Second Standing Committee on Delegated Legislation |
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Mr. Burnett: I am pleased to hear from the Paymaster General that the matter is not static and that those other countries are being invited to enter similar arrangements. However, we are seeking not
Dawn Primarolo: That point about the stature of offshore financial centres, and whether they are in line with international agreements and best practice, has been made before. In all the discussions with the dependent territories, the Crown dependencies and representatives from Switzerland and elsewhere, we put that case forcefully. It is widely accepted that virtually all financial centres need to have the highest standards. That is good for their reputations as financial centres. This is not about saying that there are not good offshore financial centres—certainly not that from the United Kingdom’s point of view they should be closed down. Quite the contrary: this is a simple, straightforward mechanism to apply further pressure on tax evaders. Mr. Tyrie: May I clarify what the Paymaster General has said? Was she making clear that the Government support the retention of offshore financial centres and see the important role that such centres can play in furthering British financial interests, as well as global financial interests? Dawn Primarolo: Indeed; I have said that a number of times. I realise that the hon. Gentleman has not been in his post as long as his predecessor, but if he has a conversation with the hon. Member for Arundel and South Downs (Mr. Flight), he will realise that we have been clear on those proposals and that we have worked closely with the City of London on the type of recording mechanisms already in place, such as the “know your customer” scheme, within which the banking, offshore and financial centres work. Although the hon. Gentleman jested—always in good heart—about my introduction to this debate, I assure him that we have pursued this matter with great vigour. I have been personally involved. The City of London and other financial centres have given compliments and plaudits on the sensible way in which the United Kingdom has approached tax evasion and ensuring that competitiveness is not undercut. There is broad support for the direction in which the Government have taken these debates. I cannot believe that the hon. Gentleman is saying, “Actually, we need tax evasion in order to oil the wheels of any financial centre, wherever it is.” We should have these standards. The hon. Gentleman is right that the Swiss prefer to have information on request. As the hon. Member for Torridge and West Devon pointed out, they have what we would consider to be an interesting definition of tax evasion. We and other member states do not agree with the Swiss definition. It is predicated on banking secrecy in a way that is simply unacceptable. That has been made clear to the Swiss. I would be happy to send to the hon. Member for Chichester a copy of a speech I made in Switzerland to the banking fraternity there about the principled objections to banking secrecy. The Swiss published a Bill to ratify the European-Swiss savings agreement on
Mr. Burnett: It would be an even more robust sanction if the exchange of information covered other entities, such as companies and trustees. Dawn Primarolo: I understand that that is the hon. Gentleman’s private view. I am not sure that it is his party’s view. However, given the length of time that it has taken us to get this directive, where we have finally achieved the principle of automatic exchange of information—with the exception of three member states, which can operate the withholding tax until 2011, but can move to automatic exchange of information at any time before then—the Government take the view that, both within the European Union and the OECD, we should continue to advance the virtues of exchange of information. That should be on an automatic basis with regard to our own citizens. This is not about taxing some other member state’s source of income. The intention is simply to make sure that UK residents pay the tax that the law says they should pay here in the UK, and to prevent them from using the cloak of banking secrecy to prevent the tax authorities from achieving that end. Mr. Tyrie: Am I right that paragraph 21 of the RIA means that the expected yield is £60 million to £70 million? The paragraph continues by stating that that
Does not the Paymaster General think there is force in the arguments advanced by the hon. Member for Torridge and West Devon and me that a good deal of this business may end up in other offshore tax havens? Dawn Primarolo: The United Kingdom has a wide network of double taxation agreements that cover all tax liable for payment in the UK. It is important to remember that we are discussing a separate exercise that emerged from the European Union. The hon. Gentleman is right. Several member states wanted a European-wide withholding tax and the Chancellor, supported by the whole House—let alone the City of London—took the view that that was a bad idea and would have a competitive impact in a global market, especially on the City of London. The hon. Gentleman has commented on the matter a number of times. The Government continue to pursue the principles of exchange of information in dealing with evasion. On the likely incomes, from memory, I believe that the investments in Jersey, Guernsey and the Isle of Man are about £150 billion, £70 billion and £30 billion
With regard to the other questions asked by the hon. Member for Chichester, the cost to the Revenue of implementing the exchange of information scheme—the savings directive and agreements requiring the adaptation of systems—is estimated to be approximately £1 million, spread over several years. As we considered the system, and as we argued with our European colleagues, we were also considering what information was already required to be lodged by financial centres for other reasons and we could therefore model what we wanted to do on that. In terms of the costs to business, the feedback from the extensive consultation and the questionnaires was that most companies were already required to report income from savings under sections 17 and 18 of the Taxes Management Act 1970. The changeover costs in the first year will range from zero, or negligible, to £300,000 or £350,000 for the largest institutions. That is the information that they provided to us. After the introduction of the directive, the ongoing additional costs are expected to be low and stable—about £10,000 to £20,000 a year per institution, and much less for smaller operators. The hon. Gentleman can see that we have done our homework well, discussing with the financial centres exactly what type of information they already require to run their businesses. We are asking that that information be passed on to us, where it is relevant for tax purposes, which seems to be entirely reasonable. The hon. Member for Torridge and West Devon asked about the flow. Mr. Tyrie: Before the Minister leaves me and moves on to the hon. Member for Torridge and West Devon, can she answer one question? Can she provide her own definition of unfair tax competition? Dawn Primarolo: I will not indulge the hon. Gentleman in the bit of banter that he likes. Unfair tax competition is not the subject of these agreements. As an experienced Member of the House, he well knows that, if he wishes to have that type of debate, there are many ways that he can do so. We are discussing tax evasion and he does no service to the Committee by trying to shift the debate away from the crucial point: tax evaders cost honest taxpayers more to provide other services. This is a substantial agreement for the United Kingdom, which we should now process and deal with. Those who read the report of this Committee should be in no doubt that we will continue to pursue evasion. I will now move to the points that I have not already dealt with that were raised by the hon. Member for Torridge and West Devon. The first was about the exchange of information and how it would be used. I know that the hon. Gentleman has pursued that point diligently in debates on the double taxation treaties. He is right to do so. The information is collected for a purpose and should then be used only for that purpose. The flow of information will be tightly controlled, as
With regard to the transfer of such information to the police, NCIS and so on, the answer is that that will not happen unless the other party authorises the release of information. The hon. Gentleman asked whether that could be pursued in a prima facie case of evasion should the information need to be sought, and the answer is again no. It is a matter not of information exchange on request, which is different, but of the automatic exchange of particular information that is controlled by the directive and involves savings income only. The hon. Gentleman asked about trusts. As he knows, in the United Kingdom, a trust is not treated as an entity in itself. The directive will be applied consistently with United Kingdom trust law, so that it will look through the trust to the individual trustees. I am not yet able to tell him exactly how the agreements will apply to trusts established in Crown dependencies. Officials are seeking information on that, and if it will be helpful I will let the hon. Gentleman have the information in due course. The Crown dependencies have been direct and helpful on all such matters and are clear that they want to be considered an offshore financial centre of the highest quality, which means complying with the international obligations that apply to them. I think that I have now covered all the points about which I have been asked, save for the last one from the hon. Member for Torridge and West Devon about the enforcement of the directive and which sanctions will apply. Saving directive returns will be audited with some additional testing to ensure that savings income has been correctly determined and that appropriate additional information has been obtained and provided where the general rules have been applied. Column Number: 16 A paying agent who fails to notify the Inland Revenue that they have made a reportable savings income payment may be charged a penalty of up to £3,000. Paying agents who are given a notice to make a report but fail to do so may be charged a penalty of up to £300 and a further penalty of £60 for each day that the report remains outstanding after the initial penalty has been imposed. Where a paying agent fraudulently or negligently makes an incorrect report, he or she may be charged a penalty of up to £3,000. The operation of the agreements will be kept closely under consideration. Mr. Burnett: I am grateful to the Paymaster General for giving us information about what happens within the United Kingdom. What is the score in Jersey, Guernsey and the Isle of Man? Dawn Primarolo: As I said earlier, such issues are currently under discussion with the officials. There will be sanctions and I shall write to the hon. Gentleman about the position when we receive final confirmation from the Crown dependencies about how they intend to pursue the matter. I hope that the Committee will endorse the draft orders. Question put and agreed to. Resolved,
Resolved,
Resolved,
Committee rose at twenty-nine minutes to Six o’clock. |
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