I remind the Committee that with this we are discussing the following:
Amendment 46, in schedule 6, page 220, line 2, leave out paragraph 11.
This amendment removes the proposed extension of the review period to 15 months.
Amendment 37, in schedule 6, page 220, line 26, at end insert—
“13 The Chancellor of the Exchequer must review the expected change to payments of diverted profits tax and any associated changes to overall payments made to the Commissioners arising from the provisions of this Schedule, and lay a report of that review before the House of Commons within 6 months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the effect on public finances of the diverted profits tax provisions in this Bill.
Amendment 40, in schedule 6, page 220, line 26, at end insert—
“13 The Chancellor of the Exchequer must review the expected revenue effects of the changes made to diverted profits tax in this Schedule and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the effect on public finances on the provisions in Schedule 6.
Amendment 41, in schedule 6, page 220, line 26, at end insert—
“13 The Chancellor of the Exchequer must review diverted profits tax against its policy objectives and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review DPT against its policy objectives.
Amendment 42, in schedule 6, page 220, line 26, at end insert—
“13 The Chancellor of the Exchequer must commission a review comparing diverted profits tax against a Digital Services Tax and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review DPT against the Government’s proposed Digital Services tax.
Amendment 43, in schedule 6, page 220, line 26, at end insert—
“13 (1) The Chancellor of the Exchequer must commission a review on the matter specified in subsection (2).
(2) That matter is the effects on the public finances of the the provisions in this Schedule coming into effect in the tax year 2019-20 compared to previous or subsequent tax years.
(3) The Chancellor of the Exchequer must lay a report of the review under subsection (1) before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the impact of introducing this measure in 2019-20.
Amendment 45, in schedule 6, page 220, line 26, at end insert—
“13 After section 105 insert—
(1) The Commissioners must provide information to the Treasury listing those companies that have made payments pursuant to a charge of diverted profits tax, and the amounts of those payments.
(2) The Treasury shall publish a register of companies paying diverted profits tax based on the information provided by the Commissioners under subsection (1), and shall make that register available to the general public.”
This amendment requires the publication of a public register of those companies that pay diverted profits tax.
That schedule 6 be the Sixth schedule to the Bill.
And a very enjoyable lunch break it was—not that the Committee is not enjoyable, too. [Laughter.] I dug myself out of that one. I want to speak both to Labour’s amendments and to our own, but I will not speak for long.
I find Labour’s amendment 46, which would remove the proposed extension of the review period to 15 months, particularly interesting because I agree with Labour Front-Bench Members that the Government have not adequately explained the effect of changing the review period. More could have been done to provide the Committee with information about the reason for the extension and the decision-making process behind it. On that basis, I would be happy to support the Labour party, but that is not to say that the Government could not come back in future years with reasonable information to justify the extension and set out the impact on the tax take.
Labour’s amendment 43 would require the Chancellor of the Exchequer to review the impact of introducing the diverted profits tax in 2019-20—something else that the Government have not adequately explained. We would like a little more information on matters such as the difficulties for organisations resulting from the tax’s implementation and its impact on the Exchequer, because we need to balance those things when we make decisions on tax changes.
The Scottish National party’s amendment 37, which would require the Chancellor to review the effect on public finances of the diverted profits tax provisions in the Bill, is broader than some of the specific requests that have been made for individual pieces of information. I understand the Minister’s point that Her Majesty’s Revenue and Customs regularly provides information to the general public about the diverted profits tax, but I think we could have been given a little more information about the proposals’ expected effect on revenue and on the tax gap.
Finally, I know that explanatory notes do not form part of a Bill, but the “Background note” sections are usually quite useful. However, I did not find the background note on clause 18 useful in the slightest, because it does not give a huge amount of information about the rationale behind the Government’s decision or behind the individual changes being made to the diverted profits tax. It simply says:
“This measure supports that aim”— the aim behind the diverted profits tax—
“through amendments to close tax planning opportunities.”
If it had given a little more information about what those amendments are and what they mean, the Minister would have avoided facing quite so many questions from the Committee.
I would have intervened, Mr Howarth, but you have provoked me into making a brief speech instead.
Corporate tax structures are very complex. Even things like the movement of exchange rates or where products are produced can make a substantial difference to a company’s profit and loss account. As I understand it, the diverted profits tax is a backstop—I use the word lightly—in the tax system. The reality is that the Government are trying to protect corporation tax revenue.
Periodically, HMRC will challenge corporation tax computations to see whether companies are paying the right amount of tax. DPT gives the Revenue a little more ammunition to get answers out of those companies and to ensure that the tax paid is correct. I suppose that HMRC would randomly pick several companies, or more, and simply challenge some of the computations. Where they found that an accurate tax statement had not been put in, perhaps they would go back a number of months and issue a notice for payment.
As the Minister pointed out, the companies could still elect to pay via the corporation tax structure rather than this tax. I do not think that having a report on this specific tax would draw very much information, because it will vary widely. There will be some years where quite a lot of back tax will be caught and captured, and a back payment might be picked up from a big company. In other years, all the tax computations will be fairly accurate and it will not pick up very much. My guess is that, instead of a straight line going up, as there is for most taxes, such as VAT, there will be variation each year depending on which companies are challenged, and whether HMRC hits the jackpot or finds that the companies’ accountants know what they are doing.
When looking at this backstop, we really have to look at overall corporation tax revenue, which, notwithstanding the fact that the rate has been cut, has actually gone up. I therefore hope that the Government reject these reports—the Government have been far too reasonable in this Committee anyway—stick to their guns, and reject whatever the Opposition want.
I will be brief, as I am conscious that the Committee is moving fairly slowly through the clauses, and we have quite a lot of the Bill still to cover.
The hon. Member for Oxford East mentioned the diverted profits tax and the digital services tax. Earlier on in her speech, in a different context, she used the expression “comparing apples with pears”. I think that is what we are doing here, and that lies at the heart of the objection to her amendment.
The Minister knows that I have a lot of respect for him. However, that was exactly my point: the two taxes are based on a fundamentally different view of what should be taxed. Obviously, a digital services tax would be revenue based, whereas DPT is still profit based, and based on the arm’s length principle. Surely one should therefore compare them in terms of their efficacy at generating tax revenue, preventing avoidance, and so on. The fact that they are different does not mean that it is not legitimate to compare them.
I understand what the hon. Lady says, but the expression “preventing avoidance”, which she has just used, lies at the heart of the meaningful distinction. DPT is about avoidance, as eloquently expressed by my hon. Friend the Member for Poole, whereas the digital services tax is not about avoidance at all; it is about reflecting the fact that the international tax regime is no longer fit for purpose when it comes to taxing certain types of digital businesses—those that operate through digital platforms, and that have a relationship with UK users and generate value as a consequence. She mentioned Google specifically, but it covers search engines in general, certain online marketplaces and social media platforms.
The two taxes are so distinct. It is important to place on the record that the digital services tax is not an anti-avoidance measure; it is about redefining the way in which those businesses pay their fair share of tax.
To probe further the point made by the hon. Member for Oxford East, does the Minister not agree that it would be valuable for the Committee to consider the two different types of taxation, and their efficacy, so that in future when decisions are made on tax matters we can work out which would be the best type of tax measure in any given situation?
It is important to review or consider all taxes in relation to other taxes as a matter of course, because they all have their own positive aspects, distortionary effects, negative aspects, impacts on the economy that might not be desirable, and so forth. It is important that we do that for all taxes. I say to the hon. Lady that, in the case of the digital services tax, we are now consulting on the detail of how that might operate should we introduce it in 2020, in the event that there is not a multilateral movement across the OECD or the European Union that allows us to work in conjunction with other tax jurisdictions. In the case of the specific tax that we are considering in Committee, there will be ample opportunity to look at it in the kind of detail that I know she will be keen on.
The hon. Member for Oxford East raised the issue of the split, as I understood it, between the impact of DPT as directly revenue raising through the additional corporation tax that is paid, and the deterrent effect that protects revenues that otherwise would have been avoided. We publish annual statistics that show how much tax DPT raises directly and how much it raises indirectly through corporation tax. This year, we published a detailed note setting out the methodology that was used to calculate the revenue raised by DPT, and I am happy to provide the hon. Lady with either that information or a signpost to where it can be found.
The hon. Lady raised the specific issue of the three-month extension that we have been considering in Committee. She made the point well: rather than extending the period by three months, why do we not stick to 12 months and expect the corporation in question to speed up their process? I think we would still be left with the problem that there would have to be a moment in time when that company could still provide information—HMRC would be required to take it into account—which might be of a very complex nature. It would be very difficult for HMRC to make an immediate and reasonable judgment at the last minute. I think that is what drives the importance of separating the time available to the corporation in those circumstances from the additional time that is available solely to HMRC to conduct its final review without additional information suddenly appearing at extremely short notice. I should also point out that the 12-month process is already an accelerated process, and typically we are—in circumstances where the additional three-month time period becomes pertinent—looking at very complex situations, which take time to consider fully.
On the basis of the extract that the hon. Member for Aberdeen North presented to the Committee, it seems to me that more information could have been given in the explanatory notes to make it absolutely clear what it refers to. I will have a closer look at that outside the Committee.
I am grateful to the Minister for his clarifications. I would like to accept his kind offer to share with me and the Committee—I am sure other Members will be interested as well—the information that he referred to, which sets out the different components of DPT. I think that would be enormously helpful.
The hon. Member for Poole seemed to suggest that there would be two reasons for fluctuation across years. I think he used the word “random” to describe HMRC’s choice of which companies to investigate—they could be large or small. I would hope that it would not be a random process, although I am not suggesting he was intimating that. I would hope that it was based on intelligence and that HMRC—I would like it to undertake more of this than it does at the moment—used some of the data sources available to it to drive the process of determining which companies to look at. Hopefully that would not be a source of too much variation.
The hon. Gentleman also suggested that there might be variation because it would be, in some way, a reflection of the compliance-mindedness of tax practitioners in different corporations at any one point. Surely that should improve over time, rather than fluctuate. There may be other reasons for the variation, but I feel we still need to have a clear understanding of it.
My central point is that if HMRC challenges a corporation tax computation, it does not have to do it every single year with the same company, because essentially it will come to an arrangement about what is acceptable—for at least a period of years. Then it can go and look for the next company. I see it as a rolling process in which essentially there is a dialogue between HMRC and the accountants of the companies. Therefore, everybody knows quite where they stand, and perhaps the companies will benefit as well.
I am grateful for that clarification of the hon. Gentleman’s comments. I suppose on that basis one would assume that the take would go down, if there was truly a deterrent action. It is not clear to me that that has occurred, but it would be interesting to have the analysis and review, so that we could see whether it is so. That is what our amendments aim to do.
I took on board what the Minister said about the review period, but I am a little confused. As I understand it, the additional time provided for the review period in the Bill is not of a different character from the rest of the review period. It is not a question of the additional three months being just for HMRC to deliberate. It is also a period during which the company can provide additional information—so, potentially, they can now do that right up to the end of 15 rather than 12 months. Therefore it is unclear to me that HMRC will necessarily be helped—unless I am missing something, which I may well be.
To clarify, briefly, it is not as the hon. Lady views it: the additional three months would be solely for HMRC to carry out its deliberations, albeit that up to the 11th hour within the 12-month period further information could be provided by the company.
I am grateful to the Minister for clarifying that. It was not completely clear to me from the material provided to us. I underline the points that have been made by the SNP in that regard: it would have helped us to understand the impact of some of the measures if the explanatory notes had included a bit more of the thinking behind them.
In view of what the Minister has said, we are willing to drop some of our amendments. However, we shall want to vote on amendment 40, which is quite similar to the SNP’s amendment 37, and amendments 43 and 46.