Review of tax treatment of Scottish Limited Partnerships

Part of Finance Bill – in the House of Commons at 9:00 pm on 5th September 2016.

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Photo of John Redwood John Redwood Conservative, Wokingham 9:00 pm, 5th September 2016

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.