Clause 219 - International agreements to improve tax compliance

Finance Bill – in a Public Bill Committee at on 20 June 2013.

Alert me about debates like this

Amendment proposed (this day): 141, in clause 219, page 127, line 13, leave out ‘the purpose of’ and insert ‘or in connection with’.—(Mr Gauke.)

Question again proposed, That the amendment be made.

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

I remind the Committee that with this we are discussing 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 foward 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 Steven Baker Steven Baker Conservative, Wycombe

The longer I follow the matters of tax compliance and transparency, the more I have come to applaud the Government’s prospective direction of travel; I will come to retrospection later.

It seems perfectly clear that until everyone feels the burden of taxation imposed by the state and the sheer weight imposed on the poor and the employed middle classes, we will not find sufficient numbers of people coming forward who are prepared both to advocate and to fund the advocacy of the policies that would lead to the lower taxes that they wish to pay. I believe that lower taxes would be in the general interest, so I welcome what the Government are doing to improve tax compliance, particularly under clause 220, which is about the disclosure of tax avoidance schemes. I hope that the result is that more people get involved in an open and honest debate about the level of tax and spend in this country.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I am happy to follow my hon. Friend the Member for Wycombe; I agree with what he said.

I support clause 219. It seems an eminently sensible provision, and I hope that the powers are brought into force for as many countries as possible, as soon as we can.

When the Minister replies to the debate, will he talk about our Crown dependencies and other overseas territories? There is a bit of a risk that we sweep them all into one and tar them with the same brush. My understanding is that some of them have been pretty keen to comply with any transparency arrangements that we have asked them to make. In fact, some have been ahead of the curve well before we summoned them to Downing street and tried to force them. Will the Minister point out which ones should be of more concern to the Committee and which ones are on a white list and are behaving well? That would help us to focus our consideration on where it ought to be.

Turning to amendment 109, I am intrigued as to what on earth a

“single easily comparable figure for the amount of corporation tax they pay” might be, especially if we are trying to compare across borders. Everyone has a vastly different corporation tax regime, and we have some particularly innovative, interesting or creative ways of relieving or charging tax. That may make it difficult to produce a sensible comparison. I sense that that is why we require large companies to show in their accounts a deferred tax figure, to show us what their real, effective rate of tax is, rather than just the cash they pay in the year. The amendment seems to set an impossible task.

I ask the Opposition to reconsider their suggestion and perhaps support a proposal that I raised only a few months ago—that we require large corporations in the UK to publish all their corporation tax returns and supporting computations. We could require them to be filed with their annual accounts at Companies House, so there would be no need to create a new way of publishing. That way, we would be able to see all the cash tax that they pay and understand how they got from their account profit to that amount.

Photo of Steven Baker Steven Baker Conservative, Wycombe

Reflecting on my prior experience, with filings in extensible business reporting language going into Her Majesty’s Revenue and Customs, there is an opportunity for people to automate that analysis. That might be quite useful.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I am grateful to my hon. Friend for enhancing my proposal further.

I think there is one objection, which is that we have a long tradition of taxpayer confidentiality. I can see much more logic for that with individuals, who are not generally required to disclose their total annual taxable income—clearly, we, as Members of Parliament, are. However, companies are already required to publish a huge amount of detail about their activities, income and expenses. Requiring them to show transparently how they got to their tax liability would help to move the debate along. We would be able to see which companies have strange tax planning or avoidance entries in their returns to get down to a zero or very low cash tax liability, and which ones have acceptable reliefs entirely intended by Parliament. We would then perhaps be able to focus public anger on only the guilty rather than the innocent. I urge the Opposition to reconsider the amendment and support my idea as a way of improving the debate.

We need to be a little careful when discussing transfer pricing. I am not accusing the hon. Member for Newcastle upon Tyne North, but we do hear people talking about banning transfer pricing. Short of banning the cross-border transfer of goods and services, it is hard to work out how we could actually ban a price being set for them. I think what we mean is to try to stop aggressive planning and the abuse of transfer pricing rules. I agree that that needs to be a cross-border situation. It might be interesting to find out whether the Minister has received an update on the discussions from the G8 on whether the Chancellor or the Prime Minister urged the US Government to reform their rules, in particular their entity classification and subpart f rules, through which most multinational corporate tax avoidance is enabled. If the US Government are serious about that agenda, they should scrap their check-the-box election, at which point we could actually make some real progress. I wonder whether any assurance was given that they might try to convince their Senate that it was a good idea.

Some co-ordinated action to try to improve transfer rules and to make them more consistent with modern ways of doing business is clearly right. I am not sure, however, that the mischief in the UK is with our transfer pricing rule, which broadly says that transactions with related parties must be on an arm’s length basis. I still believe that there are weaknesses in how we have historically drawn up the corporation tax code that actually make it hard for us to levy charges in some situations. Some effort is needed to modernise our own tax regime before we lecture others too much.

Having done some volunteering in Tajikistan, advising authorities there on how to modernise the tax regime and how to become more effective at collecting tax, I noted that their focus was not on corporation tax. The corporation tax rate is actually vastly lower than ours, and they were genuinely quite willing to enter into quite generous corporation tax agreements to try to attract multinational investment. They were desperate for investment to generate jobs that would trigger the more lucrative payroll taxes.

When debating overseas tax and how to support developing countries, it is not as simple as just corporation tax. We used to have tax rules that meant if a developing country offered a corporation tax incentive, we would charge the tax in the UK instead unless some complicated  tax affairs were in place. Effectively transferring their tax revenue back to the UK Exchequer is not a particularly good way of helping such countries to attract investment. The previous Government stopped that when they stopped taxing dividends from overseas trading companies. It is interesting that the controlled foreign companies rules changes attract criticism, but there is no criticism of the fact that dividends were allowed to come back to the UK completely tax free and we then gave the tax incentives.

I cannot support any of the amendments or the new clause, because they do not get to the nub of the problem. There are alternatives that we could and should pursue to put our tax regime right, so that when trying to lead on this debate we lead from a position of strength and transparency, rather than encouraging others to do things that we have not yet chosen to do ourselves.

Photo of David Gauke David Gauke The Exchequer Secretary

This has been a useful debate in terms of not only the clause before us, but also wider tax issues. It touched on many of the relevant issues from and progress made at the just-completed G8 summit at Lough Erne. I will deal with the various specific points set out during the debate and those in the Opposition’s new clause and amendment, but I must say that it is worth stepping back to see the progress made in the public announcements of the last few days, which is the culmination of much work over many months. The state of play is frankly transformative in terms of exchanging information and greater transparency in the world tax system, which provides an opportunity that will be particularly beneficial to developing countries.

If one looks at the debate about central registries and so on, the UK Government have put that on the international agenda. That debate did not happen in the past at the G8. The UK has set out its action plan, and we will consult later this year on whether it should be public. We deserve considerable credit for that progress. In that context, the agreements that we are entering into require the identification of the beneficiaries of trusts who are UK tax residents, including those in the Crown dependencies and overseas territories. Information on the assets held in trusts is then required to be reported, and that is a key element of the new international standard that we are trying to embed, and I underline the importance of that. If one looks at the arrangements, the level of information that should be available to tax authorities is considerable, and we should welcome that.

The Crown dependencies and overseas territories have all co-operated fully with the UK on our tax transparency agenda. They all meet the current standards and have agreed to go much further by automatically exchanging tax information with the UK and others, as well as producing action plans to improve the availability of beneficial ownership information. We are pleased to have achieved that and we should welcome the fact that the Crown dependencies and overseas territories have committed to joining the multilateral convention as soon as possible. We are working through the necessary processes to extend the UK’s signature to those overseas territories and Crown dependencies. We must acknowledge, however, that recent events represent the biggest ever change in the tax transparency arrangements of Crown dependencies and overseas territories.

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

Will the Minister concede that this measure builds on work started by my right hon. Friends the Members for Edinburgh South West (Mr Darling) and for East Ham (Stephen Timms)? Indeed, I worked with the latter on tax information exchange, and they have both done much excellent work on it in recent years. While I welcome any steps the Government are taking on these issues—there are still big holes—these build on work begun under the previous Government.

Photo of David Gauke David Gauke The Exchequer Secretary

What I would say is that prior to 2010 progress was made in bilateral agreements and tax information exchange agreements. I accept that, but it has become increasingly clear that the automatic exchange of information is needed. If we were debating this matter a year or so ago, few would have thought that we would have reached this point, with agreement on the automatic exchange of information with the UK and with the prospect of that opening up more widely.

I know that the hon. Gentleman has been particularly concerned about the impact on developing countries. It is worth highlighting that the G8 was very clear that we want a new global standard, accessible to all. We are working with developing countries through our capacity-building programmes to ensure that those countries are well placed to benefit from greater information exchange. We welcome that.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I acknowledge that there has been significant progress and that these are all welcome steps in the right direction. Was the Minister going to comment on the fact that the current statement on the national action plans on beneficial ownership that overseas territories and Crown dependencies will produce will relate to shell companies but not necessarily trusts? That seems to be a gaping hole in what should be beneficial progress towards greater transparency.

Photo of David Gauke David Gauke The Exchequer Secretary

I did mention a moment or so ago that the agreements we are entering into require the identification of the beneficiaries of trusts in the Crown dependencies and overseas territories. The transparency of trusts is important, but it is worth pointing out that, as the hon. Lady knows, there are differences between trusts and companies, so there is a different solution.

Automatic exchange of information agreements based on FATCA—the Foreign Account Tax Compliance Act—and of the sort that we want to see become multilateral, include provision for the gathering and exchange of information on the beneficiaries and settlors of trusts. We believe that that is the right solution to this problem.

In the context of developing countries, an issue that is important to the Committee, I turn to reporting by multinational companies. This is partly relevant to the Opposition’s amendment: we believe that the measure set out in the G8 communiqué is an important step forward: a high-level, country by country tool that enables tax authorities to see where profits are allocated and where tax is paid in an easily comprehensible way.

I recall an occasion a few months ago when I visited HMRC staff in Euston tower, which focused on the transfer pricing regime. I asked them what would make it easier for them to assist in identifying cases where a  company was able to abuse the transfer pricing regime, and they said that there are circumstances—usually when a group is not headed by a UK company—in which it would be very useful to know if a lot of profits are ending up in very low-tax jurisdictions. There may be a legitimate reason for that, but they said that access to that information would enable them to focus on that and to ask the right questions, which would make matters apparent to them easily.

The country by country tool fits that bill precisely; it would make it much easer for tax authorities to make that assessment of where companies are putting most of their profits and whether they are paying most of their taxes in low-tax jurisdictions, or not paying taxes as the case may be. That is practical, and we have asked the OECD to draw up a template that we can hopefully have as a new international standard accessible to all, so that developing countries may also make use of that tool for multinationals to report information on where profits are earned, because that would also be useful for tax authorities in those countries.

The wider issue of corporate tax reform, particularly focusing on transfer pricing, was dealt with in new clause 6. My hon. Friend the Member for Amber Valley put it well when he said that there can sometimes be confusion in that debate when talking about the abolition of transfer pricing. I will not give a lengthy lecture on transfer pricing rules unless there is strong demand for it, but I would say that, at the urging of my right hon. Friend the Chancellor of the Exchequer, the G20 called on the OECD to review urgently the international tax standards to address situations where the rules were being exploited by some multinational groups to move profits artificially to low-tax jurisdictions.

We are committed to collective action, through the G20 and OECD, to tackle base erosion and profit shifting—BEPS, as it is known. The OECD presented its initial report on addressing BEPS to the G20 meeting of Finance Ministers in Moscow in February. The report identified areas where the international rules have not kept pace with the changing business environment. That work has been taken forward within three working groups of the OECD committee on fiscal affairs. Countering base erosion is chaired by Germany, jurisdiction to tax is chaired by the US and France and transfer pricing is chaired by the United Kingdom.

The aim of the BEPS project is to reform international tax rules so that taxing rights over multinational companies are aligned with the economic activities that give rise to them. The OECD project offers an opportunity to improve the international rules on taxing multinational enterprises in a co-ordinated manner. Unilateral or bilateral action will not address the fundamental problems caused by the existing international tax rules. The BEPS project is making good progress and the OECD will present a comprehensive action plan for tackling these issues to the G20 Finance Ministers next month.

Having set out all those points on the considerable progress that we are making, I hope that I have given as full an account as I can in this short period of time to the Committee. I do not think that either the Opposition’s amendment or their new clause need to be voted upon, and I hope that they will not press them. We should acknowledge the very considerable progress made on these matters in recent days.

Amendment 141 agreed to.

Amendments made: 142, in clause 219, page 127, line 23, at end insert—

‘() any arrangements for the exchange of tax information in relation to the United Kingdom and any other territory which make provision corresponding, or substantially similar, to that made by an agreement within paragraph (a) or (b).’.

Amendment 143, in clause 219, page 127, line 30, at end insert—

‘(including obligations to obtain from specified persons details of their place of residence for tax purposes)’.

Amendment 144, in clause 219, page 127, line 36, after ‘agreement’ insert ‘or arrangements’.

Amendment 145, in clause 219, page 127, line 37, after ‘agreement’ insert ‘or arrangements’.

Amendment 146, in clause 219, page 127, line 38, after ‘agreement’ insert ‘or arrangements’.—(Mr Gauke.)

Amendment proposed: 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.’.—(Catherine McKinnell.)

Question put, That the amendment be made.

The Committee divided: Ayes 9, Noes 16.

Division number 10 Decision Time — Clause 219 - International agreements to improve tax compliance

Aye: 9 MPs

No: 16 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 219, as amended, ordered to stand part of the Bill.