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Dawn Primarolo: Perhaps I should start with the point about artificial versus bespoke schemes made by the hon. Members for Yeovil (Mr. Laws) and for Arundel and South Downs (Mr. Flight). The purpose of the disclosure clauses is to address the precise issues highlighted by the hon. Member for Yeovil—the artificial and contrived arrangements that can occur in
 
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marketed schemes and bespoke arrangements. Neither the Government nor any hon. Member have advanced an argument to say that normal tax planning should fall within the disclosure rules; on the contrary, the Government argue that normal tax planning should not fall within the bespoke rules. Frankly, I would say to the hon. Member for Yeovil that if organisations such as Grant Thornton cannot tell the difference between an artificial and contrived arrangement and normal tax planning, I would be amazed. Indeed, I might thus seriously question the quality of advice that it gives to people who pay a lot of money for that service.

5.45 pm

Mr. Laws: Does the Paymaster General accept that not only Grant Thornton but all tax practitioners have expressed considerable concern about what they will be required to report and what they will not? Although it might be easy to distinguish between each end of the spectrum, it is more difficult to decide whether tax advice that falls in the middle of the spectrum constitutes something that the Government intend to be reported.

Dawn Primarolo: With respect to the hon. Gentleman—and I shall address that issue later—he did not advance that scenario when he cited Grant Thornton. If he was quoting correctly, it sounded as though the company would send the Inland Revenue just about all the tax advice produced by every office in the country. I refer him back to the excellent speech made on Second Reading by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), although I shall not repeat it. That was the best speech that I have heard about corporate responsibility, and it demonstrated clearly the fact that professionals should know full well the precise activities that they undertake.

I want to address further issues regarding new clause 7 and amendments Nos. 39, 40 and 42, but I make it absolutely clear again that we are talking about artificial and contrived schemes, such as gilt strips and those that we addressed when we considered new clauses 9 and 10 today. We want to get information so that we can deal with such schemes in the way in which all hon. Members have implored Ministers to do.

Mr. Quentin Davies: As the Paymaster General says, everything turns on the words "artificial" and "contrived", because they determine whether something is notifiable. Does she agree that those terms are ambiguous because they involve an element of judgment—they are not mathematically precise? An adviser will need to know, ex ante, whether a scheme is artificial and contrived because it is no use waiting for a court to determine that. By that time, an adviser might have made a mistake and thus have been penalised. Will the Paymaster General give the House definitions of "artificial" and "contrived" to make their meanings unambiguously clear? If we use words that require an element of judgment, there will be, by definition, a large area of persistent doubt, and thus unfairness and perversity may arise.

Dawn Primarolo: That was a long intervention. As the hon. Gentleman knows, the clauses and the filters in the regulations seek to make the position clear. We are
 
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talking about the operation of the provisions in only two areas of taxation—employment and financial products. He should cast his mind back to discussions on new clause 9, when we learned that tax planners have already designed a scheme to get round clause 134, even though the Bill has yet to receive Royal Assent. We were fortunate to receive the details of the scheme so that the House could close it off. If I explain how the relevant provisions will work in practice, the hon. Gentleman may not be satisfied but he will have a clearer understanding of them. By their very nature, artificial and contrived schemes introduce uncertainty into the system. I fail to understand how anybody could look at, for instance, the gilt strip arrangements and not conclude that they are contrived. I am trying to deal with those grey areas.

Mr. Flight: Is there not a clear moral distinction to be made? The individuals to whom the right hon. Lady referred know when they are dealing in artificially contrived schemes, as opposed to tax planning to minimise tax liabilities. Legally, it is difficult to distinguish between the two, although the regulations may go some way towards doing so. The Bill, however, does not.

Dawn Primarolo: I am not even going to attempt to go down the road of moral definitions.

There has been a universal welcome for the Bill's attempt to provide disclosure mechanisms in the light of the experience of the US and other countries. Tax avoidance is not limited to marketed schemes or even schemes that are sold without marketing, which is why the Government's approach is to target arrangements where the risk of avoidance is greatest. New clause 7 would give rise to significant practical problems, as I shall explain to the House, and does not address or improve the position that hon. Gentlemen are trying to tackle. I accept that it attempts to differentiate between an off-the-shelf scheme and bespoke advice, but applying the disclosure rules only where a promoter sells or markets a scheme could create the very uncertainty and arbitrary boundaries that they seek to remove. That problem arises from the very nature of contrived and artificial schemes.

There is a genuine difficulty, I acknowledge, in drawing a clear line between advice on marketed schemes, such as the gilt strip scheme that the Government have dealt with in the Bill, and planning advice—advice on a major commercial transaction such as an acquisition or merger, however, is clearly bespoke advice—and hon. Gentlemen are seeking to address that grey area. It is not clear on which side of the dividing line between bespoke advice and advice on marketed or off-the-shelf schemes particular advice will fall. Trying to target the disclosure rules in that way would make it even harder for the majority of compliant advisers to apply them and, at the same time, would unfortunately—I know that this is not the hon. Gentlemen's intention—provide scope for less scrupulous advisers to find ways of side-stepping them. That would create a significant defect in the disclosure rules. That is why the Government's approach is to target the types of schemes and arrangements in which we believe that avoidance is most prevalent.
 
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It is not clear how the new clause is intended to affect the disclosure of schemes devised in-house, and there are many such schemes. The result of the new clause could be the introduction of different rules for the disclosure of schemes that are marketed and sold by a promoter, and in-house schemes where no promoter is involved. Were the Government to adopt that approach, they would rightly be open to accusations of discrimination against firms that rely on in-house tax advice.

Notwithstanding some of the comments that have been made, the Inland Revenue has had extensive consultation with the profession and the industry on the draft regulations and has set out details of what would be caught by the disclosure rules. During the consultation, concern was expressed that the financial products regulations might be too wide. I recognise that the new clause attempts to deal with those concerns by narrowing the scope of the rules for marketed and off-the-shelf schemes.

I appreciate that the hon. Gentleman also wants to ensure that the disclosure rules do not apply to the normal tax planning advice on commercial transactions that is provided by the vast majority of tax advisers. He wants to distinguish between that sort of bespoke advice and aggressive schemes that depend on exploiting loopholes. I can assure him that the Government do not want to impinge on straightforward tax planning. That is not what we are attempting to do. However, our concern remains—I made the point in Committee as well—that some bespoke advice also depends on the aggressive exploitation of loopholes.

We therefore believe that the response that the Government propose is more effective and will preserve the new disclosure obligations. The Inland Revenue is working hard with tax advisers to ensure that the rules catch only aggressive schemes. We will refine the text of the regulations to ensure that the financial products test is clear and easier to apply in practice. The regulations will contain new filters, which we discussed in Committee. They will ensure that financial products that gain a tax advantage by exploiting loopholes are dealt with.

Government amendment No. 222 corrects a drafting error. It removes from clause 299 some extraneous words referring to a trade, profession or business that involves the provision to other persons of services relating to taxation.

Amendments Nos. 39 and 40 seek to remove from the Board of Inland Revenue the power to prescribe in regulations the time within which promoters are required to make a disclosure, and set out in primary legislation that that should be 30 days. I make a simple point to the hon. Member for Yeovil: when the promoters make the scheme available for use, they know whether or not it should be declared. Five days after the scheme is made available is therefore reasonable. Thirty days simply allows more time.

The broad framework for a disclosure regime is set out in primary legislation and specifies who needs to make a disclosure and what they need to disclose. The regulations published in May require promoters to supply those details within five days. If they know on day 1, day 2, day 3, day 4, day 5, day 29 and day 30, I do not see why they cannot make the information available by day 5 and why that should wait until day 30. I am not
 
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convinced that the promoters cannot supply the information within five days. They clearly have all the information that they need, because they make the schemes available.

6 pm

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