Clause 180 - Controlled foreign companies and foreign permanent establishments

Finance Bill – in a Public Bill Committee at 11:15 am on 19th June 2012.

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Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West 11:15 am, 19th June 2012

I beg to move amendment 2, in clause 180, page 105, line 19, at end add—

‘(2) Notwithstanding the provisions of Part 4 of Schedule 20, the Schedule will not come into force until a full impact assessment has been prepared in conjunction with the Department for International Development reviewing the effect on developing countries’ tax revenue, and details of aid and technical assistance being provided to developing countries in order to increase the capability and technical expertise in their tax regimes to collect the taxes that are due in their countries, has been laid before and approved by the House of Commons.’.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

With this it will be convenient to discuss the following:

Clause stand part.

Government amendments 46 to 51, 146, 52 to 56, 147, 57 to 59, 187, 60 to 110, 188 and 189 and 111 to 113.

Amendment 3, in schedule 20, page 520, line 31, at end insert—

‘42A Notwithstanding the provisions of this Part, this Schedule will not come into force until a full impact assessment has been prepared in conjunction with the Department for International Development reviewing the effect on developing countries’ tax revenue, and details of aid and technical assistance being provided to developing countries in order to increase the capability and technical expertise in their tax regimes to collect the taxes that are due in their countries, has been laid before and approved by the House of Commons.’.

Government amendment 114.

Amendment 190, in schedule 20, page 522, line 2, at end insert—

‘(3) HM Treasury and HM Revenue and Customs shall publish an assessment of the implementation and impact of the changes made in this schedule each year from commencement for the first three years of operation, including—

(a) the impact of the changes on developing countries and whether any further aid or technical assistance needs to be provided to those countries to safeguard their tax revenues;

(b) the cost of the changes to the Exchequer and whether they are consistent with HM Treasury forecasts;

(c) whether the rules operate as expected and provide certainty to companies.’.

Government amendments 115 to 117.

That schedule 20 be the Twentieth schedule to the Bill.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

It is a good job that I was not late to the Committee this morning otherwise I may not have realised that we were getting to this clause with such haste. Our movements so far have been at a glacial pace, and I thought that it would safely be Thursday or even next week before we reached amendment 2, which I tabled many, many weeks ago and the briefing of which I read many, many weeks ago. This is a confessional moment; I have not picked up my red box, which is located behind your dais, Mr Bone, and the briefing and notes on amendment 2 are lurking within that box. With the indulgence of the Committee, I hope that you will bear with me as I talk briefly to the amendment, while trying not to turn too red in the process. Inspiration on the Front Bench may well be forthcoming, but I will try to do without it and read the amendment—if I can find it in that red box while my hon. Friend helps me out—but it might be a bit difficult.

The purpose behind this amendment was to strive for joined-up government, in particular between Her Majesty’s Treasury and the Department for International Development. We all know that it was a goal of all three principal parties at the last general election to ramp up the proportion of overseas aid that our country spent as a proportion of GDP to 0.7% by a target date of roughly 2013, though there was some variation in this. This coalition Government have committed to doing that, and we will be the first major economy in the world to get to that goal of 0.7% of GDP.

That investment will be made in developing countries around the world and we want to make sure that the investment on behalf of British taxpayers is well made. The reason why I am discussing this in a Finance Bill is that some of the decisions that we make in this Bill have repercussions beyond our own shores. Clause 180 is about controlled foreign companies, which is something I used to work on in my previous career many moons ago, before I became a Member of Parliament. The regime changes that are proposed by clause 180 and schedule 20 will have an effect on the ability of overseas Governments to collect their own taxes. The purpose of this amendment is to encourage strongly the Treasury and the Department for International Development to co-operate on a cross-Government basis to build the tax gathering capacity of overseas Governments to collect their own taxes.

The primary purpose of Members of Parliament and of this Committee is to be guardians of our own public expenditure. I am sure that my hon. Friend sitting next to me would say that it is possibly the primary duty of all Members of Parliament and the House of Commons to safeguard the public purse, make sure that money is well spent and protect our tax base. So I understand why the Treasury is putting forward the amendments to the existing controlled foreign companies regime, in order to protect the UK tax base and to increase it by bringing back to the UK companies that have perhaps chosen to structure their activities in other regimes. What I am trying to draw attention to, without the inspiration that appears not to be in my box after all—it is probably in another folder in my office—is a briefing from the coalition of charities. I should mention ActionAid and Christian Aid, which are charities that I am sure that all members of the Committee would support. They are part of the inspiration for this amendment  and were going to brief some members of this Committee tomorrow, though that briefing will no longer be necessary. I give way.

Photo of John Mann John Mann Labour, Bassetlaw

I am glad to hear that he is so inspired. Since the coalition Government came in, a new country has been created in South Sudan, which by definition therefore cannot have had any tax infrastructure. How precisely and within what time scales would this amendment impact on British assistance to South Sudan in terms of their taxation system?

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

I thank the hon. Gentleman for his intervention. Clearly I cannot answer in great detail. I am not an expert on the situation in South Sudan, but it is a good question as to how a new state starting from scratch will need to build up its governance in all areas, whether in the military, the treasury or its tax-gathering capacity.

Photo of John Mann John Mann Labour, Bassetlaw

. I clearly was not explicit enough in my question and the hon. Gentleman may not have fully understood. How precisely would this amendment, if passed, assist that process?

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

If this amendment were passed, it would require the UK Government, both through the expertise available within HMRC and through the development aid assistance that comes from the Department for International Development, to publish how they will work to increase on the ground the professional capacity of overseas states to collect the taxes that are properly due under their national laws.

The reason why I mentioned joined-up government in the context of an enormous increase in the Department for International Development’s budget is that, given the budget pressures elsewhere, it would be perverse to increase the largesse that British taxpayers spread across the world while the foreign Governments who receive that increased assistance are unable efficiently to collect the tax revenues that they are due. That is the amendment’s central purpose.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 11:30 am, 19th June 2012

The hon. Gentleman gave what he thinks might be the view of the hon. Member for North East Somerset, but is it not the case that, from a British point of view, if developing countries lose a lot of tax income, that has a direct impact on us, not least through the aid budget?

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

Exactly. The hon. Lady reinforces my point. I am sure we are all in favour of joined-up government. We know that the Department for International Development will be spending more money, whether in South Sudan or in other parts of Africa and Asia, on education programmes, maternity programmes and all the other aid programmes on which we would want to spend that budget.

Of course, we want all those countries to be in a position to grow their own economy and to collect their own taxes so that they can stand on their own two feet and fund Government programmes to further the development of their population, to increase confidence that they can be well run and democratised, and to  allow people to make the rational choices, or perhaps the irrational choices, that we make every five years in our own elections, which are conducted on issues of tax and spend. At the moment, many of those countries are in a relationship where much of what their Governments do is essentially done because foreign Governments, such as ours, or international agencies, such as the United Nations or the European Union aid programme, make those basic services possible.

I am sure we would all want to reach a position where overseas countries are able to fund their own programmes, but Governments cannot fund programmes if they cannot collect efficiently the taxes that they have decided are due from businesses that operate in their country, whether those businesses are in the extractive industries or in more advanced secondary industries.

I look forward to the inspired response of my coalition colleagues on the Treasury Bench, particularly on how the Treasury, with the professional expertise of HMRC available to it, will advise overseas Governments on the possible impact of the amendment and the clause.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

Does my hon. Friend agree that schedule 20 would be a terrible way for developing countries to run their own tax regimes, with 97 pages of extremely dense and complex legislation that even experts cannot follow and that has taken years to produce? A simpler and more understandable tax system might be better.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

My hon. Friend makes an excellent point, with which I am sure we would all concur. Britain has given many things to the world, including to parts of the country that we used to run, such as the rule of law and parliamentary democracy. Indeed, we have even given many parts of the world better electoral systems than we have in this country. One thing I hope we do not give to the rest of the world is the capacity for legalese, very fat Finance Bills and ponderous legislation that we all have to endure as Members of the House of Commons. I look forward to hearing from my colleagues on the Front Bench how the Treasury will be able to work alongside DFID to advise foreign Governments on the repercussions of the clause and, more generally, to consider how we can increase the tax-gathering capacity of overseas Governments so that they can raise their own resources and will not in future be so dependent on allocation of resources from other states.

Photo of David Gauke David Gauke The Exchequer Secretary

It is a pleasure to serve under your chairmanship, Mr Bone. I note that amendment 2 is grouped with the clause stand part debate and the various other amendments relating to it. I will seek to address all the points relating to clause 180 and schedule 20 as well as the relevant amendments.

Clause 180 introduces new controlled foreign companies rules, which are a key part of our corporate tax reforms. Together with the reduction in the rate of corporation tax to 22% in 2014 and the introduction of the patent box, these reforms are another step towards our aim of creating the most competitive corporate tax system in the G20, a tax system that will provide the right conditions for business investment and growth in the UK. The CFC rules are designed to protect the UK tax base from artificial diversion of profits. The reforms will ensure  that this is done in a way that reflects modern, global business practices, significantly reducing the compliance burdens of business.

Reform of the UK’s controlled foreign companies rules is frequently identified by multinationals as the key priority needed to improve the UK’s tax competitiveness and to ensure it remains an attractive place to do business. The UK needs CFC rules to protect against artificial diversion of UK profits to low-tax jurisdictions. The CFC rules were introduced in 1984 and we have accepted that in an increasingly global economy, it was time to reform and modernise these rules. Business also believes that reform is needed, a view so strongly held that some businesses were starting to leave the UK.

In November 2010 we published the corporate tax road map, which set out our plans to give businesses a competitive and stable tax system that provides the right conditions for investment in the UK. Since then we have cut the main rate of corporation tax, most recently to 24%, and this will continue to fall to 22% by 2014. Last year we introduced an opt-in exemption for foreign branches of UK companies and made interim improvements to the CFC rules.

Photo of John Mann John Mann Labour, Bassetlaw

Will this have a direct impact on the British football industry? One does not even know who owns certain football clubs at the moment. Is there anything in the provisions that will improve the tax take and therefore, indirectly, the transparency of the British football industry?

Photo of David Gauke David Gauke The Exchequer Secretary

No. There has been considerable consultation on this matter. We have received representations from a number of sectors, but I am not aware of any representations from the football industry. Perhaps if I can develop my remarks and set out the role of CFCs, it may help the hon. Gentleman and the Committee more generally. I think he will see that CFCs are not likely to be relevant to the ownership of football clubs. This is with regard to multinationals with entities that are based outside the UK.

In this Finance Bill, alongside the reforms to the CFC rules, we are also introducing a patent box to encourage innovative activity in the UK. Following extensive consultation, we have developed detailed proposals that meet our policy aims, and we are now putting them into statute. Since we embarked on CFC reform, the flow of businesses leaving the UK has been stemmed. Indeed, recently we have seen businesses wanting to return to the United Kingdom, or coming here for the first time.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

The Minister said that the flow of businesses out of the UK had been stemmed. Can he clarify what that flow has been?

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Lady will be aware of a number of entities that left around 2007-08. Indeed, those of us who have been debating these matters for some time will remember the debate we had at that time, as a number of companies left the UK. The entities that are returning include WPP, which recently announced that it was looking to return to the United Kingdom. I am delighted  to say that Rowan and Lancashire have already come here. Once the rules are in place in 2013, we anticipate that more businesses will follow.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

The Minister refers to “a number” of companies. Will he specify what that number is? Were the businesses that have agreed to locate in the UK the same ones that moved out of the UK?

Photo of David Gauke David Gauke The Exchequer Secretary

The likes of WPP, Shire and UBM have re-domiciled out of the United Kingdom, and there is significant interest in their return. It is clearly in the interest of the UK economy to have head offices located here. It is helpful to have decision makers based here. If head offices are already based here, the UK becomes a more attractive location for others. The cluster effect caused by having expertise in the UK will have beneficial knock-on effects. Clearly, it was damaging for the UK economy when companies such as WPP, UBM, Shire, Rowan and Lancashire moved away. I am sure that both sides of the Committee welcome the return of such companies. I will say a little more about that in a moment.

I return to amendments 2 and 3, which have been tabled by my hon. Friend the Member for Bristol West. He made a remarkably fluent speech in the circumstances. [Interruption.] I will try to resist responding to that suggestion by my hon. Friend the Member for Poole that it might have been better than the speech that was prepared. None the less, I think that my hon. Friend the Member for Bristol West set out well the case for the amendments, which ask the Government to prepare an impact assessment on the effects of clause 180 and schedule 20 on developing countries’ tax revenues. Amendment 190, which we have not yet debated, also asks for such an assessment to be made each year from the commencement of the rules and for the first three years of their operation.

However, as I explained recently to the International Development Committee, it is not feasible to produce the assessments proposed by either of the amendments. Any assessment of the impact of CFC reform on developing countries would need to focus on, and would require, a full understanding of the interaction between multinational companies and the tax regimes in the developing countries in which they are located. It would be an assessment, not of our tax rules but of the tax rules of a range of other countries.

While this Government do not think that any such assessment would be feasible, they are committed to ensuring that developing countries have the assistance they need to make sure that their own rules reduce tax avoidance and protect their tax base. Our corporate tax system is not the best way to help those countries. It is designed to protect the UK’s tax base, not those of other countries. The key issue is ensuring that developing countries have effective systems that build and protect their own tax base and to ensure that they can access and act on tax information. These amendments also ask for details of aid and technical assistance being provided to developing countries to improve their tax regime.

Photo of Grahame Morris Grahame Morris Labour, Easington 11:45 am, 19th June 2012

Could the Minister clarify that? If there is a UK-based company  with one subsidiary in a tax haven and another in a developing country, presumably at the moment that developing country would be protected from loss of tax revenues if that company relocated the business in a tax haven. That is because the UK tax law would be caught in our net, but with these changes, presumably that protection will no longer be afforded. The hon. Member is shaking his head, but this is what the NGOs ActionAid and Christian Aid are saying. I would be interested in the Minister’s view of whether that is a correct assessment.

Photo of David Gauke David Gauke The Exchequer Secretary

I understand the point that the hon. Gentleman makes. We do not believe that the estimates produced by some of the NGOs in this area are accurate. If he would like, I will spend a moment or so saying why those assessments are not accurate. For example, ActionAid estimates a £4 billion impact on developing countries. It is worth pointing out how that calculation was reached. It was based on financial data from only 10 UK multinational companies. ActionAid assumed that companies were liable to pay the headline rate of tax in that country and concluded that a fifth of the tax base of developing countries would be lost. We do not see the evidence for that. The difficulty with this assessment is that it seems to take no account of the fact that many developing countries offer tax holidays or incentives to foreign businesses to encourage them to operate there. A common feature of developing countries’ tax systems is reducing the corporate tax liabilities that are due. This means that there is often little incentive for companies to shift profits from developing countries to low-tax jurisdictions. I will give some examples of that, provided by PricewaterhouseCooper’s assessment of international tax jurisdictions in its worldwide tax summaries. For example, headline rates are broadly 30% in Kenya, Rwanda and Tanzania, but those three countries provide for an effective 0% tax rate for companies investing in designated zones, subject to some conditions.

This is provided either in the form of a tax holiday or a 0% rate for 10 years, or indefinitely in the case of Rwanda. Kenya provides investment deductions of 150% for qualifying investments above a certain amount incurred outside Nairobi or the municipalities of Mombasa or Kisumu. Rwanda also grants tax incentives in the form of profit tax discounts. Broadly, these are based on the number of Rwandans employed. The rate of profit tax discount ranges between 2% for employing between 100 and 200 Rwandans to 7% where a company employs more than 900 Rwandans. The reason why I have digressed into that area is that none of that is taken into account in the ActionAid assessments. It assumes that the headline rate applies, and that is how it reaches its assumptions.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

The Minister mentions the ActionAid assessment. I read the ActionAid briefing on this issue with some interest. I am surprised that British companies, in which there are significant Government interests, have many hundreds of subsidiary companies in tax havens, including some of the large banks in which the Government hold a significant financial interest. RBS and Lloyds, for example, have many hundreds of subsidiary companies registered in tax havens. The vast majority of the electorate will be surprised, too. The Minister needs to think about how we are going to tackle this problem.

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Gentleman makes two separate points. First, in respect of those companies with subsidiaries around the world in low-tax jurisdictions or, in some cases, tax havens, there are issues about our ensuring that we properly collect the tax that should be paid in the UK. The focus of the clause ensures that tax relating to profits made in the UK should be collected here, in a move towards a territorial system. We are determined to do that.

Secondly, the UK can play the most effective role in developing countries by not using our corporate tax system in trying to be the world’s policeman. The CFC rules should, rightly, be focused on how we protect our tax base. If there is some benefit in the old CFC rules for developing countries, that is incidental and not what they were designed to do. We can and do help developing countries build up their capacity. In a moment, I will say a little bit about what we are doing in that regard.

Several hon. Members rose—

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Having started by saying that it would not be possible or feasible to carry out an assessment of the impact of the measure, the Minister gave a considerable amount of information about how he thought that tax regimes would work. Is it so difficult to make that assessment? Given the information that countries have lower rates than we think, those regimes would not be that effective. Presumably, the information is there.

Photo of David Gauke David Gauke The Exchequer Secretary

I was quoting the PWC worldwide summaries to demonstrate how complex the matter is. I set out in a brief summary some of the complexities in the Kenyan and Rwandan tax systems. Were we to attempt to make an assessment in the way requested in the amendments— I appreciate the good intent of the Committee members who tabled them—the challenge would be that, although HMRC or the Treasury might be capable of assessing how the UK tax system works, they do not have the information to get to grips with the complexity in other tax jurisdictions.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

The Minister is explaining a remarkably complex, difficult area. Nevertheless, the hon. Member for Bristol West made some good points at the beginning, even without his notes. Might it be more beneficial to meet the Minister at some point, with representatives of the charities, to take this matter a little bit further? That might help. I do not think that we will decide much today about this complex area.

Photo of David Gauke David Gauke The Exchequer Secretary

I reassure my hon. Friend that I have had meetings with ActionAid and Christian Aid on that subject, and the fact remains—there is no getting away from this—that the UK Government are not in a position to make an accurate assessment of the impact that changes to CFC rules will have on developing countries. Where such analysis has been done, it has been somewhat simplistic and with flaws in the methodology. We as a country can build up capacity in developing countries and make an effective contribution, and I will say a word about how we can do that in a moment.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

In many ways, the point that I wished to make has been superseded by comments from my hon. Friends. It appears, however, that the Minister is making a powerful argument for amendment 190, which seeks to monitor the effect of these changes on an ongoing basis. Will the Minister clarify why he believes that it is not possible or appropriate—I am slightly unclear as to which the Minister means—for Her Majesty’s Revenue and Customs and the Treasury to make an assessment at this stage of the impact that the changes will have on developing countries? We are talking in terms of such things being outside our jurisdiction, yet under the current regime and CFC rules, the tax affairs of companies in foreign jurisdictions that are controlled in the UK come within the interest and information collection remit of HMRC. I therefore wish to understand why at this juncture the Minister does not believe the measure appropriate or possible, and which of those he means.

Photo of David Gauke David Gauke The Exchequer Secretary

First, our tax system is complex as it is, so let us not attach additional complexity. Its purpose is to collect tax that is due in the UK, and the focus pursued by this Government—which the preceding Government had already begun to look at—is on territoriality and the tax that relates to profits made in the UK. Our tax system is there to do that, not to be a world policeman.

Secondly, as far as analysis is concerned, let me again make the point that the impact of CFC reforms on developing countries will depend on the tax systems in those countries. HMRC and the Treasury do not necessarily have all the data and expertise to make an assessment for those countries, and that will depend on the policies of those countries which, as I demonstrated with the examples of Kenya and Rwanda, can change. Those countries put in place tax regimes to attract investment and be competitive, and that has a major impact on the implications of any policy in that complex area.

The information that I have provided on Rwanda and Kenya comes not from internally-sourced HMRC information but from work done by PWC. I understand why the amendments have been tabled and the good intent, but they ask for something that HMRC and the Treasury are not in a position to do with any great robustness. Robust analysis is not possible in that area.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley 12:00 pm, 19th June 2012

Does the Minister agree that in trying to support developing countries to get their tax policy right, we should not accidentally clobber them with two things? First, if they give a tax holiday or tax waiver to a company to help it to invest in their country, a rich country such as ours should not then tax that profit through an anti-avoidance regime, so that all the incentive does is move tax from the developing country to the richer one.

Secondly, what often happens is that a company wants to set up a hub in a certain area, employ people, and make things there to service a market of neighbouring countries. We do not want the rules accidentally to stop that, so that we end up trying to tax that company because it is trading with five of its neighbours, instead of only in one territory. Rather than deal with the concerns that the amendment addresses, we need to get  some other issues right, so that we do not stop such countries trying to attract the investment that they want.

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend is absolutely right that we do not want to prevent investment in developing countries, and I do not believe that anything in the clause and schedule would do so.

Photo of Grahame Morris Grahame Morris Labour, Easington

I do not want to labour the point that the hon. Member for Amber Valley has touched on, but there was the suggestion that—the Minister gave the examples of Kenya and Rwanda—countries are doing something unusual to attract business investment by offering incentives, or tax disregards. Is that not what we do in the United Kingdom with enterprise zones? We forgo potential tax revenue in order to achieve economic activity, unfortunately not in County Durham, but in Oxfordshire or wherever the enterprise zones are declared. Is that not an established principle in the short term in order to generate activity for those developing counties? We surely should not be denigrating that.

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Gentleman is absolutely right, and I was in no way criticising Kenya or Rwanda. My point was that some assessments in this area have assumed that headline rates will always be what is paid, and do not take into account that developing countries will often have tax incentives to encourage investment. I am not critical of that in any way; it is very much a decision for the relevant developing countries. They recognise the need to be competitive in tax terms. All I am saying is that some analysis in this area has been somewhat simplistic, and has assumed that it is always the case that the headline rate applies for every pound of profit made, but that does not accurately reflect what happens in developing countries.

It would be relevant to the debate to explain a little about the support that the UK provides through the Department for International Development and HMRC to provide robust, fair and sustainable domestic taxation systems in developing countries. Our priorities for achieving that are capacity building, improving the exchange of tax information, and increasing transparency in the extractives sector to address corruption.

T o outline some specific examples for the Committee of our work in that area, in Burundi, through DFID support from January to June 2011, revenue collection was 37.4% above the level for the same period in the previous year. Through the twinning of HMRC and the Ethiopian Revenues and Customs Authority, the UK has helped the accountability, political neutrality and transparency of revenue collection in Ethiopia. From 2002 to 2011, tax collected in Ethiopia increased by 700% in absolute terms. We also support the African Tax Administration Forum by providing technical support; for example, we send tax experts to train staff on the ground, particularly in the area of transfer pricing.

Earlier this year, HMRC hosted senior officials from the Uganda Revenue Authority in order to share knowledge and experience of risk and intelligence techniques. HMRC has delivered technical assistance in Rwanda, covering the taxation of banks, construction and telecommunication companies. Through DFID, we have also provided funding to help Kenya and Ghana exchange tax information  with other countries in line with global standards. The Government are supporting efforts to promote transparency and accountability in the extractives sector, and we are currently working through EU proposals on the transparency of payments made to foreign Governments by the extractives industry.

Such projects play a vital role in helping the Governments of developing countries to put effective tax policies in place and collect the tax they are owed, and I can put that in the context of the considerable efforts that we have made on overseas aid. Last year we spent 0.56% of our gross national income on overseas aid, and we are committed to spending 0.7% of GNI on overseas aid from next year.

Amendment 190 asks that the cost of changes to the controlled foreign companies rules be assessed to determine whether they are consistent with Treasury forecasts. The Exchequer impacts of the changes to the CFC rules are set out in tables 2.1 and 2.2 of Budget 2012, and the total cost of the changes is detailed in the Budget 2012 policy costings document. The total cost of reform is £910 million in 2018-19. As part of the Government’s approach to better tax policy making, we are committed to improving transparency. The tax information and impact note or TIIN published in December 2011 and updated at Budget 2012 sets out the impacts of CFC reform. This measure will be monitored and assessed alongside other measures included in the Government’s package of corporate tax reforms. However, the immediate impact of the reforms is clear from the reactions of business to the introduction of the regime. The changes have been widely welcomed, and have not only succeeded in halting the flow of companies from the UK, but have begun to reverse that direction of travel.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

The Minister has said that the impact of the changes is immediately obvious from the reaction from business, but does he accept that other behavioural changes that may result from the measures in the short, medium and long term, in terms of organisations restructuring to take further advantage of the rules, could impact on the numbers?

Photo of David Gauke David Gauke The Exchequer Secretary

Of course we have made various assumptions and assessments of the behavioural impacts of CFC reform, just as there are assumptions regarding the behavioural impacts of every tax measure. We believe that reform of CFCs is a very important part of tax reform to make the UK more competitive. As a consequence of CFC reform, we anticipate that more companies will be headquartered in the United Kingdom. Businesses will domicile here, and that is an asset to the UK economy. It is a very clear signal that Britain is open for business, which is something that I am sure Members on both sides of the Committee will welcome.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

As I understand it, the Minister is saying that the positive figures in the Red Book, and the positive net effect of the changes, will mean increased revenue to the Exchequer as a result of companies relocating to the UK. Is that a correct understanding? It seems that the Minister is suggesting that by 2016-17 there will be a positive net effect of £35 million for the Treasury, as opposed to a reduction of £805 million. Those figures do not seem to add up to a significant net positive effect for the UK.

Photo of David Gauke David Gauke The Exchequer Secretary

As far as the numbers and the costings are concerned, the changes in the various numbers we have seen from one iteration to another between December 2011 and March 2012 are to do with changes in the modelling and further evidence coming forward, as opposed to one number being a static cost and another taking into account the relocation of companies, if that is what the hon. Lady is suggesting. There is a cost within the scorecard, as I have made clear, because of the changes to the CFC regime, but we think that that is a cost that is justified by the increased competitiveness of the UK as a location in which to do business that is brought about by these changes.

There has been cross-party consensus on the need to address CFC reform. The previous Government commenced the process, and we on the Government Benches may be somewhat critical of the progress that they made, but we welcomed their desire—at least in their last year or two in office—to have a more effective and competitive CFC regime.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Will the Minister explain in more detail where the advantages are coming from? There is clearly a loss of tax, and the amount of tax that would be gained from such companies relocating would appear to be relatively small compared with that loss. Is the Minister’s primary argument that there will be other advantages? Can he quantify those advantages?

Photo of David Gauke David Gauke The Exchequer Secretary

More businesses will be domiciling in the UK as opposed to moving out, which is what they were doing in 2007-08. Those of us who were talking to tax professionals on a regular basis in those years heard horror stories about how many companies were considering relocating and how many multinationals were looking to move their offices out. That tide is now being stemmed and reversed. It must be good for the United Kingdom to have head offices located here and to have, for example, the likes of Aon, a US insurer, choose to locate its head office in the United Kingdom. The fact that senior staff are moved here and that decisions are made from here is beneficial to the reputation of the UK as a place to do business. There are benefits to having professional services firms locate here. The fact that the UK is seen as being the centre for businesses is one that I hope we would all welcome.

Photo of David Gauke David Gauke The Exchequer Secretary

I am keen to make progress, but I will give way.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

I thank the Minister for giving way again. He is simply responding in advance to some of the queries that I will raise when I speak to amendment 190, if you will allow me to do so, Mr Bone. The Minister talks about the benefit to the UK of such companies relocating their headquarters to the UK, but he still completely fails to provide any indication of the actual economic benefit. Obviously, the concept is good, but in the current economic climate, in which tax losses are estimated at £910 million—that could be conservative—and given that the potential impact on developing countries is as yet unquantified, it is important that the Government are able to set out an economic argument for the proposal.

Photo of David Gauke David Gauke The Exchequer Secretary

As far as the costings are concerned, these are our central assessments, which have been signed off by the Office for Budget Responsibility. I have certainly received plenty of representations saying that the reforms will not cost as much as we anticipate, because the dynamic effect will be that much greater, and that more businesses and individuals, paying a lot in tax, will relocate here. That is our assessment, and it is a fair and reasonable one. The measures add to our competitiveness, in the same way that corporation tax rate cuts add to our competitiveness. They make the UK a place to which businesses from around the world want to relocate— I will say a little more about the emerging evidence for that—and they send a clear signal that Britain is open for business, which we should welcome.

Photo of John Mann John Mann Labour, Bassetlaw 12:15 pm, 19th June 2012

I know that intellectual property rights are incorporated into schedule 20; are image rights incorporated, and if not, why not?

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Gentleman is right to say that intellectual property rights are an important part of the CFC regime. I am not sure whether he is seeking to return to the issue of football clubs, because that is one area where image rights tend to play an important part. Perhaps I should say a word or so to confirm my earlier point that CFC rules apply to UK resident companies that have foreign subsidiaries. Football clubs do not tend to have those, so it is not clear whether the CFC legislation would have any particular impact on them, and there is no consultation response to suggest that it would.

Image rights as part of intellectual property rights more generally are included, but if the hon. Member for Bassetlaw is going to argue—it is not always easy to anticipate his arguments—that football clubs may establish foreign subsidiaries, that the image rights would be held in them, and that this would provide a tax break for them, I have to say that that is unlikely. Any artificial diversion of profits from outside the UK to elsewhere would be addressed in the anti-avoidance regime that applies to CFCs. I hope that I have not only answered his question but anticipated his next questions.

As I have said, the Government are committed to making better tax policy. In March 2011, we published our tax consultation framework, which recognises the importance of fully engaging with those who will have to operate the rules in the development of tax policy. Such engagement allows the Government to explore, develop and test new ideas to improve the tax system and to ensure that change is well targeted, that its likely impacts are understood, and that the legislation is fit for purpose.

Our consultative approach is the way to ensure that we get difficult reforms right and that the rules operate as expected. The new CFC legislation has benefited from extensive consultation with all interested parties from November 2010 through to the publication of the Finance Bill in March 2012. The consultation process has been open. We have published clear policy objectives, options and decisions on detailed policy design followed by draft legislation. The Government have supplemented that through discussions with a variety of working groups to understand better the impact of policy decisions on the businesses that will be affected.

Following publication of the Finance Bill in March, we have listened to further representations from business and advisers, and carried out further work. As a consequence, we are making a number of amendments to the legislation that will reduce uncertainty for businesses and HMRC in applying the rules. I shall provide more information on those later.

To ensure that those operating the rules have certainty about how they apply, we will publish guidance, which will be written in consultation with interested parties. In fact, draft guidance covering some of the key areas of the new CFC rules was published today for consultation. Further to that, HMRC is encouraging discussions between companies and their customer relationship managers and will provide clearances on all aspects of the new CFC regime. Those are all ways in which companies will be provided with greater certainty about the way in which the new CFC rules will apply to them. Through our approach to engagement, we will keep the regime under review to ensure that it is operating in the intended way.

The changes to the CFC rules are a key part of the Government’s corporate tax reforms—reforms that will provide the right conditions for business investment and growth in the UK. Clause 180 should be introduced without delay. I therefore hope that hon. Members will not press their amendments.

I turn now to the amendments I mentioned earlier. We have been in discussion with business and advisers on them since the publication of the Bill in March. A number of the changes prevent a CFC charge from arising when the CFC’s profits are already taxed in the UK by other means, including when a shareholding is taxed, or when a tax arises under the debt cap rules or through transfer pricing. Some of the changes ensure that the rules that establish whether a foreign company is a controlled foreign company work properly and have the intended scope. Further changes ensure that the finance company rules work as intended, in particular in their application to banks and insurance companies. A number of other minor amendments improve the clarity and certainty of the new rules. That is further evidence of how we have worked closely with business to ensure that the new rules are effective and provide certainty to those applying them.

I appreciate that I have spoken for some time, and the only consolation for that is that I hope I have saved the hon. Member for Newcastle upon Tyne North from having to make some remarks. However, I have to say a word or two about the reaction from business. These reforms have been well received. I have already mentioned some businesses; following the publication of the Bill in March, one of the big four advisory firms announced that it was in discussion with 10 to 15 multinational companies that were considering locating substantial operations in the UK as a result of corporate tax reforms. The Confederation of British Industry commented that these much-needed changes

“will help make the UK a more attractive place for companies to invest, do business and create jobs”.

That confirms the message that Britain is open for business.

Reform of the CFC rules has long been identified as a priority by business. The new rules are designed to protect the UK tax base from the artificial diversion of  profits, and are a further step towards achieving our aim of having the most competitive tax system in the G20. I hope that the clause and schedule 20 will stand part of the Bill.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

I intend to speak to clause 180 and amendment 190. The Minister anticipated some of my questions and concerns, but unfortunately not all of them so I want to cover a few of the issues that have not been dealt with yet. To recap where we are with clause 180, in the past multinationals based in the UK have had to pay corporation tax not only on their profit in the UK but on that made through subsidiaries and branches abroad. In 2009 dividends paid back to the UK parent companies from subsidiaries were exempt from tax, but it left the CFC rules as the main measure of taxing overseas profits.

The Opposition acknowledge that the CFC rules have stopped companies moving their profits out of the UK to avoid tax, but they have also provided a disincentive for some companies to base themselves here in the UK. As the Minister explained, the clauses we are debating today are the culmination of a series of announcements and consultations over a number of years. They effectively mean that profits made in other countries by a multinational based here in the UK will no longer be taxed by the UK and only those profits made in the UK will be taxed.

When in government, the Labour party committed to moving towards a more territorial regime. We consulted extensively on how the rules could be changed to provide more certainty to business to ensure that the UK remained an attractive place to base multinational companies, but also to ensure that the UK tax base was not eroded by profits being moved offshore. We were aiming to legislate for changes in Finance Bill 2011 and so we support the principle of the legislative proposals. Anything that will make the UK a good place to do business, and will help our economy to grow out of the current double-dip recession, has to be a good thing. We have grave concerns, however, that the Government have not properly thought through the detailed consequences of some of the proposed changes. Unfortunately, the Minister has compounded those concerns because he is not willing to provide data or analysis on the potential implications, particularly for developing countries.

The amendment moved by the hon. Member for Bristol West would address those concerns before the legislation was implemented. The Minister, as I said in my earlier intervention, has made a strong case for amendment 190, and I would be interested to hear why he considers that an ongoing assessment of the impact of the changes is not advisable.

Additionally, given the complexity of schedule 20, which I think the hon. Member for Amber Valley referred to as being 60 pages long—

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

The schedule is 97 pages long.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

Okay.

A slightly less esteemed, albeit important, body, the Institute of Chartered Accountants in England and Wales, has described the schedule as “appallingly dense” and largely inaccessible, even to experienced readers.  Whether the proposals will cost more than the Government’s current estimate, and—I know the Minister has sought to provide reassurance on this point—whether they will provide the certainty that business requires, are legitimate concerns.

The main subject of amendment 2 is the impact on international development, and Members on both sides of the Committee have made it clear today that that is a concern. A number of non-governmental organisations and outside organisations are also concerned about the potential impact on developing countries.

In a written answer to a parliamentary question last week, the Minister confirmed to me that the Government had not assessed the effect on other countries of the proposed changes to the CFC rules, stating, as he has confirmed today, that

“these rules are designed to protect the UK Exchequer by preventing artificial diversion of UK profits.”—[Official Report, 14 June 2012; Vol. 546, c. 561W.]

From that, and from his comments today, I take it that the Minister does not think carrying out such an assessment is either appropriate or necessary.

As the Minister mentioned earlier, the Government recognise that tax revenues are essential for development. In an article entitled “Free trade in Africa shows a way out of poverty,” the Prime Minister said:

“An African free trade area could increase GDP across the continent by about $62bn a year. That’s $20bn more than the world gives sub-Saharan Africa in aid. Backed by investment in people and infrastructure, sound government and effective tax systems, imagine what this would mean: businesses growing, new jobs on offer, families on the up, living standards transformed.”

I know that the Government are committed to ensuring that the aid that the UK gives to developing countries is not undermined by a lack of support for those countries’ revenue bases. That is why it seems unusual that the Government are reluctant to carry out any form of assessment of the potential impact of the CFC rules, despite the widespread concerns that have been expressed. The Government have also recognised publicly that

“tax avoidance in developing countries deprives governments of the vital income needed to build and maintain their public services.”

The very means by which they can protect their tax base could be undermined by these measures.

The Government have been asked during the past two years to carry out an impact assessment of the CFC rule changes, but have refused on every occasion to do so. It is not only the NGOsActionAid and Christian Aid have already been mentioned—that are asking for that assessment. Organisations such as the OECD and the International Monetary Fund have also recommended “spillover analyses” of the impacts on developing countries of changes of this type.

May I quote from a 2011 report by the UN, the IMF, the World Bank and the OECD? Entitled “Supporting the Development of More Effective Tax Systems”, it states:

“The G-20 countries’ lead role in the debate on” the

“international tax system creates an obligation on them to ensure its smooth functioning. In that context, it would be appropriate for G-20 countries to undertake ‘spillover analyses’ of any proposed changes to their tax systems that may have a significant impact on the fiscal circumstances of developing countries.”

It seems strange that, although the Government are willing to accept support and advice from and collaboration with those esteemed international organisations, they are completely disregarding the advice being given on these taxation changes. I would be grateful if the Minister could provide a better explanation of why the Government do not deem it appropriate or necessary to carry out any form of assessment of the impact of the changes. That is the basis for the first part of our amendment 190, which says:

HM Revenue and Customs shall publish an assessment of the implementation and impact of the changes made in this schedule each year from commencement for the first three years of operation, including…the impact of the changes on developing countries and whether any further aid or technical assistance needs to be provided to those countries to safeguard their tax revenues”.

Some tax experts, I acknowledge, disagree that there will be the level of impact suggested by ActionAid—the estimate is about £4 billion. The Minister explained in some detail why the Government did not take that estimate on board. He mentioned that it was an assessment of 10 companies. I might add for the record that those 10 companies make up more than 20% of the FTSE 100 companies, so their proportion of the market is one that it is difficult not to take into consideration.

The Minister also explained that the tax treatment in each of the countries concerned was complex and not as simple as the assessment undertaken by ActionAid suggested. However, surely that makes the argument as to how vital it is that the Government use their resources and the information that they have available on the tax treatment of UK-controlled companies to inform an assessment that can be used and relied on and can give an indication of what the impact of these changes will be.

Photo of Ian Mearns Ian Mearns Labour, Gateshead 12:30 pm, 19th June 2012

Given the complexity of the subject, does my hon. Friend share my significant concern that a lack of transparency in the operation of CFCs and the way in which the taxation of subsidiary companies is dealt with could mean that, frankly, multinationals are getting away with an awful lot?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

I agree. In fact, the Government ought to be concerning themselves not simply with subsidiaries but with branches in those countries where the legislation has been recently relaxed and what the impact of the new regime will be on transparency and in terms of a potential increase in avoidance. That is my second concern, which I will come to shortly.

I would like an explanation from the Minister on the question of developing countries. The amendment tabled by the hon. Member for Bristol West relates to that issue, and I have concerns to express in discussing the Opposition’s amendment 190. If the Minister does not credit the ActionAid assessment of the potential impact, why should not the Government carry out their own, or use some of the international agencies that would, I am sure, be willing to support such an assessment of how the measures may hinder the ability of developing countries to safeguard their tax base?

It seems a false economy to invest UK Treasury intake, up to £1 billion, which the impact assessment suggests the figure could be, in changes that will undermine the very progress towards which our international aid money, which increases year on year, is going. The  Government need to explain why they have not carried out any assessment of that, and what they are going to do about it in coming years.

The second part of our amendment relates to concerns about the impact of the measures in terms of the cost to the Treasury, which could be much higher than expected. The arguments were briefly explored in the Minister’s comments. Serious concerns have been expressed that the Government have not factored into their costings the fact that companies may restructure to take advantage of the new regime, which would result in a much higher cost to the Exchequer, and more profits no longer being subject to UK tax.

The Government have said that they have “hopes” that some of that cost will be offset by companies bringing some of their functions and profits home to the UK. The Minister has failed to set out today the possible economic benefit of the relocation in the UK of those companies, including how many jobs would be created. Instead of engaging in evidence-based policy making, the Government have put forward vague evidence for positive impact, which seems to be based on anecdotal conversations with businesses. We do not object in principle to changes to the CFC rules, but it seems unusual at this juncture, and when we face the current economic challenges, for the Government not to have carried out a more detailed cost-benefit analysis of the changes.

The final issue dealt with by our amendment is tax avoidance, which was raised by my hon. Friend the Member for Gateshead, and the potential for that to increase as a result of the proposed changes. There is concern that they will result in less transparency than there is under the current regime, and that avoidance could therefore increase. I am sure that if that were to be the consequence, it would be unintended.

In the 96 or 97 pages of the provisions there are 10 targeted anti-avoidance schemes. That shows the level of concern, on the part of those who drafted these complex measures, that such schemes should be anticipated and headed off at the pass. The Government should today make a commitment to improving transparency, and that is what is called for in the third part of our amendment. It would mean that in

“each year from commencement for the first three years of operation” the Government would undertake an analysis of

“whether the rules operate as expected and”— importantly, as well, for business and investment in this country—

“provide certainty to companies” as the Government intended. I am sure that hon. Members will agree that it is a reasoned amendment and a reasonable approach. Concerns about the changes have been set out, and it seems sensible for the Government to undertake an ongoing analysis of the impact for developing countries, Exchequer and Treasury forecasts and businesses themselves.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Thank you, Mr Bone, for the opportunity to contribute on this issue. I want to speak primarily in support of amendment 190, but to make some general remarks as well.

Fundamentally, such provisions appear to give us a choice. If we seek to tax the foreign income of companies that operate in the UK, they may simply move elsewhere.  The Minister spoke about some that either had done that or were threatening to do so. If such a company moves away entirely, we clearly do not get tax from it at all, and there are other implications for the economy in terms of employment and so on. It would be useful to see more information on how that is quantified and the degree to which a UK-headquartered company contributes to our economy. That is one argument. If we continue to seek to tax the foreign earnings of companies headquartered here, they may go. We could be killing the goose that might have laid the golden egg.

On the other hand, a company might be headquartered here, but we potentially still get very little tax from it, because changes in the CFC rules mean that foreign earnings will not be taxed. At times, we seem to be almost conceding to blackmail—“If you tax us, we go. If we stay, you can’t tax us, because we can still divert our earnings in such a way that we don’t pay very much tax.”

It is important for the Minister to outline the impact on the UK in more detail. Leaving aside the question of other countries, will we simply see a substantial loss in tax income? It is clear from the figures in the Red Book that the Treasury anticipates a loss in tax income to the country as a result of the changes. What are the countervailing advantages? What do we gain either directly through tax income coming in other ways or through the impact that such companies have on our economy if they are headquartered here? If we will lose a lot of tax without that countervailing gain, it raises serious questions about how the change will work.

Photo of Seema Malhotra Seema Malhotra Labour, Feltham and Heston

My hon. Friend makes an important point about what is likely to be the case in future, bearing in mind the forecasts of increased or reduced revenues to the Exchequer. Does she agree that it would make an important contribution to the debate if the Minister outlined what changes in corporate and company behaviour he expects or predicts as a result of the changes?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 12:45 pm, 19th June 2012

I thank my hon. Friend for her intervention. It would be useful to know about that matter in more detail. It is important to be able to say whether, after a year, or after two or three years, the changes have had the impact that we say they have, or think that they will have, whether some companies return to operate in this country and what effect those types of company have here. I have heard it argued—it may be an exaggeration—that although many such companies have headquarters here, the extent of their operation is limited and a lot of their earnings, and therefore their profits, are located somewhere else. We have to ask whether such a small operation is really of such overwhelming benefit to our economy and whether that makes it worth losing the tax that was previously secured.

Another argument for change is that it would be simpler for companies to understand. Given the nature of the legislation that we are considering and comments by some about its impenetrability, it is not clear that change would simplify things. In fact, it may make it even more complex. Given such a large change in the way in which foreign earnings are dealt with and that  there is substantial potential tax loss, it is incumbent on the Minister and the Government to tell hon. Members in due course about its impacts, about the tax loss and about the tax gain from having companies headquartered here, if there was not such a gain previously, and whether such companies have used tax havens less or whether much of their income is still located in tax havens rather than here. Those are important questions for the Government to deal with.

Presumably, a lot of relevant data will be available. We should not neglect to collect information about the tax paid by such companies and compare it with their previous situation, when they were taxed differently. We should know if companies have expanded their operation and about the impact of that on our economy. It would be a pity if we were not collecting such information and wanting to publish it.

A lot of people working in international development have asked questions and are gravely concerned about a possible adverse consequence of the changes, albeit unintended, for developing countries. The Minister said that the legislation on controlled foreign companies was never intended to aid developing countries. He said that that was not its primary purpose, that it was intended to deal with tax being collected from companies with foreign earnings, which was an issue of importance to the UK, and about how such companies tie up their inter-company arrangements. That may be so, but the opposite does not necessarily apply. The fact that the legislation was not intended as an aid to developing countries or to help them collect tax does not mean that the inverse is not the case and that a piece of legislation that we put in place, such as a review of our tax system and our policies, could not and will not have an adverse consequence on developing countries which may find that they lose income as a result.

As the hon. Member for Bristol West put it extremely well, we must think about the implications of this legislation on a lot of what we do across the Government. It sometimes feels as if we have one set of policies and priorities for one part of the Government, and a completely different set for another part. The Department for International Development is trying to build the capacity of developing countries in various ways through the provision of international aid, but if as a result of changes made in this Committee we create a situation in which those countries suffer a loss and are not able to collect as much tax as they might otherwise have done, it is almost as if we are simply pumping out money to fill a gap that we helped to create. That may be inadvertent and not deliberate, but it does not seem particularly sensible and that is where concerns arise.

The Minister has said that the situation is not as straightforward as organisations such as ActionAid have suggested. It is often alleged that such organisations exaggerate their case and perhaps present a rather alarmist view that may not stand up to great scrutiny, and in particular, the figure of £4 billion mentioned by ActionAid has come in for considerable criticism. The reality, however, is that some tax loss will arise in some of these countries. Not all of them have tax holidays, although some may do.

Photo of Seema Malhotra Seema Malhotra Labour, Feltham and Heston

My hon. Friend cites the ActionAid estimate of £4 billion in lost tax that could be avoided by UK-based multinationals because of this change.  Does she agree that as we want to avoid any unintended consequences of this provision, and as there are differing points of view, it is extremely important that we understand what assessment has been made of its impact? HMRC and the Treasury should make that assessment publicly available to inform the debate so that nothing happens that we would all regret.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I agree with my hon. Friend, and it would be helpful to have a projection of what might happen. Equally important—this will resolve some of the disputes about what the losses might be—is to see how things work out, assuming that clause 180 goes through and is enacted. The only way that we will know whether ActionAid and other organisations that have campaigned on these issues are right, or whether the Government are right to feel that much of this debate has been over-egged and is unduly alarmist, will be to see what actually happens. Until we can measure and clearly assess what is happening on the ground, the matter will still be unresolved and we will not be much further forward. It is often the case—we have seen this with other legislation, I think—that those campaigning against the change say, “The world is going to come to an end and we are all going to be sleeping in the streets,” and the Government say, “No, no, no, that’s just not true. Everything will be fine.”

If we talk in hypotheticals, the debate can become, not sterile, but difficult, and we appear to be doing that here. If that is the case, and we cannot necessarily prove it either way, to suggest that impact assessments are carried out and published does not seem unreasonable; they would be helpful. If it turned out that many of the fears were unfounded, people would no doubt acknowledge that, but if it transpired that there was a problem, we would have to turn our minds to ways in which to deal with it—ways in which countries could be assisted—and we would be able to do that only if we could gather the information.

I was unconvinced by the Minister’s assertion that it would be too difficult and complex to gather the information and to understand it. This is not the only issue that  affects developing countries in relation to tax—it is one among many—and we need far more information sharing and transparency about international taxes generally. We must do things other than simply consider that one aspect; we need far better information about what tax is paid by the international companies in the various countries in which they operate; without it, it is hard to catch the tax in the appropriate place. Company structures can be complicated, with manufacture or extraction being carried out in certain countries and complex arrangements between the parent company and the companies operating in the developing countries. One way in which income is taken out of developing countries is through interest being paid by the subsidiaries on loans to start up, modernise or improve their businesses.

Many organisations that campaign on international development consider it important to get clear information; transparency is a first base from which to move forward. We should do that internationally in any event, and Britain should take the lead, both in how we operate and in how we encourage international organisations to operate. I presume that this is the kind of debate that the UK is leading at the G20, and that we will continue to do so, to ensure, not in isolation but in conjunction with our partners in the developed and developing worlds, that that begins to happen.

If the information will be gathered in any event, it should not be too difficult to assess the impact of the provision. If it had an adverse affect on developing countries, we would have to think carefully about how to help them plug a gap that had been created by our own actions. I do not think that we want to be in the position, in two or three years’ time, of huge campaigns being generated, perhaps by organisations such as ActionAid, saying how dreadful this has been, and calling on the Government of the day, which might not be the same as the current one—

The Chair adjourned the Committee without Question put (Standing Order No88).

Adjourned till this day at half-past Four o’clock.