Anti-avoidance

Part of Finance Bill – in a Public Bill Committee at 2:15 pm on 11th June 2020.

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Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 2:15 pm, 11th June 2020

I am grateful to the hon. Lady for raising those questions.

The first question she raised was about extra capacity. I think we touched on this already, but it is worth just saying that HMRC already has a digital services team in place. The tax requires, in the first instance, companies to come forward with a process of self-assessment, which HMRC can then assess and view. From that point of view, this is a tax that is designed to minimise administrative burdens, not merely on the groups being taxed but on HMRC itself.

It is also worth saying that one of the extraordinary aspects of the past few months has been that HMRC has been able to show itself remarkably flexible in the way it has operated, and this might be a moment to pay due tribute in respect of that. Although it is an enormous organisation, it has been very flexible in several different areas. The first was in reconfiguring its business to be able to deal with staff absence in the face of coronavirus, which has been extremely effective. The second has been in being able to configure its services in order to match the evolving demand. A classic example would be that many services that were being handled by telephone interactions are increasingly being handled by text interactions or chats. Many services that were being handled through office phone interactions are being handled through phone interactions at home.

HMRC has been very flexible in that regard. Almost the most salient aspect is that it has been able to bring a succession of schemes into play, such as the furlough scheme, the self-employment scheme and the statutory sickness pay scheme. That flexibility of organisation has allowed it to move incredibly quickly to put those schemes in place and thereby support the lives and livelihoods of millions of people. If someone had asked me at the beginning of year whether I would be publicly accountable for an organisation that would end up supporting the lives and livelihoods of some 10 million to 11 million people, I would have been very surprised indeed, but that is what has happened. I pay great tribute to the officials and staff at HMRC, and of course the Treasury, for their public spirit and service.

The hon. Lady asked how confident I am about anti-avoidance. Of course, anti-avoidance is an ever shifting and evolving pattern, and it is right to raise that question. If the past is any guide to the future, there will prove to be aspects of avoidance that are not contemplated at the moment and against which we may have to take future care, but the Bill provides a very broad capacity for HMRC to counteract arrangements that are designed to reduce the amount of tax that the group may have to pay through the digital services tax.

This can apply to any type of arrangement that appears to have, or in fact has, a main purpose of achieving a tax advantage. An example might be that a group could attempt to reduce its DST liability by arranging with willing customers to provide valuable digital services for free and instead charge very high fees for an item of trivial value that the customer does not need. The effect of that would be, pretty plainly, only to reduce the amount of DST to be paid, and of course the group might argue that that revenue was unconnected to the digital service. The clause prevents such behaviour. Were such an arrangement to exist, the taxable revenue figure would be adjusted accordingly, to ensure that no tax was avoided. There are also safeguards, as we have discussed.

The tax, in general, is hard to avoid because it is based on a group’s revenues and on the location of the user, so although one cannot predict the future in any great capacity, the breadth of the legislation allows it to head off a lot of putative tax avoidance in advance.

There is a “just and reasonable” rule. Where it can be argued that an arrangement does not have the main purpose of avoiding the DST, it gives scope for HMRC to recognise that, and therefore not to catch it within enforcement proceedings. That is a fair and equitable adjustment process that respects the natural justice that we would always associate with a well-levied tax.