Clause 219 - International agreements to improve tax compliance

Finance Bill – in a Public Bill Committee at 12:30 pm on 20 June 2013.

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Photo of David Gauke David Gauke The Exchequer Secretary 12:30, 20 June 2013

I beg to move amendment 141, in clause 219, page 127, line 13, leave out ‘the purpose of’ and insert ‘or in connection with’.

Photo of Sir David Amess Sir David Amess Conservative, Southend West

With this it will be convenient to discuss the following:

Government amendments 142 to 146.

Amendment 109, in clause 219, page 128, line 8, at end add—

‘(8) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures to work in conjunction with other G8 countries and the members of the Organisation for Economic Co-operation and Development, to require multi-national companies to publish a single easily comparable figure for the amount of corporation tax they pay, and within six months of the passage of this Act, place a copy of the review in the House of Commons Library.

(9) The Chancellor of the Exchequer shall review the effects of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency, including a requirement on companies to publish a single easily comparable figure for the amount of corporation tax they pay in the UK, on Treasury tax receipts within six months of the passage of this Act, and consult with G8 countries on their effectiveness. He shall place a copy of the review in the House of Commons Library.’.

Clause stand part.

New clause 6—Transfer pricing arrangements—

‘Within 30 days of the coming into force of this Act, Her Majesty’s Government shall propose to the governments who are members of the Organisation for Economic Co-operation and Development that co-ordinated action be taken at the earliest opportunity to prevent the abuse of transfer pricing arrangements by multi-national corporations and that early consideration should be given to a review of the current Transfer Pricing Guidelines for Multi-national Enterprises and Tax Administrations.’.

Photo of David Gauke David Gauke The Exchequer Secretary

Clause 219 introduces powers to allow the Treasury to give effect to our agreement with the USA to improve international tax compliance. I touched on that a moment or so ago. The clause also allows for further regulations to be made to bring into effect similar agreements and also, as a result of the tabled amendments, similar arrangements with other jurisdictions.

FATCA is the acronym given to the US provisions known as the Foreign Account Tax Compliance Act. In 2010, the US introduced FATCA to combat tax evasion. Under the FATCA provisions, all financial institutions outside the US are required by law to pass information about the accounts of US persons directly to the US tax administration—the Internal Revenue Service. However, UK and EU data protection laws do not allow financial institutions to pass on such information. That prohibition would leave many UK financial institutions in breach of FATCA and, under the US rules, open to a 30% withholding tax on any US source income.

To combat the practical implementation issues faced by UK institutions, as well as to tackle the evasion of UK taxes, the Government, in September 2012, signed an intergovernmental agreement with the US to implement FATCA in the UK. It was the first agreement of its kind and has set a new standard in international tax transparency. In exchange for the different information-sharing arrangements under the agreement, the 30% withholding tax will not be imposed on UK institutions. Under the terms of the agreement, UK financial institutions will submit account data to HMRC, which will then automatically exchange those data with the IRS, using our existing double tax convention provisions.

Importantly, the agreement is reciprocal. The US Treasury has issued bank deposit interest regulations that will substantially increase the amount of information that the US collects, which it will then share automatically with the UK where it concerns UK residents. Although current legislative constraints in the US mean that the authorities there are unable to collect certain information at present, the agreement contains a commitment by the US Government to pursue these equivalent levels of information exchange.

The powers conferred by clause 219 allow the Treasury to make regulations to implement the UK obligations in the agreement entered into between the Government and the US. It also empowers the Treasury to make  regulations implementing similar agreements that the Government may enter into with other jurisdictions to improve tax compliance.

The Committee has been sent a copy of the draft regulations relating to the UK-US agreement. Following consultation, the initial draft of the regulations was published on 18 December 2012. Following further lengthy public consultation with business and its representatives, the latest version was published on 31 May. Those regulations are subject to the negative procedure. They will take effect later this year after the Bill receives Royal Assent, thereby giving businesses time to put in place the processes and IT systems needed to comply with their first reporting obligations in March 2015.

At Budget 2013, HMRC’s new offshore evasion strategy team published their new offshore evasion strategy, “No safe havens”. Central to that strategy is greater sharing of information between Governments. With an increase in information flows comes an increase in the likelihood of evaders getting caught.

Building on our enhanced automatic exchange agreement with the US, we have reached agreement with the Isle of Man, Guernsey and Jersey to enter into similar arrangements, and to provide disclosure facilities to address historical tax evasion by UK taxpayers. We intend to conclude similar agreements with other jurisdictions.

The network of international agreements that underpin an increase in tax information exchange is making the world a smaller place for those wanting to conceal their assets offshore. In short, there are no safe havens for tax evaders.

On 9 April 2013, the UK—with France, Germany, Italy and Spain—announced an agreement to develop and pilot multilateral tax information exchange based on our agreements with the US. To date, a total of 17 EU member states, including the UK, have committed to joining the pilot. The British overseas territories and Crown dependencies have also agreed to join, and both Norway and Mexico have recently joined, so the political momentum continues to build. Setting a new global standard in the automatic exchange of tax information has been a key element of our G8 agenda.

As we conclude similar agreements with other jurisdictions, further regulations under the power provided for in the clause will be laid for consideration by the House. It is envisaged that the regulations on the similar agreements with the Isle of Man, Guernsey and Jersey will be published in 2013.

Turning to the Government amendments, we have stated that we intend to build on the agreement with the US to embed a new global standard for the automatic exchange of tax information. That will provide a step change in our ability to tackle offshore tax evasion, and by closely mirroring our agreement with the US, we will minimise burdens on Governments and business where possible. With our eyes firmly on the future, we are making two changes to the clause.

The first change, amendment 141, will allow the Treasury to make new regulations to implement arrangements similar to our agreement with the US, including those that can be concluded with the relevant jurisdictions as administrative matters. The details of those arrangements will need to have similar provisions to our agreement with the US, but by increasing the scope and nature of the arrangements covered by the  power, we can ensure that we will be best placed to move with the latest international developments in the setting of a new global standard in the automatic exchange of tax information.

The second change, amendments 142 to 146, addresses an issue raised by business in the consultation. It provides the necessary legal cover to enable financial institutions to obtain details of the tax residency of all their account holders, rather than only those with links to the US. That is another key element in moving to a new global standard in the automatic exchange of information.

Amendment 109 asks for HMRC to review the possibility of bringing forward work with the OECD and G8 countries to require multinational companies to publish a single, easily comparable figure for the amount of corporation tax that they pay.

The Government welcome greater transparency by businesses on their tax affairs. In fact, many companies already release data or other information relating to their tax payments, and we welcome such efforts. As I have explained, the UK is at the forefront of international work to improve transparency in this field. We have made tax and transparency key priorities of the G8 that we chaired this week.

We do not, however, believe that requiring multinational companies to publish a single figure for the amount of corporation tax paid would be useful either for tax authorities or the wider public. In fact, without any accompanying explanation of that figure, the information may serve only to muddy the waters further. In many cases, there are genuine reasons why a company may pay little or no corporation tax in the UK, as the hon. Member for Newcastle upon Tyne North acknowledged on a number of occasions, such as by making use of legal and legitimate reliefs.

There is a case for improving transparency between multinational companies and tax authorities. There is currently a mismatch between the information that multinational corporations hold and that available to tax authorities. Providing greater transparency over the tax affairs of multinational companies can help tax authorities to identify and assess risks efficiently, but requiring publication of that information would put the UK at a competitive disadvantage to other countries that do not require that publication. That would also impose costly administrative burdens on business and Government.

Amendment 109 also calls for a review on the effects of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency. International standards on the disclosure of company ownership already exist and are set by the Financial Action Task Force.

We are committed to the full implementation of those standards, which is why the Prime Minister announced at the weekend that the Government will introduce new rules that will require companies to obtain and hold information on who owns and controls them, and for that information to be held by Companies House in a central registry where it will be accessible to law enforcement agencies and tax authorities. We will conduct a consultation on whether the information should be made publicly accessible. We have set that out in a national action plan.

We also welcome the commitment made by our G8 partners to publish individual action plans setting out the concrete steps that they will take to increase transparency of beneficial ownership. We have been at the forefront of international efforts to improve tax transparency. For those reasons, we believe that a review is unnecessary, so I therefore ask the Opposition Members not to press their amendment.

In conclusion, our landmark agreement with the US has set a new international standard in tax transparency. We are looking to build on that. The powers introduced by the clause provide for regulations to be made to enact that agreement. The amendments tabled by the Government facilitate the entering into and operational future arrangements of agreements with other jurisdictions.

This measure, and the amendments we have brought forward, will significantly enhance HMRC’s ability to tackle evasion of UK taxes, allow businesses to comply with their obligations without breaching data protection rules and ensure that we can continue to move quickly towards setting a new international standard in the automatic exchange of tax information. I hope that the clause and amendments 141 to 146 will meet with the Committee’s approval.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 12:45, 20 June 2013

As the Minister explained, the clause gives the Treasury the power to make regulations to give effect to the agreement between the UK and the US to improve international tax compliance, and to implement the Foreign Account Tax Compliance Act. The Government amendments helpfully seek to provide legal cover for any similar future agreements. It is in the context of the recent agreements reached with Britain’s Crown dependencies and overseas territories, and the announcements made just before this week’s G8 summit, that I want to speak to amendment 109.

Committee Members may recall that, as long ago as January 2012, the Leader of the Opposition pressed the Government to show international leadership on tax havens and to force our Crown dependencies and overseas territories to co-operate with HMRC’s requests to exchange tax information or face being placed on the OECD’s blacklist. Last month, ahead of the G8 summit, the Opposition called on the Government to push our Crown dependencies and overseas territories to sign a convention on mutual administrative assistance on tax matters, which supports the multilateral exchange of tax information. They now seem to have grasped the urgency of sharing that information and signing up to the convention is clearly a welcome step in the right direction. Will the Minister confirm by what date he expects all of the Crown dependencies and overseas territories to be participating fully in the convention and what steps, if any, will the Government take if they are not fully compliant by the end of the year?

Also announced on Saturday was the apparent intention of the Crown dependencies and overseas territories to publish national action plans on beneficial ownership detailing the true owners of so-called shell companies, but not trusts. The UK Government announced their intention to establish a register at Companies House of beneficial owners of companies in the UK, but for it to be made available only to HMRC and not to the public.

Again, those are all welcome steps in the right direction but many believe that they do not go far enough. We believe that proper transparency about who is really  holding wealth behind both shell companies and trusts in tax havens will not be achieved by secret lists held in the UK, vague promises of future action and, like the “Enough food for everyone IF” campaign, we believe that we need a proper global standard for public registration of ownership of companies and trusts. That could be achieved by the tax convention on transparency that many thought the UK should have launched at the G8 as the centrepiece of our presidency.

There is no point in signing up to automatic exchange agreements with the Crown dependencies and the overseas territories if we are asking them to share information that they do not have. The only way we can make this work is by establishing a globally agreed public register, and that needs to be done as a matter of urgency. Of course, for the reasons I outlined when we discussed clause 217, whatever agreements are reached on tax transparency during the G8 presidency, they have to benefit developing countries too. We need to end the era of tax secrecy. Therefore the information must include multinationals’ revenues, profits and taxes in every country in which they operate. We need to include the key pieces of information so that people, whether experts or not, can properly assess the amount of tax that was paid and which should be of benefit to British consumers in the choices that they make, and to developing countries.

Demonstrating our determination to take meaningful action here in the UK will give us a much better platform and much greater leverage when demanding that transparency elsewhere. While far greater transparency is an important part of achieving tax fairness, we also need to see some fundamental reform of our own corporate tax system, because the shifting of profits and the use of tax havens to avoid tax are symptoms of a system that is failing to keep up with global economic developments. As Committee members will no doubt know from the debate that has raged on this issue, the transfer pricing rules are intended to prevent two companies under common control from trading with each other on a basis that no two unconnected companies would trade. It is in order to stop them arranging that trade at a price that would shift profits to low tax jurisdictions and their costs to high tax locations.

However, it is becoming increasingly clear that the transfer pricing rules are not sufficiently reducing those opportunities for the shifting of profits. This particularly disadvantages not only revenue collection in the UK but in developing countries. In the 21st century economy—where value is now often in brands, intellectual property, customer loyalty and ideas, which can be traded globally and operated from different parts of a corporate group—we need to develop a clear, tight and properly enforced system of corporate taxation that keeps up with those developments and demands.

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

My hon. Friend makes a strong and compelling case for the amendment and the new clause. Is this not absolutely in line with the principles outlined in the G8 agreement which said:

“We agree to work together to address base erosion and profit shifting, and to ensure that international and our own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions”?

Like me, does she hope that the Government will accept the amendment?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Indeed, it provides an opportunity and a platform for the Government to take a proper look at how we can make changes here in the UK that will protect not only our tax base but those of developing countries. Capacity-building measures, which we debated on clause 217, are obviously welcome and incredibly important. But on their own, they will not make that transformational impact on developing countries that is required. They certainly will not put an end to the indefensible situation that sees countries losing three times more in tax avoidance than they receive in aid.

Like all our amendments to the Bill, amendment 109 is eminently sensible. It urges the Government to consider the possibility or the impact of introducing the measures we have outlined. We do not believe that the work that the Government have done to date on this issue has  been sufficient. There is no justification for any member of the Committee to vote against as it clearly is in line with the Government’s stated aims and intentions.

New clause 6 proposes that the UK should push for

“co-ordinated action be taken at the earliest opportunity to prevent the abuse of transfer pricing arrangements by multi-national corporations and that early consideration should be given to a review of the current Transfer Pricing Guidelines”.

Given that it is an eminently sensible proposal, which is difficult to argue or vote against, I urge hon. Members to support it today.

Ordered, That the debate be now adjourned.—(Greg Hands.)

Adjourned till this day at Two o’clock.