. Keeping one step ahead is a never-ending task for modern tax authorities. I welcome the Government’s introduction at HMRC of country-by-country tax reporting, which is now up and running, and I agree with the Minister’s summer announcement that those who advise individuals and companies on their tax affairs will be subject to greater accountability for their actions when wrongdoing is exposed.

However, public transparency can make a real difference in ensuring fair taxation and fair play. That is why, with the support of PAC colleagues and cross-party support from across the House, I introduced my ten-minute rule Bill in March to legislate for public country-by-country reporting. The backing I received spurred me on to try to amend the Finance Bill in June, gaining the support of eight parliamentary parties: Labour—I thank Front-Bench spokespeople past and present, including my hon. Friend Rob Marris, for their support—the SNP, the Liberal Democrats, Plaid Cymru, the Social Democratic and Labour party, the Ulster Unionist party, the United Kingdom Independence party, the Green party, Lady Hermon, and a number of Conservative MPs, too. Oxfam, Christian Aid, Save the Children, ActionAid, the ONE campaign and the Catholic Agency for Overseas Development joined our efforts, adding an important and necessary dimension to the argument for public country-by-country reporting.

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

I, too, congratulate my right hon. Friend on her sterling work in raising this issue up the agenda. Does she agree that if the Government were to adopt this amendment, they would be setting a tone for other parts of the world? We have had a lot of interest from around Europe and elsewhere about the work being done in Parliament and by our Government, and adopting this would really set the example.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I agree with my hon. Friend on that. I commend her work as the Chair of our Committee and the work she has done with other public accounts committees in other countries, because there is an appetite for doing more in this area and we are leading the way. We can do that from our House of Commons Committees, but we hope today that we can give some added muscle to the Government to lead the way in this important area, too.

I talked about the charities and organisations working in the development sphere, because I am seeking tax justice not only here, but for those developing countries that lose out too. I have said it before but it is worth saying again: if developing countries got their fair share of tax, it would vastly outstrip what is currently available through aid. The lack of tax transparency is one of the major stumbling blocks to their self-sufficiency. My thanks also go to the Tax Justice Network, Global Witness and the business-led Fair Tax Mark, as well as to tax experts Richard Murphy and Jolyon Maugham, QC, who have helped me to make the case and to get the wording right to amend legislation. This proposal demonstrates the widespread view that bolder measures to hold multinationals to account are necessary.

Photo of John Redwood John Redwood Conservative, Wokingham

Is not the bigger issue: where should the profit be fairly struck? Where was the value added? Where did the work take place? Where is the intellectual property residing? Getting transparency is one thing, but we could still get transparency for an answer that we do not like.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

There is a debate about where best to recoup the money from those who trade and the profits they make. Different options are available, but perhaps that is a wider debate for another day. The BEPS—Base Erosion and Profit Shifting—debate was partly about addressing that, but transparency has to be at the heart of all this, whatever system we set up to identify what is a fair contribution for business. I hope that my amendment will be supported and will be one small step forward.

Photo of Barry Sheerman Barry Sheerman Labour/Co-operative, Huddersfield

My right hon. Friend knows that I support this amendment and the wonderful work she does. Does she remember all the difficulties we had with the banking sector and the people who were supposed to be the auditors—these great companies that are specialising in obscurity, hiding ownership and moving ownership? Surely this must go in tandem with taking on those big people who did not audit the banks properly. They are the same people who allow these big companies to evade taxation.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

My hon. friend is right about that. As the Parliament that represents the people of this country, we have a duty not to allow markets to be unfettered, but to provide a framework in which they should operate, work, be successful and do the right thing. I must say that there are companies doing the right thing. Increasingly, companies are volunteering to do the right thing by publishing the sort of information that I am asking to be made more public today.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I will give way once more, but I am conscious that other people wish to speak.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Can my right hon. Friend confirm my understanding, or correct me if I am wrong, that what she is seeking in this amendment would not cause any burden to business because the information is already being gathered and reported but is not then being published? Her amendment seeks merely to get that which is already gathered and reported to be published.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

That is correct.

I was hopeful for my June amendment, because since the 2015 general election, the Government had, on a number of occasions indicated their support for public country-by-country reporting, and I welcome that. I am grateful to the former Financial Secretary, now Chief Secretary to the Treasury, as his approach was always constructive as we sought the best way to proceed.

At the debate in June, four days after the EU referendum, the Minister and others were concerned that introducing my amendment at that time might put UK multinationals at a competitive disadvantage for reputational reasons. I have no doubt that a number of the businesses to which my amendment would apply have already suffered reputational damage and more transparency could actually enhance their standing. To the Government’s credit, the UK was the first to introduce public registers of beneficial ownership, and others followed. Backing public country-by country reporting is an opportunity to show leadership again. Indeed, it is a pro-business measure. This kind of reporting already exists within the extractive sector and in financial services. Some companies are ahead of the curve and have started to publish this information. I am talking about companies such as SSE, the energy supplier, and the cosmetics retailer Lush, which operates in 49 different countries. The Government also said that, although they supported the principle, they would prefer to move ahead with others rather than alone.

As the Government make plans to leave the European Union, which may not be all smooth sailing, I do appreciate Ministers’ caution. I am grateful to the new Financial Secretary, Jane Ellison, for the constructive dialogue that we have had over the past two months. I am grateful, too, to my colleagues from the Public Accounts Committee—my hon. Friend Meg Hillier, and the hon. Members for Berwick-upon-Tweed (Mrs Trevelyan), and for Amber Valley (Nigel Mills)— for their advice and support during the recess, and I thank all those who have signed Amendment 145.

I hope that the Government will regard this amendment as a friendly proposal. If it is passed today, the Commons will enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate. That sends a very powerful message, confirming the UK’s leading role in addressing tax evasion and avoidance and providing the Government with the tools to move quickly, when the time is right, without the need for primary legislation.

Last week, the European Commission served a €13 billion tax bill on tech giant Apple. Although the rate of corporation tax in Ireland is low at 12.5%, the Commission concluded that Apple had, in effect, paid 1% corporation tax from 2003 and a tiny 0.005% in corporation tax since 2014. I am afraid that that implies that even low corporation tax rates are no guarantee that a country will collect its rightful share. In this case, €13 billion is equivalent to paying £50 of tax on every £1 million of profits. Apple is entitled to defend its position, but the case highlights the need for more transparency in multinational business affairs.

Finally, having listened to the Government’s concerns and shared with them my arguments for today’s amendment, I hope that the House can come together and make UK public country-by-country reporting a matter not of if, but when.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I do not intend to detain the House for an unduly lengthy period of time, because I know that everyone wants to get to bed before midnight. I want to set out why country-by-country reporting is so very important, and why the whole culture of tax avoidance by big business and multinationals is something that we cannot condone or tolerate.

People ask what is wrong with an organisation such as Apple organising its tax affairs to its best possible advantage. After all, is that not the principle of taxation—that there is no equity in taxation and that only the literal taxation rules should apply? However, my concern is that the conduct of Apple is unacceptable for three key reasons. If a big business organises its tax affairs so that it basically pays no tax whatsoever, then it is inevitably warping the free market, because it is getting an unfair tax advantage, or a tax advantage that gives it a competitive advantage over other enterprises that are paying tax on their profit. For me, that is a really serious issue.

The other issue with Apple in Ireland is that to have a special deal for one business that does not apply to everyone else is counter to the fundamental principle of the rule of law, which is that everyone should be treated the same—be they a cleaner at Apple or Apple itself. What is offensive is if a cleaner in the office is paying more in tax than the massive, profitable enterprise whose offices they are cleaning.

Let me continue with the case of Apple. My right hon. Friend John Redwood made a powerful point. If it has created all this intellectual property, he asked what was wrong with its not being caught in the UK tax net. My answer is that that intellectual property was in fact created in Silicon Valley, but is the organisation paying tax in Silicon Valley? Is it paying tax in America? No, it is not. It has set up a clever structure. Early in its evolution as a business—some 10 or 20 years ago—it sold its outside American intellectual property rights for $1, or some other small sum, to a Bermuda company, which would then have a conduit through Ireland to invest across the rest of Europe.

The company then checks the box for US tax purposes in respect of everything below Bermuda so that, from the Internal Revenue Service’s point of view, it looks as though the Bermuda company is the trading company, and because it is a trading company and the only enterprise that there is for US tax purposes, it is not caught by subpart F of the controlled foreign companies regulations, meaning that no tax can be deemed to have to be repatriated to the United States. As a result, the Bermuda enterprise becomes a cash box for reinvestment across the European theatre. Therein lies the unfair competitive advantage.

Photo of John Redwood John Redwood Conservative, Wokingham

I remind my hon. Friend that I did not mention the word “Apple” and I expressed no view on Apple’s tax affairs, one way or the other. I asked a question about how we as legislators globally can produce a system that is fair and sensible so that people know what companies should be paying. I have not studied Apple’s tax affairs in details so I would not presume to lecture either for or against what that company does.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I stand corrected by my right hon. Friend. It is not a question of Apple; it is a question of general US outbound tax planning. That is why country-by-country reporting matters.

Photo of Stephen Timms Stephen Timms Labour, East Ham

I agree with the points that the hon. Gentleman makes, but can he confirm my understanding that if the amendment tabled by my right hon. Friend Caroline Flint had applied in Ireland in the case of Apple, we would have known that very, very large profits were being made by the company, which seems to have existed only on paper, and we would also have known that it was paying a tiny amount of tax? Would not that have been a valuable step forward in understanding what was going on?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

The key issue is that we did know. As I recall, Apple had to report the situation in some investigation by the Senate in the United States. The Senate was wondering why very little tax had been paid by Apple in the United States. If my recollection is not correct, I am sure a fellow Member of this House will correct me. The issue is one of transparency. These things come to light because the US Senate holds an investigation, or some other enterprise or organisation, such as the Public Accounts Committee, carries out an investigation and starts asking questions.

In the previous Parliament, I myself went through the accounts of Google, Amazon and Starbucks and looked at what they were paying as a proportion of profits. That is why I think country-by-country reporting ought to be considered, and on an international basis. It is important that countries act together to make sure that the international tax system is suitably robust for the internet age.

The reason that that matters is that when large enterprises, big businesses and the elites do not pay tax, it affects small businesses. It is the small business rooted in our soil which employs our neighbours and pays its dues that suffers when the competitive advantage, the level playing field and the rule of law are warped in that way. That is my prime concern. Small businesses in my constituency in Dover and Deal are the lifeblood of my local economy and I want them to have a fair crack. I want the towns and regions of this great nation, England, that I represent, and Wales and Scotland to have a fair crack and to be able to come to the fore. Particularly in Brexit Britain, it is important that they are able to come to the fore, to be galvanised and to be part of the leadership of this nation. That is why we need a Britain that works for the 90%, which is the towns and regions of our nations, rather than for big business and the elite 10%. That is important and it is why we need a tax system that works for everyone.

I have been deeply concerned recently when looking at accounts in the car rental industry. Colleagues may recall that Avis was accused of imposing a Brexit tax on people renting its cars. I looked at its accounts and saw that Avis had paid no tax itself. It taxed its British customers but did not seem to pay any British corporation tax on its profits.

Photo of Ian Murray Ian Murray Labour, Edinburgh South

The hon. Gentleman is making an incredibly powerful speech about the reasons for tax transparency, but in the case of companies such as Avis, which he mentions, should we not have transparency for one simple reason only—so that consumers can vote with their feet? If they believe that they are purchasing products from companies that are not paying tax in this country or in other countries, they can go and buy those products from other companies that are paying tax.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

That is a very powerful point. This is why transparency matters. If people know that they are being taken for a ride, they do not have to use an organisation that uses a Luxembourg structure, which is a common kind of intermediate structure for pan-European tax planning to organise things so that no tax need be paid.

This is not just about Avis. I had a look at the accounts of Hertz, another large US car rental company that also does not seem to have paid any tax in the past few years. It is hard to tell how it is doing that, and I had to look at the accounts in very great detail. It has some let-out whereby the company does not have to report related-party transactions. One would think that it may well be renting its car fleets through the Luxembourg company or the Netherlands BV that it uses. Hertz uses a Netherlands BV and Avis uses a Luxembourg company to get money out of the UK tax net so that it is not subject to tax on any profit. However, I cannot tell, because we do not have that level of reporting. That is why country-by-country reporting is important, not just as a tax concept but as an accounting concept, so that one can see where the money has gone. Similarly, inter-company loans and borrowings are often at the much higher rate. That is certainly the case with Avis, which was paying more in its inter-company loans than in its borrowings to the bank. That, too, caused me a level of concern. There seemed perhaps to be some trademark royalties in there, or some royalties to do with its internal IT and computer systems, but it was hard to tell because we do not have that granularity in the accounts.

We ought to have a greater level of knowledge, a greater level of reporting, and a greater level of understanding of how money is being paid, the taxes that are due, and the nature of the planning that is being undertaken so that our laws are more robust and we can make sure that everyone in this nation pays a fair share of tax, be they the cleaner or the largest enterprise that is trading. It matters for the rule of law, for a fair and open market, and for a level competitive playing field that all businesses and enterprises are treated the same.

Photo of Mike Wood Mike Wood Conservative, Dudley South

As a Conservative, I believe that taxes, whether direct or indirect, need to be kept as low as possible, consistent with the need to raise finances for our vital public services and for our national security. Unnecessarily high taxation not only strangles growth and development but means Government taking from those who have earned money, whether through labour, innovation, or capital.

However, the flipside of keeping tax levels low is that everybody must pay their fair share. Aggressive tax avoidance, bending the rules of the tax system to gain an advantage that Parliament never intended, means that a heavier burden falls on others, who are able to keep less of the money that they have earned. This Government are rightly committed to supporting businesses through low taxes—that is why corporation tax is being cut again to 17%—but those taxes do have to be paid.

This Bill therefore addresses many of the ways that companies use to avoid paying their fair level of tax. That includes the amendments that we are debating, tabled by the Government, to reform hybrid mismatches. The amendments will reduce aggressive tax planning, typically involving a multinational group. The introduction of these rules will, in essence, remove the tax advantage arising from the use of hybrid entities and instruments, and ought to encourage more businesses to adopt less complicated, more transparent cross-border investment structures. I look forward to similar rules being introduced by other jurisdictions. However, in line with OECD regulations, the Bill contains provisions for counteraction in the UK where the other country does not counteract the mismatch within its own hybrid mismatch rules. The Bill introduces the new penalty of 60% of tax due that was announced in the Budget, to be charged in all cases successfully tackled by the general anti-avoidance rule.

Government amendments 136 and 137 help to ensure that the changes announced in the Budget work as intended, cracking down further on unscrupulous and aggressive tax avoidance. I agree with the comments made by my hon. Friend Charlie Elphicke on country-by-country reporting, as well as those raised so regularly by Caroline Flint. There is widespread and growing agreement that there is a need to move to country-by-country reporting so that the information is out there and available both to national tax authorities and to the wider public. That brings us back to the question of whether the best way to achieve that is for individual countries to act unilaterally or for the UK to move in partnership with our international allies and through a range of international organisations both within and beyond Europe.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Of course, the Opposition want international action, we want international co-operation and we want our international friends to copy the amendment tabled by my right hon. Friend Caroline Flint, which we hope will be successful tonight. However, we also need to bear it in mind that half the tax havens in the world are British overseas territories. We have a particular responsibility in this regard worldwide. It is not about some sort of moral responsibility—to use the old-fashioned phrase, the white man’s burden—or any of that nonsense. It is to do with the fact that British overseas territories are responsible for half of these shenanigans.

Photo of Mike Wood Mike Wood Conservative, Dudley South

The hon. Gentleman makes a valid point, but we should also recognise, as I am sure he will, the progress that has been made in recent years to insist on those overseas territories moving into the 21st century so that their tax arrangements comply with what we would expect for international standards. In a globalised world, we must be clear that concerted international effort is needed to stop continued cross-border tax avoidance, evasion or plain old-fashioned aggressive but unscrupulous planning.

The UK Government have done more than any previous Government and more than most of our international allies and competitors to eradicate these practices, and they continue to do so, but of course more must be done and I welcome the reassurances we have heard from the Government that this remains a priority. I am pleased that the Government are now pursuing country-by-country reporting and that it will be discussed at the forthcoming G20 Finance Ministers meeting. This measure will by itself help to increase transparency across multinationals, supporting not only our tax authorities but, perhaps more importantly, those of the developing countries of which we have heard, which are almost literally being robbed of vital sources of income.

In conclusion, the Finance Bill and the amendments tabled to it include both pioneering and bold measures. It will ensure that taxes are paid and that everybody pays their fair share, and I look forward to supporting it this evening.

Photo of John Redwood John Redwood Conservative, Wokingham

I remind the House that I have declared in the register of interests that I am a registered investment adviser, but obviously I am not speaking on their behalf in this debate.

It seems to me that there is common ground among all parties in this House that we need to collect a decent amount of tax revenue and that we want to ensure that those who are rich, particularly companies that seem to generate a lot of turnover and possibly profit, pay their fair share. We recognise, I think, that we have to operate in a global market. We are talking about what are usually large corporations that genuinely make different levels of profit and generate different amounts of turnover in different jurisdictions, and that have genuinely complicated arrangements when they switch components, technology, ideas and work between different centres. Even in a service business that does that through electronic communication and digital activity, there may be different people in different centres around the world who contribute to servicing the client and to dealing with the particular product. There are, therefore, genuine issues for the honest company in trying to define and measure precisely where work is done, where added value is greatest and what is a fair attribution.

We as legislators have to understand that complexity and try to come up with a good judgment, collectively and globally between the main jurisdictions, on what is a fair way to instruct those global companies to report in our different jurisdictions so that sensible amounts of tax are captured.

We also need to remember that we as legislators often help create the very problem that offends quite a lot of MPs, because we speak with forked tongue when it comes to tax matters. When discussing tax, this House often wants to offer tax breaks. The House will say, “We would like companies to do more R and D or invest more in plant and equipment,” or, “We would like individuals to save for their retirement, save generally or be entrepreneurial, set up a business and then sell it in few years at a good profit.” We collectively decide that we should encourage more of that conduct by letting people off income tax, capital gains tax, corporation tax or a combination of general taxes as an incentive for them to behave in the way we would like. We must, therefore, take some responsibility for tax avoidance—obviously not for law-breaking—by those who use the tax breaks we provide.

We are now trying to define something that is not strictly law-breaking, which we all condemn and is an enforcement matter, or a friendly tax incentive, which we probably still agree on. I suspect that every MP in this House thinks that something should be encouraged by tax incentive, but we are trying to define something in the middle, which has come to be called aggressive avoidance, where there are elements of doubt. That is where legislators need to do a better job, because we need to be able to say to people and companies, “This is illegal conduct and you will be prosecuted for it, and everything else is legal conduct and meets your obligations.” If we find that we are not collecting enough tax, perhaps the problem lies with us and perhaps we have to review the whole range of incentives and tax breaks that we offer, because that may be the origin of the problem of our not collecting as much tax as we need or would like to meet the requirements of our public services and other needs.

I will keep my remarks suitably brief. We need a certain amount of humility as legislators. It is very easy to get on a high horse about rich individuals and rich companies. Some of them do break the law—a minority, I trust—and they need to be pursued and prosecuted. Many others are honestly trying to report their tax affairs, complicated as they are, in multiple jurisdictions. This evening we are debating a 644-page addition to our tax code. Given that we are just one medium-sized country and that a multinational company may have to report to 30, 40 or 50 different countries, all of which are generating tax codes on that monumental scale, we should pause a little and ask ourselves whether we are getting in the way of levying fair tax by the very complexity of the rules we are establishing.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee 9:30 pm, 5th September 2016

I will speak to a number of amendments in my name and those of my hon. Friends. New clause 12 would require the Government to report within one year on the impact of the criminal offences relating to offshore income assets and activities created by clause 165. Amendments 167 and 168 would make it compulsory, rather than just possible, for HMRC to publish the names of those who hide behind entities such as companies and trusts when committing offshore tax evasion. Amendments 171 to 173 would expand the definition of “reasonable” referred to in clause 165 to include

“an honest belief that all of the information included was true and accurate”, because the Opposition are concerned that the category of reasonableness is, on its own, far too subjective. Amendments 163 and 164 would strengthen the penalty for enablers of offshore tax evasion to include 100% of the fees received by the enabler of the service—for the lawyers in the Chamber, the principle of just enrichment, as it were. The aim of that is to neutralise somewhat the commercial aspect of the tax avoidance industry.

Amendments 165 and 166 would increase the minimum penalties for inaccuracy, failure to notify a charge to tax or failure to deliver a return, in relation to offshore matters and transfers, by 15% rather than the Government’s suggested 10%. In their consultation “Strengthening civil deterrents for offshore evaders” the Government considered increasing the minimum penalties by 15% rather than 10%. These are probing amendments to find out why the Government opted for a smaller increase than the one that they initially considered.

Up next we have amendment 170, which would increase from 10% to 15% the asset-based penalty introduced by schedule 22. The Government’s consultation on this penalty cited different rates for such asset-based penalties across the world, including in Italy where the penalty is up to 15%. As I will expand on in a moment, the Opposition think that we must be world leaders on stamping out tax avoidance, so I think our penalty should be, at the very least, on a par with precedents across the world. Those penalties are a start, but I would add that in the light of the latest Government consultation on tackling offshore tax evasion, which would introduce a separate offence not covered by the Bill, there appears to be a clear move by stakeholders to suggest that even higher penalties are required. I urge the Government to consider those suggestions carefully.

I confirm Labour’s support of cross-party amendment 145 on public country-by-country reporting, which was tabled by my right hon. Friend Caroline Flint. I place on record my thanks to her for the hard work that she has put into pursuing this important issue. It is testimony to that hard work that many Members across the House—including members of the Public Accounts Committee and more than 60 MPs from eight political parties, as my right hon. Friend illustrated—and organisations outside this House have supported this amendment. I will not go over the ground that she has covered, because she has put her case articulately. The enabling power contained in the amendment would give the UK scope to strengthen its influence on international tax transparency negotiations, and it would build greater consensus.

Finally, new clause 13 would require a comprehensive report into the UK tax gap, which is defined as the difference in any financial year between the amount of tax HMRC should be entitled to collect and the tax that it collects. Such difference derives from tax avoidance and evasion. The contents of the report would be as set out in the new clause, and it would have to be carried out in consultation with stakeholders. It would examine a number of areas relating to tax avoidance in the hope that the Government might review their policy and tailor it to deal adequately with such issues.

Photo of Chris Stephens Chris Stephens Scottish National Party, Glasgow South West

Does not new clause 13 expose the idiocy of closing HMRC offices, as the Government are planning to do to 90% of them? Would it not also allow Members to look at the number of staff in HMRC dealing with tax avoidance and set that against the 3,765 staff in the Department for Work and Pensions who deal with £1.2 billion of so-called social security fraud?

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee

The hon. Gentleman makes a very good point. The report is intended to highlight any deficiencies that might be found in HMRC’s resources or structures that affect its ability to tackle tax avoidance.

As Members who read new clause 13 will see, the part relating to HMRC goes into a lot of detail. Briefly, however, the report would be required to cover figures for the UK tax gap for the past five financial years; details of the model used by HMRC for estimating the UK tax gap; an assessment of HMRC’s efficacy in dealing with the UK tax gap; details of the tax revenue benefits for companies engaged in public procurement that are registered in the UK only for tax purposes; an assessment of the efficacy of the general anti-abuse rule in discouraging tax avoidance; consideration of the benefits for tax revenue of introducing a set of minimum standards in tax transparency for all British Crown dependencies and overseas territories; and, finally, an assessment of the impact on tax revenues of establishing a public register of all trusts located within the UK, British Crown dependencies and overseas territories.

The new clauses and amendments we have tabled are necessary now more than ever. I appreciate that we have limited time today, so we will push to a vote only new clause 13. As I have said, we will support my right hon. Friend the Member for Don Valley should she wish to press her amendment 145. We also support new clause 7, which has been articulately outlined by Roger Mullin.

On the other amendments, I hope that the Minister will listen very carefully to the comments throughout my speech. The Government have ample opportunity outside the scope of the Bill—if, indeed, there is the will—to implement many of my requests. I will explain the rationale behind our various amendment.

The law on tax avoidance has been greatly influenced by the words of Lord Tomlin in the case of the Inland Revenue Commissioners v. the Duke of Westminster in 1935. Lord Tomlin decided that it was the right of every Englishman to organise his affairs so as to minimise his liability for tax. Sadly, that idea fuels the tax avoidance industry even today. In this age of so-called austerity, with pressure on the NHS, the armed forces, our teachers and our young people—the list goes on—quite frankly it is not acceptable for people to seek to avoid their taxes.

Hon. Members on both sides of the House have come to agree that tax avoidance should be fought. The trouble is that this Government have failed to tackle the problem head-on, but simply tinkered here and there with piecemeal bits of legislation, and this Finance Bill is no different. We need a real commitment from this Government to an overarching strategy that provides genuine legal teeth to tackle the millionaire tax dodgers and the advisers surrounding them.

To take hon. Members on a little historical, magical mystery tour, in the 1980s judges, not Parliament, developed a principle that put a dent in the tax avoidance industry—the Ramsay doctrine. The principle provided that artificial tax avoidance schemes should be analysed as a whole, not analysed by each piece separately. That meant that clever tax schemes could be dismantled by taking out all the artificial elements, with what was left being taxed as though the artificial elements had never existed. The effect on tackling tax avoidance schemes was huge.

Unfortunately, case law has moved on over the years, and we have now returned to a world in which tax law is considered to be entirely a matter of statutory interpretation. There are no general principles at work that can be used when interpreting legislation to combat tax avoidance in practice. In addition, our tax statutes are extraordinarily long and very detailed. That is meat and drink to tax specialists. Any Member of the House my age or above may remember the “Peanuts” cartoons. In one episode, Linus says, “Now I know the rules, I know how to get round them.” Linus could have been a tax lawyer.

Tax lawyers love playing with the rules, and we should not underestimate the expertise and determination of the tax avoidance community. In fact, one tax law specialist recently told me something really harrowing about a firm of accountants in the 1990s. A specific piece of legislation had been drafted to tax any trust that shifted offshore. An exception to that rule arose if one of the trustees died and the trust shifted offshore as a consequence. Those accountants canvassed a cancer ward to see whether the relatives of people dying of cancer would be prepared to have their dying family member signed up to act as a trustee of their clients’ trusts. They sought reassurances that the patient would die soon and promised to pay a small fee. That is an extreme case, but is an example of the depths to which people will sink to avoid paying their taxes and of how loopholes can be found in the depths of legislation.

A complete reorganisation of our tax avoidance laws is therefore needed. We need a general anti-avoidance principle that is broadly drawn, so that it empowers courts to interpret all tax laws purposefully. That is something that many of us on the Opposition Benches have been calling for, as has the TUC, but Government attempts thus far have been piecemeal at best.

To continue my history tour of a general anti-avoidance principle, we first had the narrow rule, in the Finance Act 2013, that focused only on abusive arrangements. Those arrangements had to be considered to be unreasonable by a panel of industry tax experts before HMRC could act. That is an obvious example of poachers, in the form of a panel of industry tax experts, being established to advise on how to catch poachers, essentially; alternatively, we might think of them as turkeys being asked to advise about the menu for Christmas lunch.

Secondly in the Government’s timid tax avoidance legislation, there was a slight broadening out of the rule to impose penalties on avoiders. Thirdly, we gained the power to name evaders. Fourthly, we had provisions to catch those who enable tax evaders. Now there is a consultation on whether those who enable tax avoiders should be treated similarly. It is all far too slow, and far too little. As the Minister will be able to note from the number of amendments we have tabled today and on previous occasions in this House, the legislation does not have the strength or clarity it deserves. We can continue to tinker about in successive Finance Bills, trying to stick plasters over our deficient tax legislation, or we can develop a comprehensive tax avoidance strategy with heavyweight legislation to match.

As I mentioned earlier, the Labour party has tabled new clause 13 to encourage the Government to carry out a wide-ranging report on the UK tax gap. It is hoped that that report will help the Government to assess carefully the pressure points and areas of weakness in their current tax avoidance policy. We are limited by the scope of the Bill to calling for a report specifically; but Labour is committed to a full public inquiry on the matter, and I would welcome the Minister’s support for that.

This whole sorry mess—from the exposure of offshore tax havens with the Panama papers through to the largest corporations in the world paying next to nothing in tax, investment banks using financial instruments to avoid tax and clever tax advisers designing off-the-peg avoidance schemes—needs to be exposed to the disinfectant properties of daylight. It needs disinfectant because quite frankly it stinks. We need transparency in our tax system, and a full inquiry to help us design a system that will really challenge the tax avoidance industry. We need to change fundamentally the way in which we organise our tax laws so that they are based on broad principles that make it difficult to avoid them. We must then fund and equip HMRC so that it can actually take the fight to the tax dodgers, by arming it with better tax statutes and staffing it with more highly qualified staff. We must provide it with real support in combating tax avoidance.

The Panama papers are a symptom of another well known disease. Many of the world’s most appalling tax havens are British overseas territories or protectorates. We have to recognise that we have allowed that to happen. Essentially, new clause 13 asks the Government to explore the creation of a set of minimum standards on tax transparency for all British Crown dependencies and overseas territories. Further to that, it is imperative for the Foreign and Commonwealth Office to work seriously with Crown dependencies and the British overseas territories to establish genuine information sharing, so that they are transparent about the ownership of trusts and companies in their territories, and stop enabling the tax avoidance industry to flourish on their shores.

By allowing the super-wealthy tax dodgers of the world to moor their superyachts and their money in such places, we ensure that billions of pounds, dollars and euros are lost to the public finances of the world. As a result, hospitals are not built, schools are not refurbished and jobs are lost. Misery and deprivation in our communities here in the UK is caused by tax avoidance, so it is time to stop taking piecemeal action in fighting it. It is time the Government dealt with the problem head-on. If the Government wanted to do anything about the tax avoidance industry, they would lift their heads up from fiddling about with the detail of successive Finance Bills and agree to the proposals the Opposition have tabled.

The Labour party is calling for the new Britain, which will soon be making its way out of the EU, to take a central role in the OECD initiative to fight corporate tax avoidance such as the base expansion scheme to fight transfer pricing and other corporation tax dodges. We are calling for support for the EU’s recent initiative to confront the fact that billions of dollars in tax are being avoided by the world’s largest corporations.

We must stop the game that the tax dodgers and their well paid advisers play with HMRC. We must stop the warped and dysfunctional dance between them, in which sweetheart deals are done with companies such as Vodafone, Google and Goldman Sachs. We must invest in HMRC, simplify our tax codes and build our laws on the simple principle that being a part of our society means paying a fair share towards its upkeep.

If Members of the House agree with those basic principles, I urge them to support the Opposition proposals as a small step towards that goal. Ultimately, however, I hope the Minister has listened carefully, because we deserve much more than the few tax avoidance provisions in the Bill. I should like to press new clause 13 to a Division.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury 9:45 pm, 5th September 2016

It has been a wide-ranging and at times passionate debate. I shall address the Government amendments before addressing the amendments and new clauses tabled by the Opposition.

Clause 155 makes an administrative change to strengthen the procedural efficiency of the GAAR. Amendments 136 and 137 make small technical changes to the clause, which incorporate the new terms introduced by clause 156. The new terms provide a new way of counteracting under the GAAR procedure to enable the same advisory panel opinion to apply to multiple users of marketed tax avoidance schemes. We believe that the changes will streamline the procedure without altering the fundamental test to which taxpayers are subject under the GAAR. They will ensure that a provisional GAAR counteraction will apply equally to all counteraction procedures, and enable tax to be protected for the cases that we intend to address.

Amendment 145, to which Caroline Flint spoke, would give the Treasury the power to require groups to publish a country-by-country report showing their profits, taxes paid and other financial information for the countries in which they operate. As she and others acknowledged in the debate, the UK has led international efforts, although Rebecca Long Bailey, who spoke for the Opposition, was, to say the least, miserable about the leadership that the UK has shown. I did not recognise the description she applied, but others were more generous, noting the fact that the UK has rightly led those international efforts to tackle tax avoidance by multinational enterprises, for all the reasons so brilliantly articulated by colleagues such as my hon. Friend Charlie Elphicke. We all support what he said. The Government have been a firm supporter of greater tax transparency and greater public disclosure of the tax affairs of large businesses. For those reasons, we fully support the intentions of amendment 145 and will support its inclusion in the Bill.

The Government have consistently pushed for a multilateral solution for country-by-country reporting. For example, the Chancellor made the case for looking at this at the G20 in July. Amendment 145 is very much in keeping with that aim and provides the Government with the power to implement when appropriate. It is none the less important that the power is used to deliver a comprehensive and effective model—as was acknowledged by the right hon. Lady—of public country-by-country reporting that is agreed on a multilateral basis. I am sure we will return to this issue and the basis on which we can go forward. It means a model that requires all groups, both UK headquartered and non-UK headquartered, to report accessible information for the full range of countries in which they operate. It is vital for ensuring that the policy intention of greater transparency is delivered. It is also important for ensuring that UK headquartered groups are not put at a competitive disadvantage. Again, I pay tribute to the right hon. Lady for recognising that concern, as expressed earlier in the year in a previous stage of the Bill, and that disclosure requirements cannot be avoided through group restructuring—another issue that we want to ensure we are on top of.

The Government remain focused on getting international agreement for such a model, as part of their continued efforts to ensure that taxes are paid and paid in jurisdictions where economic activities take place. The right hon. Lady and the House have my assurance that the Government will continue to take every opportunity to champion this agenda at an international level. It is increasingly clear that we move forward with a welcome degree of agreement across this House.

Photo of Caroline Flint Caroline Flint Labour, Don Valley

I thank the Minister for the Treasury’s decision to support my amendment. I hope we can work together to consider how we can make the journey to introducing this in this country, with others, a real possibility in the future.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

Indeed. We have seen, in other areas where we have shown leadership, how much can happen in a very short space of time, so we are optimistic that we can make progress with a welcome degree of consensus across the House.

Amendments 163 to 168, 170 to 173 and new clause 12 all concern penalties for offshore tax avoidance and evasion. Clause 161 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. They would introduce a penalty of up to 100% of the tax evaded and public naming for the most serious cases. Amendments 163 and 164 would include within the penalty provisions the option of charging a penalty of up to 100% of any fee paid by a taxpayer to the enabler for the enabling service received.

Fees charged by organisations can take a vast array of different structures and formats. Without a clear definition of what constitutes fees, or how the fee relates to the services provided, we believe it would be disproportionately burdensome for HMRC to apply and use such a penalty. A penalty based on tax lost is a much clearer and more easily defined concept, which better meets the objective of sending a strong and clear deterrent.

Amendments 165 and 166 would increase the minimum penalties chargeable for deliberate offshore tax evasion. Again, the Government have significantly increased sanctions that can be applied for offshore tax evasion. However, we have to balance that against the need to maintain the proportionality of our penalties and retain the incentive for taxpayers to comply voluntarily and co-operate with HMRC, an area in which we have seen considerable activity. We therefore believe that the ranges we have set out provide a good balance. However, as with all of our penalties, we keep the rates under review.

Amendments 167 and 168 would make it compulsory for HMRC to publish details of those tax defaulters who meet the relevant criteria. Obviously, public naming incentivises evaders to come forward voluntarily and co-operate, but it allows the naming of those who refuse to co-operate with HMRC. In the vast majority of cases, we would expect HMRC to name those who meet the criteria. However, mandatory publication would be inappropriate in some particular exceptional circumstances, or perhaps when there are wider consequences, such as economic market impacts from the information becoming public.

Clause 164 and schedule 22 introduce a new asset-based penalty for the most serious cases of deliberate onshore tax evasion, where the tax loss exceeds £25,000, and would levy a penalty of up to 10% of the value of the asset connected to the evasion in addition to any other tax-geared penalties and interest due.

Amendment 170 would apply a higher penalty of up to 15% of the underlying asset rather than the 10% set out in the Bill. This level of penalty was carefully considered when it was set, accounting for international comparisons. The Opposition referred to that and to the fact that this is a new approach to penalties for UK tax matters. The Government have also consulted and engaged with stakeholders, balancing the arguments that have been set out. We feel that the legislation as it stands allows for a substantial penalty for deliberate tax evasion and will provide a significant deterrent. It is not clear to us, however, that an arbitrary 5% increase in the maximum would significantly increase the impact of the penalty.

Clause 165 introduces a new criminal offence of persistent offshore tax evasion. Crucially, though, the offence does not require the prosecutors to prove that the taxpayer intended to evade their UK tax responsibilities offshore, increasing our ability to prosecute. A successful conviction on this offence could result in a fine or a prison sentence of up to six months.

New clause 12 introduces a requirement to publish a report on the impact of the new criminal offence within a year of the Act 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. We feel that this therefore makes the provision redundant.

Amendments 171 to 173 will introduce a further defence to this criminal offence where a person believed that the information supplied to HMRC was “true and accurate”. These amendments will not work in practice. The part of the clause to which they relate is the offence of failure to notify HMRC of chargeability and failure to make a return. In both those cases, no information would have been supplied to HMRC, so this defence could not be applied. While amendment 173 relates to inaccuracies in documents supplied to HMRC, we feel that the amendment is unnecessary because the offence already has a defence of having taken “reasonable care” to get one’s affairs right, which would imply that the taxpayer believed that they were “true and accurate”.

New clause 7, tabled by Roger Mullin, would legislate for a review of the impact of the tax regime for Scottish limited partnerships on the levels of tax avoidance and evasion. A Scottish limited partnership is treated for tax purposes as a tax transparent vehicle in the same way as a limited partnership established in England and/or Wales. As he set out in moving the new clause, a limited partnership established in Scotland has a separate legal personality, which means that the partnership itself can own assets and enter into contracts. The Government are committed effectively to tackling tax avoidance, evasion and aggressive tax planning, including where partnerships are involved. Indeed, this has secured an additional £130 billion in compliance yield since 2010.

Last month, the Government launched a consultation to look at partnership taxation, including proposals to clarify the tax treatments of varied types of partnership. We will obviously welcome the SNP’s engagement in that exercise, and I would like to offer some reassurance regarding the recent allegations in the media about the use of SLPs by criminal organisations. The Government take extremely seriously the points raised and are working collaboratively across Departments and law enforcement agencies to tackle crime and fraud robustly.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords) 10:00 pm, 5th September 2016

It is not entirely clear. Will the Minister let us know whether she will support the inclusion of new clause 7 on the basis that, as she has just made clear, it would be a good idea and important to do so? If she is not willing to support it, will she justify why the Government are willing to leave the loophole undiscussed and in place?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

As I have just laid out, consultation is under way, which provides an opportunity to look at those precise issues. As I said, I invite the SNP to engage with that consultation.

Turning to deal with the lengthy speech and case made for Labour’s new clause 13, which provides for a report on the UK tax gap, the tax gap is an official statistic published each October and it is produced in accordance with a code of practice for official statistics, which assures objectivity and integrity. The methodology is judged by independent third parties to be robust, and it has been intensively reviewed and given a clean bill of health by both the International Monetary Fund and the National Audit Office. There is therefore no need for a report on the tax gap. Furthermore, HMRC publishes a methodological annexe alongside the tax gap publication, which provides details of the data and methodology used to produce estimates of the gap.

I think it fair to say that, in speaking about new clause 13, the hon. Member for Salford and Eccles painted a picture which, on the Government of the House and, I suspect in other parts as well, could be regarded as at the very least ungenerous and in many ways inaccurate, unfair and, indeed, unrecognisable, given the way in which the she downplayed the efforts made by the Government. To call that tinkering at the edges is simply nonsense.

Since 2010, the Government have given HMRC £1.8 billion to tackle evasion, avoidance and non-compliance, and, as I said earlier, over that period HMRC has secured £130 billion in additional tax revenues. We have shown considerable ambition, and, as other Opposition Members have been generous enough to acknowledge, international leadership. I therefore do not accept the criticisms that were voiced from the Opposition Front Bench. It is also worth noting that in the summer Budget of 2015, the Government invested a further £800 million to fund additional work to tackle tax evasion and non-compliance.

No Government, particularly the last Labour Government, have come close to being as ambitious as we have been since 2010 in respect of this important agenda. The fact that there was considerable agreement across the House in the earlier part of the debate, and the fact that the Government have accepted the amendment tabled by the right hon. Member for Don Valley, gives some weight to our claim that we are beginning to strike a UK consensus about the need to tackle this problem, and we have a chance to continue to make progress. I know that there is an appetite to return to these issues. There is a real desire to see the Government continue to lead internationally on avoidance and evasion, and the House can be reassured that that is exactly what we intend to do.

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

A few words, Mr Speaker. I merely wish to say that I am incredibly disappointed that the Government have chosen to drag their feet on the issue of Scottish limited partnerships, and that, on the basis of their own arguments, we will press new clause 7 to a vote.

Division number 55 Finance Bill — Review of tax treatment of Scottish Limited Partnerships

Aye: 248 MPs

No: 304 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly negatived.

New Clause 13