Clause 219 - International agreements to improve tax compliance

Part of 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

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.