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Mr. John Redwood (Wokingham) (Con): How do Ministers satisfy themselves about the tax affairs of the banks that they own on behalf of the taxpayer? How can they be sure that those large losses are entirely justified on trading and other grounds? Are they sure that the banks need not pay any tax in the current situation?
Mr. Timms: That is a matter for HMRC, but I am sure that the right hon. Gentleman has seen the code of conduct for bank tax, which we published recently for consultation. Undoubtedly, some of the activities of banks in the UK have involved avoidance—in some cases, significant avoidance. Banks are in a strong position to indulge in that sort of behaviour because they can do it for their own part and then advise their clients on similar approaches. I agree with the right hon. Gentleman that it is right to be vigilant about banks’ tax submissions, but if he takes the opportunity to read the code of conduct that we have published for consultation, he will see the steps that we are taking to make progress on that.
Information provided by a promoter is often insufficient to tell HMRC whether the scheme will work. In some cases, the scheme will turn on a novel interpretation of the law and, in the end, that can be tested only in the courts. It is not enough in some circumstances for HMRC to examine the scheme and decide whether it will work. Ultimately, it will require a decision by a court. In other cases, a scheme’s effectiveness will depend on the specific facts to which it is applied. In those circumstances, HMRC could be in a position to say whether the scheme works only when it features in a tax return. Providing the clearance under new clause 5 could therefore prove difficult.
Rob Marris: I have much sympathy with new clause 5. However, as constituency Members, many of us are faced with the problem of planning applications, whereby a planning application is made to the local council, it gets turned down, for which reasons are given, but goes back in a month later, after it has been tweaked. There is wave after wave of planning applications until one gets through. At least the local authority can charge for that. Does not new clause 5 run the risk of causing similar problems for HMRC?
Mr. Timms: My hon. Friend is right. That is precisely the danger to which new clause 5 could give rise, with the difference that building something or progressing with a development is, in principle, good and laudable, whereas avoiding tax is not. There is therefore an even stronger reason not to follow that route.
New clause 5 states that HMRC will have a “reasonable” amount of time to comply with the clearance request. Again, I agree with the hon. Member for Fareham. What constitutes “reasonable” in that context? It can take a considerable time before HMRC is in a position to make such a judgment and it could easily be impossible to do that in a time frame that might be considered reasonable by the taxpayer. I therefore question the usefulness of that sort of clearance to those who are genuinely trying to pay the right amount of tax at the right time, and I strongly argue against adopting the new clause because it would help those whose purpose is purely and clearly to avoid tax. As I said earlier,
however, that is not to say that I want to close the door on tightening the disclosure arrangements. Indeed, there may be opportunities for us to do that.
Rob Marris: My understanding is that when HMRC is involved in anything like that, as it is on occasion, it does not charge people. However, if new clause 5 were to be accepted, we could see not only wave after wave of applications made, as I said earlier, but tax-avoiding accountancy firms, as it were, apparently getting free accounting advice from HMRC, a point to which the hon. Member for Fareham (Mr. Hoban) adverted earlier.
Mr. Timms: I share my hon. Friend’s concern about what we might find ourselves getting into. On the other hand, however, I suppose that one could argue that charging for the service might add a further degree of legitimacy to activity whose illegitimacy one would otherwise want to underline throughout. However, we should not be giving that kind of advice at all, so for now we can perhaps leave the question of whether it ought to be charged for.
Let me respond to another point that the hon. Member for Dundee, East made. HMRC receives a significant number of disclosures every year, but only a proportion of those lead to legislative measures. He raised the issue of promoters selling abusive tax-avoidance schemes. As he will know, we have announced that HMRC will take forward discussions to improve the avoidance disclosure regime. There may well be things that we can do, and HMRC is consulting on working with tax agents.
That brings me to the points made in this debate, not least by my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher), about having a general anti-avoidance rule. Let me say to my right hon. Friend and the House that we want to keep that question under review. It was consulted on in 1998, as was said by the hon. Member for Stockport—
Mr. Timms: I beg the hon. Gentleman’s pardon—I have made that mistake before.
When we consulted on the idea there were a lot of objections, and they were by no means all from tax avoiders. Those who have pointed out that other countries have such a rule are right in terms of a number of counties, although interestingly, the United States does not have a rule of that kind. Some people have argued that if we introduced a general anti-avoidance rule, we would have to have what is suggested in new clause 5, which stands in the name of the hon. Member for Dundee, East, namely a fairly comprehensive clearance system, which would potentially be costly to provide. Another downside would be the uncertainty that such a rule could generate.
We have, of course, introduced a number of effective targeted anti-avoidance rules, and we will continue to evaluate the benefits of going further and specifically consider the possibility of a general rule. However, I want to underline the fact that, in recent years, we have done a great deal to tackle avoidance. We have a strong strategy and a good track record on tackling tax avoidance in all its forms. We reckon that the steps taken as a
direct result of the disclosure regime, which has been in place for five years, are so far responsible for closing £11 billion of avoidance opportunities.
We have led internationally on increasing transparency through the G20 and the growing number of tax information exchange agreements, and I have already mentioned the innovative code of conduct for banks that we published for consultation recently. We have also led on modern legislative approaches, such as the new principles-based legislation, of which there are examples in the Bill, in clauses 48 and 49, which give new opportunities for transparency. Also, through the targeted anti-avoidance rules, we are ensuring that businesses and individuals pay their fair share.
Mr. Meacher: My right hon. Friend mentions the code of conduct that has just been published. Does he really believe that a voluntary code of conduct is going to be adequate to deal with the shark pool that is involved in City tax avoidance? Has he looked at the Australian anti-avoidance principle, which has worked for years? I am not aware that it has any significant disadvantages but, if it has, will he tell us what they are?
Mr. Timms: My right hon. Friend asks whether I think that a voluntary code of conduct for banks will be effective. Yes, I do. I have spoken to some very hard-headed individuals who have looked at these matters, and they also think that it will be effective. Once a bank has publicly committed to the code, it will have certain obligations. Its auditors, for example, will want to take a view on whether it has correctly implemented the terms to which it has signed up. Part of the code that we have been consulting on involves determining what sanctions would be appropriate if deliberate non-compliance were to be found. We have suggested in the consultation document that if, for example, we identified an individual in a bank who was responsible for deliberate non-compliance, we would make a report to that individual’s professional body. My right hon. Friend ought not to be misled by the proposal for a voluntary code into believing that it will not be effective. Based on the way in which we have drawn it up, I believe that it will be. We are consulting on this at the moment and we want to listen to the views of everyone who is in a position to comment on our proposals.
We are aware of the Australian rule, and we keep a close eye on developments elsewhere around the world. I am not in a position at the Dispatch Box this afternoon to set out a detailed analysis of the effects of the introduction of that rule, but I underline that we want to keep under review the question whether it would be appropriate to go down the road that new clause 2 would lead us.
Dr. Pugh: The Minister has stated a preference for targeted measures, and I understand the strategy that is being followed. However, there comes a point at which, when we look at all the targeted measures, we find that there are certain principles underlying them. Does not that make a case for some sort of cull—a statement of general principle or general anti-avoidance rules?
Mr. Timms:
We had a discussion in Committee about principles-based legislation, and we have some examples of it in clauses 48 and 49 of the Bill. This is novel; these
matters have not been legislated for in this way before. I believe that, as a result of adopting and making acceptable this new approach to legislating, some new opportunities might well arise that could shift the argument somewhat on whether a general anti-avoidance rule would be appropriate. As I have said, this matter is something that we want to keep firmly in our sights.
I do not want to leave the House with any sense of complacency about this. The changes that we are debating in the Bill will raise more than £1 billion in tax, through blocking avoidance, and protect revenues of a further £3 billion by 2010-11. We are looking at further ways of extending and improving the disclosure regime, and we are considering the application of the principles-based approach to other matters.
My right hon. Friend made a point about people devising schemes just after publication of the Finance Bill, and he is absolutely right: there will never be a shortage of inventiveness and energy in terms of avoidance. The Government need to be extremely vigilant in response. However, we can do as we did in this case, which was quickly to announce to the House that we were going to close a particular avoidance opportunity. It might take a while to implement the required legislation, but we can implement it with effect from the date of the announcement made in the ministerial statement. We would not have to wait for the legislation in order for the closure to take effect.
Rob Marris: Will the Minister say a little about the Ramsay case—I think it is the Ramsay case—to which I have already referred, which relates to a Court of Appeal decision of, I believe, 1985? It deals with artificial economic arrangements developed solely for the purposes of tax avoidance. As I understand it—this is dragging my memory back more than 25 years—such arrangements were banned by the Court of Appeal.
Mr. Timms: I must say that, as so often, I am very impressed by my hon. Friend’s expertise and memory. Sadly, I am not in a position to present the House with details of that particular case. I certainly think that he is right that decisions like that one have constrained some of the activity that certain companies have wanted to indulge in. Sadly, however, there is still quite a lot of latitude available, which is why we have had to take steps such as those outlined in new clause 8. I will refresh my memory on that particular case; perhaps my hon. Friend and I can discuss it separately.
If we were to go down the road of issuing a general rule or principle, we would have to consider a range of factors: the impact on certainty for people and companies, the issue of whether a clearance system would be needed, the effect on the rest of the tax code and whether we would need to repeal parts of that code. Countries such as Australia that have general anti-avoidance rules often find that they still need some specific rules in addition to support the overall scheme, so we would also need to reflect on that. We would certainly need a full consultation before we opted for such an arrangement. I am nevertheless grateful to those who have raised this important topic—one that we must keep within our sights.
Mr. Redwood: Does the Minister think that big banks such as RBS and Lloyds HBOS in the public sector should be paying corporation tax, and when might they start paying it again?
4.45 pm
Mr. Timms: As soon as they are making a profit, they should undoubtedly pay corporation tax.
Mr. Peter Bone (Wellingborough) (Con): Is the Minister therefore saying that all losses incurred—I emphasise all losses—will not be carried forward against future profits?
Mr. Timms: No, I am not saying that. The hon. Gentleman will know from the context of discussions about the asset purchase scheme that that matter has been debated and arrangements have been made for those two banks that are, in fact, rather different.
The hon. Member for Southport (Dr. Pugh) suggested that HMRC was playing blindfolded, but I do not think that that is right. As I have said, the anti-avoidance steps that we have taken have been pretty effective. The 2004 disclosure regime has been successful—it was pretty controversial at the time and was certainly innovative—in protecting more than £11 billion. HMRC anti-avoidance teams use the information provided to combat avoidance schemes every day.
Amendments 34 and 35 would both widen the scope of the new reporting rules introduced in schedule 17, which we debated in Committee. The schedule repeals existing rules and introduces a new post-transaction reporting requirement for corporation tax targeted at transactions posing a significant risk of tax avoidance. This requirement applies to certain transactions involving foreign investments whose value is in excess of £100 million. Targeting the reporting requirement in this way removes the need for businesses to report comparatively low-value transactions that are unlikely to give rise to tax avoidance, so significantly reducing the administrative burden compared with the current Treasury consent rules. As we discussed in Committee, those rules are rather elderly and in some respects not wholly appropriate to how businesses now operate.
Amendment 34 would make any transaction reportable where it is part of a transaction exceeding £100 million. I well understand the concern expressed by the hon. Member for Southport about the possible use of fragmentation of transactions as a means of getting round the new arrangements. I suggest, however, that that problem has already been effectively dealt with by the regulations introduced by schedule 17, drafts of which I supplied to members of the Public Bill Committee. Those regulations provide that, for the purposes of the £100 million threshold, “transaction” is defined broadly and includes a series of transactions entered into in pursuance of the same arrangement. That means that the valuation of a transaction must take into account a linked series of transactions, although they may be strictly separate. I hope that, on that basis, the hon. Gentleman will accept that his amendment—which addresses a perfectly proper concern—is unnecessary.
Amendment 35 would widen the scope of the reporting requirement by removing the exclusion for trading transactions. Trading transactions have been deliberately excluded because the new reporting requirement, like the previous rules, is targeted at changes to the capital structure of multinational groups, which, by their nature, will not generate transactions of the type that the amendment addresses. The reporting requirement is
only one tool available to help HMRC to combat tax avoidance. The removal of the exclusion for trading transactions would be very likely to generate a great many unnecessary reports. I hope the hon. Gentleman will accept that the reporting requirement introduced by schedule 17 strikes the right balance between Exchequer protection and administrative burdens on business.
The hon. Gentleman mentioned that, in 2005, my right hon. Friend the Member for Bristol, South (Dawn Primarolo), the former Paymaster General, had said that the Treasury consents regime ought not to be repealed because it protected a great deal of revenue. Removing the need for companies to apply to the Treasury for consent before entering into transactions allows businesses to enter into commercial transactions in a way that they see fit, in line with modern business practice. By targeting the new reporting rules at transactions that pose the highest risk of avoidance, we are ensuring that tax revenue is still sufficiently protected. The de minimis limit reducing the amount of information that is reportable will significantly reduce the administrative burden of complying with the rules.
I think that we have got the balance right, but I am grateful to Members who have raised important issues. I hope that the House will agree to the Government new clause and amendments, and that the other new clause and amendments will not be pressed to a Division.
New c lause 8 accordingly read a Second time, and added to the Bill.
‘(1) The rates charged by virtue of section 1 shall not have effect until such date as may be appointed by order made by the Treasury.
(2) No such order may be made until the Chancellor of the Exchequer lays before Parliament a statement that, in his opinion, measures have been taken to ensure that no person is worse off by reason of the person’s income not being sufficient to secure that the effect of the abolition of the 10p starting rate has been entirely offset by the reduction of the basic rate, which took effect in the tax year 2008-09.
(3) The power to make an order under subsection (1) shall be exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons.’.— (Mr. Frank Field.)
Brought up, and read the First time.
Mr. Frank Field: I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following:
Amendment 2, in clause 1, page 1, line 8, at end insert—
‘(3) This section is subject to section [Implementation of section 1].’.
Amendment 37, in clause 3, page 2, line 10, leave out ‘£6,475’ and insert ‘£10,000’.
Amendment 40, in clause 6, page 3, line 7, at end insert—
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