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Ruth Kelly: I am quite surprised to hear the hon. Member for Arundel and South Downs (Mr. Flight) calling this provision objectionable and authoritarian. I completely agree with the hon. Member for Kingston and Surbiton (Mr. Davey) that people who have failed to pay tax that is legally due should not be able to escape payment simply by moving to another member state. It would not be right to provide a tax amnesty to people when the means to collect tax that is legally due already exists.
The system will build on the existing inter-state debt recovery service that has operated successfully for indirect tax for many years. A joint Customs and Excise and Inland Revenue mutual assistance unit is being set up with staff from both departments working together to co-ordinate and send requests to other member states, and to deal with requests from other member states that relate to UK taxpayers.
The hon. Member for Arundel and South Downs has unfortunately misinterpreted some aspects of the provision. His amendment suggests that the liability on which recovery is sought in UK proceedings should be an alleged liability. That is not the case. Recovery in the UK depends on the existence of liability in the member state making the request. Indeed, the applicant authority may not normally request recovery unless the claim, and the instrument permitting enforcement, are not contested in the member state in which it is situated.
It has been suggested that the provision involves some presumption of guilt. I dispute that charge. As soon as the UK is informed of a contested claim, either by the applicant authority or the interested party, the measure allows for the enforcement procedure to be suspended, unless the applicant authority requests that it continue, and the law, regulations and administrative practice in the UK allow for such action.
Chris Grayling: Will the Minister explain what the word "normally" means in that context?
Ruth Kelly: I think that most hon. Members understand what the word "normally" means. I do not think that this is the place to try to define such words.
I point out that provision to continue such actions exists already in UK law. For example, the requirement to pay Customs duty, even where an appeal against a decision of a Customs authority is pending under article 244 of the Customs code.
A key element of the measures is the provision that, once an instrument permitting enforcement of a claim has been received by the member state requested to pursue that claim, it must be recognised and acted on. That is the only practical way to handle such claims. The alternative would require the UK to review the procedures of other member states to ensure that their tax laws have been correctly followed in respect of each and every request for recovery.
The taxpayer's right to contest liability exists in the domestic legislation of each member state. That legislation must apply to each debt notified under the
provisions. That avoids foreign courts having to familiarise themselves with the domestic tax legislation of each other member state. It also prevents the taxpayer from being able to delay recovery unduly through obstructive legal action.Where a taxpayer can demonstrate that proceedings appealing against liability have been, or are about to be, instituted in another member state where the debt has been established, the member state attempting recovery is required to suspend its action, pending the outcome of the appeal.
It is worth pointing out to the Committee again that these provisions mirror provisions existing for indirect taxes since 1977. To date, those rules have caused no problems.
It has been suggested that it might be simpler if UK citizens were able to defend themselves in English in UK courts, but that would open up a new set of problems. We strongly support the principle of national competence in tax matters. The taxpayer's right to contest a liability will continue to exist, as I have said, within each member state's domestic legislation. To allow taxpayers to challenge the appeal system of other member states through their own national courts would be to subvert national competence for tax matters.
Mr. Bercow: I am extremely grateful to the Minister for giving way; she will recognise that these important matters must be debated thoroughly. Subsections (4) and (5) of paragraph 3 of the schedule and subsection (1) of paragraph 4 refer to regulations. Can the hon. Lady tell the Committee whether those regulations will be subject to the negative or the affirmative procedure?
Ruth Kelly: I will write to the hon. Gentleman with those details.
I confirm that if appeals against the application of the directive are received, as the hon. Member for Kingston and Surbiton has requested, there is an appeal mechanism through the European Court of Justice. I hope that the hon. Gentleman will be satisfied on that matter. I will write to him about the number of states that have already implemented the directive; I am sure that he will understand if I do not have that information to hand.
As I understand it, the implementation of the directive imposes no new liabilities on the taxpayer. It will not change the rights of the taxpayer or impose any tax liability that did not previously exist. Instead, it introduces procedures for recovering debts where the taxpayer has assets in another member state and allows arrangements for co-operation in collecting indirect taxes such as excise duties and VAT that have existed for many years to be extended to direct taxes as well. The only people who need worry about this measure are those who fail to pay the tax that they owe. I am sure that Members will agree that taxpayers should not be able to escape paying what they owe simply by moving to another member state. I urge the Committee to reject the amendment.
Mr. Flight: There is a huge difference between this matter and excise and VAT, which are administered on a fairly common basis throughout the EU. They are not personal taxes and not part of the EU territories, where much taxation can be arbitrary. The clause and schedule
are doing something new and different; they are following the same path but addressing tax areas that in the EU can be extremely arbitrary.I understand the practical point that it would be a lot of hassle to permit Greek or Spanish tax law, to the extent that it exists, to be disputed in an English court, but not to do so still seems authoritarian to me. A claim could be submitted against a British company or individual in Spain which they may not even know about because the authority may not be able to advise of such proceedings in the UK. That claim could be nodded through, resulting in the sums claimed being enforced without any right of dispute or defence.
Mr. David Heath (Somerton and Frome): I understand the hon. Gentleman's point. However, this is a reciprocal arrangement and were the amendment to succeed, it would mean that Greek and Spanish courts, about which he seems so concerned, would have extra-territorial jurisdiction over British taxpayers about British taxation in this country. The interpretation of a Greek or Spanish court as to whether a British taxpayer was liable to pay British tax would supersede our own territorial jurisdiction. Is the hon. Gentleman not concerned about that?
Mr. Flight: Before I come to what other EU states are doing, let me make it clear that I believe that justice for British citizens is ultimately more important than the greater ease of UK tax authorities in collecting tax or instructing European authorities to seize goods on tax liabilities claimed here.
Furthermore, although the directive has not yet come into force in more than one EU member state, I am sure that the processes will be nowhere as diligent and efficient as in this country. The mere fact that the directive may have been incorporated in the tax law of all EU member states does not ensure that a claim advised by the UK authorities would be pursued and settled with the same efficiency as it would be in this country.
The self-interest tax-gathering point is not answered merely by asking whether the directive has been put into effect. My understanding is that the whole controversial issue of denying the right to challenge the claim is a relatively grey area in the EU directive. The UK authorities might have slightly gold-plated the requirements in the practical interests to which the Minister referred.
The arrangements that have operated for VAT and Customs have not presented such problems because the claims are not arbitrary. However, the proposal introduces a great deal of arbitrariness in claims for income tax and claims against property. It will permit an injustice against UK citizens, which the British authorities would be obliged to implement, denying British companies or citizens the right to dispute the claim. That is utterly wrong and objectionable and we would never have considered that such a measure could have been adopted in UK law in the past.
7.45 pm
Mr. Edward Davey: The hon. Member for Arundel and South Downs (Mr. Flight) has failed to acknowledge the fact that the measure is about reciprocal arrangements and that there could be an appeal to the European Court of Justice. The Conservatives are in danger of becoming the friends of the international tax avoider and the friends of the residents of the Costa del Crime.
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