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Mr. Browne: I am grateful to have the opportunity to make a few brief comments and to serve under your chairmanship, Mr. Atkinson.
We are discussing double taxation, although many people might regard even something approaching single taxation as progress in relation to the tax affairs of some people who choose to keep money in dependent territories with tax regimes different from those enjoyed in mainland UK. Nevertheless, it is sensible that progress is being made and that efforts are being made to try to realise greater and legitimately derived tax revenue to the Exchequer.
I want to ask the Minister a few questions. I will be brief because the hon. Member for South-West Hertfordshire was characteristically thorough and I do not want to go over the same ground. Will the Minister clarify why the regulations relating to Jersey and Guernsey, which date from 1952, are now insufficient? I do not fully understand why they were good enough for 57 years and what has materially changed now to require an adjustment.
My second point, which was touched on by the hon. Member for South-West Hertfordshire, is the difference in the Minister’s estimation of the amount of revenue that is currently raised and the amount of revenue that may conceivably be raised as a result of the changes that we are discussing this afternoon. I recognise that it will have to be an estimate of some sort.
I am curious to know how HMRC assesses whether taxes in a territory are “similar” to taxes in the UK when deciding an individual’s tax liability. I suppose there is considerable scope for people to argue that the similarity—the crossover—is not as precise as those who seek to collect the revenue may consider it to be.
My final question is about the extent to which the measures fit into what we are told is the Government’s and the Prime Minister’s overall approach to greater co-operation around the world to regulate the financial centre, and to ensure that people cannot move their money around to avoid taxation in a way that would be regarded as unreasonable by the British, the Germans, the French, the United States and other main tax jurisdictions. It would be helpful if the Minister could shed some light on how much the measures are part of an overall pattern of action by the Government.
4.50 pm
Mr. Michael Fallon (Sevenoaks) (Con): I start by paying tribute to the islands of Guernsey and Jersey and to the Virgin Islands for managing to conclude the treaties. I declare a minor interest because I was a visitor to Guernsey earlier this year, and I discussed some of these matters with the financial authorities there.
I was not wholly persuaded by the Minister’s suggestion that the orders are the first fruits of the London G20 summit. Double taxation treaties have been negotiated with other jurisdictions for some time, and these agreements could have been concluded at any point over the past 10 years. I do not accept that it all happened because of the G20 summit, and I hope that the Minister will accept that to some extent this is not just first fruit but low-hanging fruit.
It is easier to conclude agreements with jurisdictions such as these, which have well-established financial services authorities. I am concerned that the work will get harder as the Minister proceeds to encourage the other overseas territories for which we are responsible to follow suit. In many cases, they might not have the capacity to negotiate such complex arrangements, and they might not find international partners who are prepared to negotiate agreements with them. That is critical, because such territories cannot move up the various OECD listings unless they conclude a sufficient number of agreements.
I hope that we will learn from the way that Guernsey, Jersey and the Virgin Islands have been brought on board. We must make it clear that there is a process, and that we want to encourage the other overseas territories to slowly follow suit. I hope that the Minister will reassure us that the measures are part of a process and that we want to see all the territories for which we are responsible move up from the black list to the grey list and finally to the white list.
4.53 pm
Mr. Ian McCartney (Makerfield) (Lab): I just want to make a couple of points about the comments of my right hon. Friend the Minister and the hon. Member for Sevenoaks about future activity.
Paragraph 10 of the explanatory memorandum relates to the impact to the Exchequer. It states:
“Tax Information Exchange Agreements enable countries to obtain information to assist them to properly enforce their domestic tax laws. Such Agreements do not have an exchequer cost; rather, they improve HMRC’s ability to assess and collect the correct amount of tax owed by UK taxpayers and should therefore lead to an increase in revenue.”
I would have expected to see some definition before the word “revenue”. Is it future or retrospective revenue? If it is retrospective, will there be sanctions or interest charges under the improved arrangements? As the hon. Member for Sevenoaks said, we should congratulate the territories concerned for agreeing to these more effective new arrangements. Is there to be retrospection? If so, how do the Government, through HMRC, intend to proceed?
My second point is about access to information for other regulatory jurisdictions in cases such as bankruptcies—for example, when a company fails to do the appropriate thing regarding pensions when it goes bankrupt, or in cases such as Farepak, which went bankrupt, or when directors have arrangements outside the United Kingdom. Will there be an exchange of information between the various regulatory bodies in Britain’s jurisdiction under the improved arrangements? If these improved arrangements increase revenue, will there be an obligation on HMRC to advise other regulatory bodies about such matters?
I do not suggest that I have any knowledge about Farepak, but millions of pounds went missing from an international company with internationally renowned directors. A number of years on, the very poorest working people still have not had a single penny in compensation. Does that money lie in areas such as those we are discussing?
My final point is about cross-border trading activity. In the past, there have been allegations that the Virgin Islands and other islands are used by companies to get around sanctions on countries that abuse human rights, such as Burma. Under the approved arrangements will HMRC have a responsibility to report whether there has indeed been use of places such as the Virgin Islands to get around sanctions to do business illegally with regimes such as the Burmese one? There is a particular focus this week, when we are celebrating the fact that people in Burma are still campaigning for human rights and for that country’s citizens to have democratic institutions such as ours, yet they could be undermined by international companies using tax havens to do business outwith UN sanctions and European agreements.
My right hon. Friend may not be able to answer the questions at the moment, but if he cannot, can he indicate whether he will be prepared to write to us on such matters?
4.56 pm
Mr. Timms: I am grateful for all the comments that have been made.
The hon. Member for South-West Hertfordshire, leading for the Conservative party, asked about the track record on tax information exchange with Jersey and Guernsey. Both have a long history of good co-operation on spontaneous exchanges of tax information with the UK, in particular on income tax and corporation tax, under the existing double taxation agreements that we have with each, which go back to 1952, as the hon. Member for Taunton said. However, we have previously been unable to obtain information from persons within those jurisdictions about accounts held by UK residents in Jersey and Guernsey banks; likewise, information about the true owners of companies registered in Jersey and Guernsey or the beneficiaries of trusts, which the hon. Member for South-West Hertfordshire mentioned. The new agreements close that gap. If the information sought is not held by the competent authority—the tax authority—but is within the possession or control of a person within its jurisdiction, the competent authority must use its domestic information-gathering powers to obtain the information and so provide it to HMRC. The record, though, has been a good one within the constraints of the previous arrangements. We have certainly received valuable information from Jersey and Guernsey.
There was a freedom of information request in June, setting up a number of requests, over a period of years, from and to Guernsey and Jersey. My understanding is that the US is certainly satisfied with what it has received so far. I do not have numbers in the case of the USA, because the authorities there regard such figures as confidential, but we have certainly not had complaints from them about how the arrangements have been working.
Why are we making the change now? The hon. Member for Taunton asked why we had waited 57 years—it is a long time. The terms of the agreements did not reflect the developments of the past 57 years, particularly the past few years. We envisage reviewing the existing double taxation agreements with Jersey and Guernsey in full, once we have signed the tax information exchange agreements. Jersey and Guernsey also recognise the need to do that, but at the moment, in the UK and both those Channel Islands, people are concentrating on negotiations on the tax information exchange agreements. Giving them priority is right, but the additional work needs to be done in due course.
The hon. Member for South-West Hertfordshire asked about the existing exchange agreements with the Isle of Man and Bermuda. As he said, the agreements have not been in force for very long. They are, though, starting to bear fruit, in terms of information exchanged—again, there are confidentiality concerns about saying too much, but I am assured by my officials that both the Isle of Man and Bermuda have been very helpful when we have sought their assistance.
I think that I have answered the question about nominees; if the information is in the possession or control of the nominee, Jersey or Guernsey can ask for the beneficial owner’s identity. I understand that is possible under domestic law in both Jersey and Guernsey.
The hon. Gentleman drew attention to the ability to turn down requests on public policy grounds. Those are largely OECD standard terms, and that particular carve-out is a standard provision in all tax treaties. However, it should be, and generally can be, construed narrowly, rather than broadly, covering things such as security issues. We are confident that is how it will be used under these orders.
The agreements will take effect as soon as we, Jersey, Guernsey and the British Virgin Islands have completed all the necessary steps. We have already heard from Guernsey that it has completed its domestic procedures, and I gather that Jersey will issue a formal notification to us soon.
The hon. Gentleman asked about the anti-money laundering performance of Guernsey and Jersey. We regard the standards of their anti-money laundering provisions as equal to those in the UK. They have worked well.
The hon. Gentleman anticipated my answer to his question about the overall cost of the tax lost to tax havens or to the territories under discussion. It is clearly a difficult calculation to make, given the nature of tax avoidance—people do not tell us very much about it when they are doing it. In addition, there is a diverse range of financial relationships between the various territories and the UK. The Foot review of British offshore financial centres, which will be published soon, may help our understanding of the issue. However, as the hon. Gentleman anticipated, I cannot give him a well-developed answer or figure today.
The hon. Member for Sevenoaks asked who else we are talking to. I have already mentioned some of the Crown dependencies and overseas territories. We recently signed new tax information exchange agreements with Anguilla, the Turks and Caicos Islands and Gibraltar. We are currently negotiating such agreements with Mauritius, the Bahamas, Antigua and Barbuda, Dominica, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. A lot is going on.
My right hon. Friend the Member for Makerfield asked whether the orders are retrospective. The agreements enable us to ask the jurisdictions questions that are necessary to assess how much tax ought to be paid. We can certainly ask questions about what is in an account today, which might have a bearing on tax that would have been payable some time ago. In that sense, the agreements give us access to information about things that happened in the past rather than in the last six or 12 months. It is tax information. I do not want to give the impression that such action would give us access to everything in which we might possibly be interested. My right hon. Friend asked whether HMRC would equally have to hand over such information. Yes, all the agreements work both ways. The territories we are signing with can certainly request information from us.
I know how hard my right hon. Friend worked for a long period as a result of the hardship caused by the collapse of Farepak. He made a good point about practices in countries such as Burma. I am confident that, as a result of the G20 process, the number of places where people can legally hide their money will be much fewer. Some very good progress has been made.
Mr. McCartney: I wish to clarify a point. I accept that the agreements work two ways, but I was actually talking about other regulators in the United Kingdom, such as those dealing with the seizure of criminal assets or in relation to bankruptcies and the transfer of pension assets when a company becomes defunct, but its owners have bank accounts and arrangements in such territories. I am concerned about those regulators and what arrangements, if any, are in place when useful information becomes available. Will they be allowed to pursue such issues legitimately under UK law or will there be a firewall?
The Chairman: Order. Such matters are wide of the mark, so will the Minister keep his remarks brief?
Mr. Timms: I shall be brief, Mr. Atkinson. As I said a moment ago, the agreements relate only to tax information.
In response to the helpful question asked by the hon. Member for Taunton, I see the agreements as very much part of the improved international co-ordination that has been a consequence of the G20 meetings this year. We have had two G20 summit meetings this year and there was one G20 summit meeting last year. I have lost count of exactly how many meetings of G20 Finance Ministers we have had, but another one is coming up in a couple of weeks. As a result of that enormous amount of activity, we have greatly improved international collaboration on financial market matters. In the past, only one G20 meeting was held per year and that was only a Finance Ministers meeting. During the past 12 months, the G20 has been pushed into the limelight in a quite different way and work on tax information exchange is a good example of the dramatic improvements in co-ordination and co-operation.
Question put and agreed to.
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2009.
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2009.—(Mr. Timms.)
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Virgin Islands) Order 2009.—(Mr. Timms.)
5.9 pm
Committee rose.
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