Corporate Structures and Financial Crime
Debate between David Gauke and Michael Meacher(10 years, 10 months ago)
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Mr Meacher
I do not think that the previous Government did a great job. They did an appalling job on corporation tax, and the hon. Gentleman might be pleased to know that I said so at the time and I have always taken that view. The hon. Member for Bristol West (Stephen Williams) raised the issue of capital gains tax with me when I was last speaking, and I think that that tax should be at the same level as income tax. Corporation tax is another matter, of course, but it should be well above the levels the Government are now proposing.
The Government can and should restructure the whole approach on tax avoidance by switching the onus of proof away from Her Majesty’s Revenue and Customs and on to the potential perpetrators. That is exactly what my General Anti Tax-Avoidance Principle Bill was intended to do. It would have made it clear that any scheme whose primary purpose was to avoid tax, rather than being any genuine economic transaction, would be invalid in law and struck down. In order to discourage perpetrators of this attempt to bend the will of Parliament, there would be a sizeable penalty for attempting to subvert that will. My Bill had only a 10-minute showing on the Floor of the House, thanks to Tory filibustering of the prior Bill on that day, so perhaps I might take this opportunity to ask the Minister: does he accept the general anti-tax-avoidance principle? If he does not, what are his reasons for rejecting it? I think he will say that the Government are putting up their alternative—the so-called GAAR or general anti-abuse rule—but that really does not meet the ticket. I wish to say why, and I hope that he will listen to why the Government’s GAAR is really no alternative.
The GAAR is based on a report by Graham Aaronson, who was always a representative of the tax-avoidance industry and never of the tax-compliance will of Parliament. I accept that the GAAR will have some effect, because it outlaws egregiously aggressive and abusive tax avoidance, but of course the implication of that is that it legitimises rather less extravagant tax avoidance.
Mr Gauke
Let me put the right hon. Gentleman’s mind at rest on this by saying that the GAAR does not do that. We accept that the GAAR is directed at egregious tax avoidance. It is an additional tool, but there will still be targeted anti-avoidance rules and other measures that the Government take. I want to make it very clear that we are not saying that if something falls outside the GAAR, there is no problem with it.
Finance (No. 2) Bill
Debate between David Gauke and Michael Meacher(11 years ago)
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Mr Meacher
Before the Minister leaves the issue of the GAAR advisory panel, does he really think it right that most of its members are City lawyers who have hitherto spent their careers advising companies how to avoid tax? Will he also deal with the question of the “double reasonableness” test—whether it is reasonable to take the view that the course of action in question is a reasonable one? Is that seriously the criterion for deciding on the application of the GAAR?
Mr Gauke
The “double reasonableness” test was the one we came to after the lengthy process following the Aaronson review. We believe that it focuses attention on aggressive, abusive tax avoidance. Let me be clear: this is an additional tool that HMRC can use; it does not necessarily mean that for those outside the GAAR, everything is fine. I want to make it explicitly clear that that is not what we are saying. There is avoidance that will not fall within the GAAR, but which HMRC would none the less take action against.
The panel will be broad-based, but I see nothing wrong whatsoever in its having commercial expertise to provide reassurance and ensure that the GAAR will not be abused in the way that some Members have expressed concern about this evening, with too much power being placed in the hands of a part of the Executive. It will be broad-based, in just the way the interim panel has been.
The GAAR does not override UK tax treaties. Given the lack of time, I will not go into further detail, but it acts in much the same way as GAARs do for other countries that respect OECD and UN model tax treaties.
Mr Gauke
Let me deal with that in the context of amendment 8, which looks at the general issue of post-implementation evaluation and seeks to establish a review within two years of Royal Assent. We and HMRC have made it clear that we will manage and monitor the GAAR’s operation centrally, so that all cases and potential cases will be scrutinised and recorded. The deterrent effect, which we will see immediately, will be important, but we must also remember the issues of getting the tax returns in and being able to make a full assessment of the implications. We believe that a two-year period would not be practical for a general evaluation. It will take longer properly to evaluate how the GAAR is working, just because of how our tax system operates, so I will not accept amendment 8.
Amendments 3, 6 and 7, which deal with tax avoidance by multinationals and the impact on developing countries, raise a number of important points. The hon. Member for Birmingham, Selly Oak (Steve McCabe) wanted me to set out the Government’s objectives for the G8. I am sorry that I am not in a position to do that this evening; it will be left to the Prime Minister, who will make the UK Government’s position very clear.
The point about transparency is important and the Government have a good record of encouraging transparency in a number of areas, particularly among extractive industries through the extractive industries transparency initiative. We play a leading role internationally through the global forum. We ensure that jurisdictions comply with the international standard on tax transparency and work with the G20 to maintain pressure on non-co-operative jurisdictions. We have been making a lot of progress in the Crown dependencies, particularly as regards the exchange of information, and in ensuring that the US Foreign Account Tax Compliance Act, or FATCA, arrangements on the exchange of information become the international norm. I can assure the Committee that that will continue to be a key part of what we do and part of our G8 agenda.
Amendment 6 asks the Government to require UK companies to report their use of tax-avoidance schemes that affect developing countries and for HMRC to notify those countries and assist them in recovering the tax owed. Amendment 7 asks the Government to carry out an impact assessment on the effect of the changes to the controlled foreign companies, or CFC, rules on developing countries’ tax revenues. The answer to both points is that as a matter of practicality it is difficult for HMRC to perform the roles required by the amendments as they require assessments not of our tax rules but of the tax rules of developing countries. That takes us outside what HMRC can realistically do. The point was raised that amendment 7 largely repeats the debate we had during last year’s Finance Bill, when a similar, if not identical, amendment was tabled. I refer hon. Members to the speech I gave a year or so ago, in which I stated that simply as a matter of practicality that is not something that HMRC can do.
On amendments 11 and 12, tabled by my hon. Friend the Member for Amber Valley, I do not believe that a de minimis rule would be appropriate as regards the general anti-abuse rule as it would miss the point. We do not want anyone involved in abusive schemes to make use of them, and even if only £100,000 was at stake as a de minimis, that could have a significant effect on a number of people. We believe that that would be unfair.
As I said at the outset, I believe that the general anti-abuse rule is a major new development. It sends a message to those who persist with abusive avoidance schemes that even if they try to dance around the tax law, they will face the tough but plain question, “Is it reasonable?” That is a question that we all understand. Those who think about using the schemes will all understand it and, I hope, those who create the schemes will come to understand it. The GAAR will ensure that the time for their clever games, paid at the expense of the tax-paying public, is at an end. I therefore recommend that clauses 203 to 212 and schedule 41 stand part of the Bill.
Mr Meacher
In view of the commitment by my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) to carry out a review of the GAAR, and given the double reasonableness test and its deterrent effect, even though it is less than I should recommend, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Amendment proposed: 6, in clause 203, page 120, line 9, at end add—
‘(4) The Chancellor shall review the possibility of bringing forward a requirement for UK companies to report their use of tax schemes which have an impact on developing countries, including a review of the possibility of bringing forward proposals to require that when such schemes are identified under those rules, Her Majesty’s Government shall take steps to notify developing countries’ tax authorities and assist in the recovery of that tax. A copy of the report shall be placed in the House of Commons Library within six months of Royal Assent.’.—(Catherine McKinnell.)
Question put, That the amendment be made.
The Committee divided: Ayes 223, Noes 275.
Corporate Tax Avoidance
Debate between David Gauke and Michael Meacher(11 years, 4 months ago)
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Mr Gauke
I really do not have time to give way, I am afraid. I have to say that the right hon. Gentleman’s speech did him no credit. Some of his wild conspiracy theories will not do his reputation much good.
With more time, I would have liked to address a number of other issues, including EU policy on VAT. My hon. Friend the Member for Redcar will be pleased to hear that, from 2015, the process will be much more to his liking. I want to underline that the Government are committed to dealing with tax avoidance, be it domestic or international. We are taking the necessary legislative steps and giving HMRC the necessary resources. We are determined to address the matter, as I am sure the whole House is.
Income Tax
Debate between David Gauke and Michael Meacher(11 years, 5 months ago)
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Mr Gauke
That is also included in the HMRC assessment of the consequences for economic activity. My hon. Friend raises an important point, however: it is not just about people leaving the UK, but the fact that people would not be moving to the UK, thus damaging our reputation as a business centre. I am pleased to say that under this Government we now have a competitive top rate and corporate tax system. That is why, just this week, UBM and Seadrill announced they were moving to the UK—because it is a good place to do business, and our tax system plays a part in that.
We have taken measures to ensure that high earners make a fair contribution without resorting to punitive and populist measures that damage the economy. We have raised revenues from the most well-off in society in every Budget since we came to power, creating a fairer tax system—one where those with the broadest shoulders bear the greatest burden. That has included increases in capital gains tax and stamp duty. We have also taken a tough stance on avoidance and evasion. For example, we introduced the disguised remuneration legislation in the 2011 Budget, raising £750 million a year, mainly from higher and additional rate tax payers. That is seven and a half times the amount that was being raised by 50p as compared with 45p—and by the way, the Opposition voted against it.
In the 2012 Budget we set out policies on tackling tax avoidance. All our Budgets have included firm measures to close loopholes and strengthen HMRC’s ability to deal with tax avoidance.
Mr Michael Meacher (Oldham West and Royton) (Lab)
Will the Minister give way?
Mr Meacher
If the Minister is trying to make a point about how tax loopholes are being closed, how can he possibly justify changing the controlled foreign company rules in 2013-14 to reduce the rate on multinationals with a finance company in a tax haven from the current 23% to just over 5%?
Mr Gauke
The CFC reforms are making the UK much more attractive for businesses headquartered here. The House will remember that in 2007 a number of businesses left the UK. Now some of them are returning, including UBM, which announced just two days ago that it was moving to the UK. Artificial diversion of profits is dealt with under the reformed CFC regime. The old CFC was past its sell-by date. It was unattractive and was driving businesses out of the UK. Indeed, there has been cross-party consensus on the need to reform the CFC legislation. Because of that, we are now seeing businesses moving to the UK, which I welcome.
We have taken steps to deal with tax avoidance. I would like briefly to touch on the issue of pensioners, as the shadow Chief Secretary raised it and it is touched on in the motion. The House should remember that we have seen a substantial increase in the state pension this year. Indeed, the increase has been £120 a year greater than it would have been had we stuck with the plans inherited from Labour. The abolition of the age-related allowances will not result in any cash losers. There are those who are affected by the withdrawal, but they will benefit from the largest ever cash increase in their personal allowance—a real-terms tax cut of £170. Since coming to power, we have taken steps to increase the personal allowance. That is the really big tax cut that dominated the last Budget and it is benefiting millions of people.
We have taken steps to cut fuel duty, with pump prices now 10p a litre lower than they would have been under the previous Government’s plans. We are supporting those on benefits by improving incentives to move into work and increase the number of hours they work. The introduction of universal credit will see the number of people losing more than 70% of their earnings when they move into 10 hours of work fall by 1.2 million. In addition, the single taper in universal credit will ensure that practically every household will face a marginal tax rate of less than 80% when they increase gross earnings, compared with 500,000 under the current system.
In all parts of this House we agree that those who can most afford to should contribute their fair share to the Exchequer, but those in opposition who insist that we should do that through a 50p rate that damaged our economy, sacrificed our international competitiveness and did not raise the revenues intended are making a big mistake. Those advocating a return to a 50p rate have to answer this question. Given that it will not raise any significant amount of revenue—it may even cost money—why do it? It is not about deficit reduction or economics, and it is not even about getting more from the wealthy, because there are better ways to do it; it is all about the politics. But at what cost? At a time when the UK must compete to prosper in a globalised world and when we have a choice to sink or swim, those who advocate a 50p rate are taking the easy choice—short-term populism triumphing over increased competitiveness; a traditional message of “bash the rich” prevailing over the need to attract and keep wealth creators in this country. This country’s route to success will not be through the lazy populism we have heard from Labour. Instead, we have taken steps to ensure that those with the most contribute the most, but also ensured that we have a tax system that enables us to compete on a global stage, creating a fairer tax system that still shows that the UK is open for business.
Oral Answers to Questions
Debate between David Gauke and Michael Meacher(11 years, 6 months ago)
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Mr Gauke
What Sainsbury’s does is a matter for Sainsbury’s, but I also point out the comments made by the likes of the leaders of the Federation of Small Businesses, the British Chambers of Commerce and the Institute of Directors, who have said that this measure will help entrepreneurs, start-up businesses and the fast-growing companies that we need. Surely the whole House should welcome that.
Mr Michael Meacher (Oldham West and Royton) (Lab)
Given that the Government have been keeping extremely mum about the tax avoidance implications of the scheme and that it looks like a wide-open tax loophole for the better off, what capital gains tax avoidance does he estimate it will create?
Mr Gauke
In the design of the scheme we will take steps to deal with tax avoidance opportunities to ensure that we do not create any loopholes, but this is a scheme that will encourage entrepreneurs and start-ups to provide businesses with an opportunity to expand rapidly, and it is exactly the sort of flexible approach that this country needs in the current economic climate.
Tax Avoidance and Evasion
Debate between David Gauke and Michael Meacher(11 years, 8 months ago)
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Mr Meacher
I got it from the same source. I thought that the figure for 2008-09 was £42 billion. I shall write to the hon. Gentleman later. The average over the period is, I think, £38 billion and I am sure that the level reached £42 billion.
The Exchequer Secretary to the Treasury (Mr David Gauke)
To be helpful, I should say that I think the right hon. Gentleman is citing the 2008-09 number, while my hon. Friend is citing the 2009-10 number.
Mr Meacher
I thank the Minister for that helpful intervention. Once again, I find myself at one with the hon. Member for Wycombe (Steve Baker).
The haemorrhaging of tax revenues on the scale that I have described matters a great deal. First, and obviously, it is deeply unjust because tax avoidance and evasion are heavily concentrated among the big corporations and the mega-rich. If they pay hugely less than their real liabilities, that must mean that, for any given expenditure, those on average and low incomes have to pay more. That is always unjust, but it is particularly unjust at a time of prolonged austerity.
Secondly, there is the obvious point that if tax avoidance were cut sharply, many of the Government’s cuts in public spending and benefits would not be necessary and, I think, could not be justified. Thirdly, the tax avoidance industry—I do not exaggerate in saying that it is a parasite on the body politic—would be rendered largely obsolete.
The fact that City lawyers and accountants are paid vast sums to get round and neutralise what Parliament plainly intended in its Finance Bills is an open sore that would infect any democratic and fair society. The fact that they are allowed to do it makes monkeys of the Government. The fourth, and very important, point is that if most tax avoidance were stopped—I realise that it will never stop completely—companies would be forced to compete not on the basis of who was best at abusing tax law but on the quality of their goods and services. The benefit for the British economy would be substantial.
What has been the Government’s response? Tomorrow is the last day of the Government’s consultation on what they call their general anti-abuse rule, or GAAR, for tax. The background to that repays some examination. The Government commissioned the Aaronson group—Graham Aaronson is a prominent lawyer—to advise on the construction of such a rule. The group reported last November, I think. Extraordinarily, the report states right at the start that a broad anti-tax-avoidance rule is not necessary or desirable; it should apply only in the most extreme cases, so that for the overwhelming majority of cases circumventing taxes should continue as before.
I should point out that Aaronson has only ever represented companies or persons against HMRC; he has always acted pro the tax avoidance industry and never pro tax. Appointing him is rather like putting a poacher in charge of the grouse moors. Aaronson chose as his adviser Lord Hoffman, the man who killed the Ramsay principle—the general anti-tax-avoidance principle, or GANTIP—in the Westmoreland Investments case in 2001. The Government’s two key advisers on anti-tax-avoidance measures were carefully chosen in the sure knowledge that they would never recommend any such action. Thus, of course, it has proved. The Aaronson report recommended that if a general anti-abuse rule were accepted at all, Her Majesty’s Revenue and Customs should be obliged to consult and get the approval of a tribunal before it could be used against any particular person or company. In other words, the Government’s official tax collection agency should have to get permission from an external body before it could exercise its legal powers. That is an extraordinary proposal. However, it gets worse. The Aaronson group proposed that the tribunal should have three members—fair enough—of whom two should be from the tax avoidance industry. That makes it an open and shut case: the general anti-abuse rule will certainly gather dust on the shelf.
Mr Gauke
I do not accept the right hon. Lady’s point about the increase in the fraud threshold. When I look at some of the work that HMRC is doing—for example, to address inheritance tax fraud—I see a substantial increase in activity. It is addressing far more cases than ever.
I know that the PAC takes a strong interest in training. It is important that staff are trained. People are being moved from other parts of HMRC—for example, from personal tax—into enforcement and compliance. It is important that they are properly trained, however, and that process is going on—progress is being made and the compliance yield is already increasing. Over the months and years ahead, we will increasingly see the benefits of a large and better-trained compliance team. It is absolutely right that the PAC scrutinises this specific point, but HMRC is making progress, and we all want to encourage it to make further and faster progress to ensure that we get the right staff in the right places.
Compliance revenue has more than doubled in six years, and HMRC is on track to bring in about £7 billion in additional tax each year by 2014-15. In addition, on avoidance, HMRC has closed down seven schemes in the past year alone and, since 2010, litigated about 30 direct avoidance cases, with a high success rate. On evasion, HMRC has secured 413 criminal convictions, resulting in more than £1 billion in additional revenue and revenue-loss prevention. Those are significant achievements,
Anyone reading the papers recently might well think that avoidance is rampant. I want to reassure right hon. and hon. Members that that is not the case, and the vast majority pay their taxes without trying to get around the system. Nevertheless, where we and HMRC see people trying to exploit the system, we will take swift action. Currently, there are a minority of cowboy tax advisers—small niche firms selling crude avoidance schemes unlikely to be successful under challenge from HMRC. Many of those who sell those schemes use tactics that border on mis-selling, and their clients can end up shocked when they are later pursued by HMRC over their involvement. The Government recognise the need to do more to target those who market such schemes to protect taxpayers and prevent them from entering into them.
Mr Meacher
Given what is widely accepted to be the unacceptable narrowness of GAAR, why are the Government not prepared to accept GANTIP? It would achieve what the Exchequer Secretary wants, which will not be achieved by GAAR.
Mr Gauke
If the right hon. Gentleman will forgive me, I will turn to that point later, although I am sure the House is looking forward to debating this matter at greater length tomorrow—I know that he is.
These aggressive tax avoidance schemes are the reason we recently launched our consultation entitled, “Lifting the Lid on Tax Avoidance Schemes”, setting out ways to improve the information on avoidance available to the public and making it easier for taxpayers to see whether their adviser has promoted failed avoidance schemes in the past. I have been encouraged by the response of the professional bodies, which share the aim of addressing the small fringe of cowboy advisers who promote such schemes. Some of the criticism of the tax profession as a whole has been unfair, but there is an issue with some aspects of it, which is why we are consulting on what we can do to address the problem and also to expand the regime covered by DOTAS—the disclosure of tax avoidance schemes—which the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), speaking for the Opposition, touched on. She is right that between its introduction in 2004 and the end of March 2012, it resulted in a total of 2,289 avoidance schemes being disclosed to HMRC. That, in turn, has led to more than 60 changes in tax law to stop avoidance.