Review of tax treatment of Scottish Limited Partnerships

Part of Finance Bill – in the House of Commons at 9:30 pm on 5th September 2016.

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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

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.