Mr.
Jeremy Browne: The hon. Gentleman raises a legitimate
concern about currency fluctuations within the year and the effect on
tax liability. Does he conclude that the Conservative policy of
shadowing the deutschmark in the early 1990s would be wisely replicated
by shadowing
the euro now so that those difficulties could be avoided? That is not my
view, but it seems to be the view of Conservative Back
Benchers.
Mr.
Bone: Mr. Atkinson, I am sorry that
I accepted that intervention. It would be quite out of order for me to
deal with it. I promised to stick to the clause and I will do my best
to talk about this and the technical issues that come up.
There is an
important point here that I had not understood before. In the past,
MEPs were taxed on their salary as though they were British citizens.
That made a lot of sense, and I understand it entirely because there
was no Community tax involved. We now know that there was a Community
tax, and I am not sure on whom this was charged. There is an issue.
Were these officials or employees of the European Union? If they were,
were they just being taxed as citizens of some European Union state and
not being taxed here, or was there double taxation? That is a really
important point. How much money was
involved?
Mr.
Hands: I expect that the Government will answer that all
of the people affected were not resident in the UK, but I suspect that
the EIB has some kind of London representation. It would be interesting
to hear from the Minister whether those people have been affected since
1968.
Mr.
Bone: My hon. Friend makes a very important point to which
I hope the Minister will
respond. I
was just about to refer to clause 56(1)(c) which
reads: “Article
14, 15 or 17 (pensions for old-age, incapacity and
survivors)”. Can
I move straight on from there to the Secretary of State for Business,
Innovation and Skills, with responsibility for regulatory reform,
enterprise and science, First Secretary and Lord President of the
Council—and deputy Prime Minister—the noble Lord
Mandelson? He was a commissioner. What was his tax position? Was he
being taxed in this country or was he paying some sort of Community
tax? Is it something new? Has there been a loss to the Exchequer or has
the poor Lord Mandelson actually been paying tax twice? Will there be
some sort of retrospective relief for commissioners? I assume that the
commissioner is regarded as ordinarily resident in this
country.
Lord
Mandelson is a high-profile case, but there must be many other people
who were caught in this position. It is important to know whether they
were paying UK tax, both UK tax and EU tax, or only EU tax. People will
want to know that information.
Clause 56 is
right in principle, in that it saves British citizens from paying tax
twice, but it has opened up a can of worms. Therefore, I hope that the
Minister will be able either to answer now all the questions that have
been raised or, if that is not possible, to write to the Committee with
that information.
11.30
am
Kitty
Ussher: May I start, Mr. Atkinson,
by saying what an honour it is to serve under your chairmanship? I
think that I am serving under you for the first time and I welcome you
to the Chair.
It is a
pleasure to debate with the hon. Member for Hammersmith and Fulham. I
thank him for his kind words. Indeed, as he said, I recall that we had
a lengthy debate during the deliberations on the Finance Bill last
year. My memory is that it was about sovereign debt issuance and he
gave an extremely interesting and, I am sure, historically correct
account of various currency crises and sovereign debt issuances by
various countries, including the UK. I also seem to remember that my
contribution to that debate was principally to point out—rather
continually—that although that account was very interesting, it
was perhaps not entirely relevant to the specific point on the issuance
of Islamic bonds that we were discussing at that time. I feel a strange
sense of dÃ(c)jà vu now, one year
on.
Mr.
Hands: With your forbearance, Mr.
Atkinson, I want to point out that the Minister is right that that
debate was about sukuk bond issuance, but the question was whether or
not it was advisable for a sovereign issuer to be issuing structured
notes, regardless of the structure. The debate was not actually about
Islamic finance; it was about whether or not sovereign issuers should
be going down that road.
I must say
that now might be the opportunity for the Minister to apologise for
misquoting me later that week to an audience in the City of London in a
talk about Islamic finance, by claiming that Conservatives were opposed
to Islamic finance, which is certainly not the case. So the debate
today gives her an opportunity to apologise for misquoting me, which
happened in the same week as the debate that she referred
to.
The
Chairman: Order. I think that honours are even in this
respect.
Kitty
Ussher: Thank you for your clarification,
Mr. Atkinson. All I will say is that my sense of
dÃ(c)jà vu has now increased.
I have
enjoyed the debate today hugely; I always enjoy it when the
Conservative party splits very openly in front of our eyes. I have also
enjoyed the revelation by the hon. Member for Taunton, when he said
that it was difficult to put himself in the mindset of someone who
served in the European Parliament. I do not know whether we should draw
anything from that comment about his relationship with his
leader.
Mr.
Stuart: May I gently give the Minister a word of advice?
It is possible that there is a difference of opinion within a party,
but when it happens people should try to disagree without
rancour.
Kitty
Ussher: Opposition Members are obviously the best of
friends. Moving on swiftly, I am of course grateful for the support of
at least the Front-Bench spokespersons of both the main Opposition
parties.
As today is
the first time that I have served under your chairmanship,
Mr. Atkinson, in an attempt to ingratiate myself
with you I will attempt to keep my remarks specifically related to the
clause. I remind the Committee that the clause simply does two things.
Since the European Community is not a territory, as defined
in double taxation law, we therefore need another piece of primary
legislation to ensure that MEPs will not be subject to double taxation
under the new regime. So, we are simply aligning the situation of MEPs
with the existing provisions under double taxation law. The other
thing that the clause does is to ensure that the new transitional
allowance, as it is called, which is now available to MEPs under the
new system, has a basis in law, by linking it to the legal concept of a
termination payment.
Mr.
Bone: Is that a unique situation, or are there other
organisations that are not territories that deduct
taxation?
Kitty
Ussher: I think that it is unique. If my view on that
changes, I will let the hon. Gentleman
know.
Mr.
Hands: Can the Minister explain to us, therefore, why the
situation is unique? My understanding is that the United Nations or the
World Bank will pay their staff whether or not the Minister believes
that they level a tax. If that is not the case, why not? Why is it only
the EU that decides that it wants to have those tax-raising
powers?
Kitty
Ussher: Perhaps I can add that to the list of eight
questions that the hon. Gentleman has put and that I shall attempt to
answer.
Moving on to
the specific points, I am delighted by the summary of the eight
questions, although perhaps we could have cut to the chase and gone
straight to them. I am slightly concerned because I think that I have
more than eight answers, but I will do the best I can.
One of the
first questions that the hon. Gentleman seemed to ask was whether this
was a secret plan and why we were talking about this after the European
elections of a fortnight ago. I am delighted exclusively to reveal that
our policy was communicated to MEPs in a letter from the Minister for
Europe in July last year. We also wrote to MEPs of all parties in March
this year. So there was no intent to reveal it only
now.
Mr.
Hands: Will the Minister give
way?
Kitty
Ussher: I will, but I will not always give way if the hon.
Gentleman seeks to intervene at this rate in
future.
Mr.
Hands: I thank the Minister for giving way and apologise
if I am intervening too often. Can she tell us when she told the House
of the Government’s intention to do
that?
Kitty
Ussher: Well, it is in the Finance Bill, so it will have
been in the First Reading of the Finance Bill.
Moving on, I
am delighted that the hon. Gentleman has been looking at the EIB
website with such diligence. I will write to him on the precise point
about coefficients. The substantive point seems to be that, as a result
of the double taxation, MEPs will now be subject to an effective tax
rate of 27.95 per cent. If we did not introduce the clause in the
Finance Bill, their effective tax rate would
be 21.84 per cent. So they will be paying more tax at the same effective
tax rates as their constituents as a result of the clause, which I
think all Members of the Committee would agree
with. The
EC tax that is applied to MEP’s pay is the same tax that EU
officials have paid since
1968.
Mr.
Bone: I must have misunderstood that point. She is saying
that MEPs are paying extra tax. Are they getting a refund? She seemed
to imply that. What I thought the Minister was saying was that the
Community tax was higher than the basic income tax in this country. If
that was the case, there would be a refund. Am I wrong in
that?
Kitty
Ussher: I hope to be able to come back to the net position
of the UK Exchequer as a result of all the changes. What I think his
question was getting at was that marginal rates, and the way in which
they are tiered, are actually higher in the UK than the EC rates.
Therefore, as a result of the double taxation treaty, they will pay
more tax in total, although there is a sort of credit put in as part of
that
process. How
will the tax work if an official is employed by the EU, but, for
example, works in London? We have heard members of the Committee
mention, perhaps, the EIB staff in London and, of course, the European
Commission has staff in London. EU officials working in this country
will generally be liable for UK tax. Those working in Brussels will
generally be liable for Community tax, but obviously each individual
situation will be looked at
individually. Are
there any cases in which someone working for the EU has been taxed
twice? We are not aware of any such cases. The clause is required only
because a specific statute has been introduced which provides for MEPs
to be paid by the EU instead of by national Governments. That was not
previously the case, so MEPs were not previously subject to Community
tax.
There was a
specific question about Community taxes being levied on transitional
allowances. Those MPs who have recently stood down are entitled to
resettlement grants under existing pay arrangements. Resettlement
grants are subject only to UK tax; they are not subject to
Community tax. There were a lot of questions about people who
were not, perhaps, UK residents and what their situation was with
respect to other member states. Not being a Minister for another member
state Government, or indeed a tax administrator for the European
Community, I am not able to provide specific answers. However, I will
write to the hon. Member for Hammersmith and Fulham to answer the
question whether MEPs need to pay tax to the Belgian or French
authorities if they are resident there.
Mr.
Hands: Can I take the Minister back to the point that was
mentioned a moment ago? Although the MEP whom I mentioned might be an
exception at the moment—going to be a UK resident but a
non-dom—there will possibly be more cases in future. I mentioned
that 9 per cent. of my constituency were EU nationals. It is not
impossible—I think that the fourth Conservative candidate on the
London list is probably an EU national. Will the Minister clarify the
position of UK-resident MEPs who are
non-doms?
Kitty
Ussher: I am coming to that point. An MEP who after the
elections of a fortnight ago ceases to become an MEP will be eligible
for the transitional allowance under the new regime that the European
Parliament has now
agreed. I
come now to the specific points about residents and non-residents, and
domiciled and non-domiciled status. In summary, the rules regarding
resident and domiciled status for MEPs are no different from those for
any other category of person. We know of only one UK MEP who has ever
claimed non-residence in the UK. That might be useful background
information. It follows that an MEP representing a UK constituency
would not then be fully liable for UK tax because they are non-tax
resident. It is unlikely that the situation would arise because most UK
MEPs obviously have ties, duties and work to undertake, which means
that they will be
here.
Mr.
Field: What checks would the Treasury undertake to ensure
that an individual was not trying to suggest they were not domiciled
anywhere—in other words, that there was some domicile that they
were admitting to and therefore had tax liability in some
territory?
Kitty
Ussher: We take great pains to ensure that the tax law is
not abused and that there is no fraudulent activity, avoidance or
evasion. MEPs would be no different from any other category of person
in that
regard. A
non-resident, non-domiciled MEP would not be fully liable to UK tax.
However, if they were non-resident —as I said, there has
been only one case so far—like all other non-residents they
would be liable to UK tax on the portion on their employment duties
carried out here. Broadly speaking, days spent working in the UK would
be liable to UK tax, as is normally the situation for other people, but
employment duties carried out abroad would not be liable to
tax.
A resident
but non-domiciled MEP using the remittance basis would also be liable
to UK tax on those employment duties carried out in the UK and, in some
circumstances, as is normal, also liable to UK tax on their duties
carried out abroad. I do not want to imply that this is something we
are routinely looking into because, as far as we are aware, there has
been only one
case. I
apologise to the Committee, as I need to clarify what I said previously
about whether this is a unique situation. There are some similar
circumstances, as hon. Members rightly said, relating to the UN and
NATO. I will write to the Committee to explain the
parallels. The
hon. Member for Wellingborough asked about exchange rates used for the
purposes of self-assessment. If an MEP is paid in euros, the conversion
to sterling is at the time of payment, which is normal for any person
paid in a different currency. I do not want to confuse the Committee
further, and I am mindful of the fact that we have spent a lot of time
on this, but I mention for the record that MEPs have the option of
being paid in sterling. I do not know whether Conservative MEPs will be
taking up this option.
A
theme running through some Back-Bench Conservative
Members’ remarks was whether the EU should have tax-raising
powers and whether this was the thin end of the wedge. I wish to
reassure the Committee that this is an extremely limited tax, which
applies exclusively to EU officials and MEPs. It does not imply any
wider EU tax-raising powers, and indeed has no basis in law to do
so. 11.45
am
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