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"the legislation had been passed, I think, at a point when policy was still being developed and in those circumstances it was difficult to achieve the optimum arrangement of the material."
A couple of points can be made about that. First, I would be interested to know from the Minister, with his vast experience as a Treasury Minister, how often legislation is passed while policy is still being developed? Perhaps
naively, I thought that the policy came first and the legislation followed, but possibly that was not the case. Perhaps that was a peculiarity of the Minister at the time, who, if I recall correctly, is now the Secretary of State for Children, Schools and Families. None the less, that is somewhat surprising. We will always face the need to improve the clarity of legislation if we do it that way round-if we do the legislation first and the policy second. That is somewhat surprising in this context because, if I recall correctly, the REIT legislation was in gestation for some time. It was not rushed. I would be grateful if the Minister could tell us why it has been necessary to recast it.
Let me return to the limitations of the tax law rewrite project. There is quite a strong argument for reconsidering the REIT legislation, not just in terms of how it is structured and drafted, but on its merits, too. In the proceedings on the Finance Bill last year I tabled amendments on the restriction on distributions, for example. At least 90 per cent. of property income must be distributed in the year in question, and currently that has to be done in cash. There was an argument about whether shares should be allowed too, given that there should be no tax consequence. I do not want to go outside the scope of the Bill, but perhaps the Minister will say something about whether the Government are considering the REIT regime, which has cross-party support, more widely. I know there have been difficult economic conditions for REITs, but there is an argument about whether the regime could go further and whether reforms will be necessary. I would be interested to hear his views.
None of these debates would be complete without my briefly mentioning the order-making powers in clauses 1178, 1179 and 1180. The Minister customarily reassures us that those order-making powers, which enable primary legislation to be changed by regulation, will be used only in exceptional circumstances. The Bill restricts them somewhat. I would be interested to know to what extent those powers have been used for previous tax law rewrite Bills. One point that was raised in Committee-it would be helpful if the Minister could address it in this debate-was whether a negative resolution is sufficient or whether the affirmative procedure should apply.
My final query-I apologise: I have two final points; I am sorry to disappoint the Government Whip-relates to whether some of the changes will involve more or less tax being paid. The Minister has said that no major changes are contained in the measures, and rightly so, because they do not involve the same level of parliamentary scrutiny. However, I should like to know whether there has been any assessment of the revenue implications of the changes in the Bill, and whether there is a rough and ready test to determine whether a change constitutes a major change-one too significant to be contained in a tax law rewrite Bill. I should also like to know how that assessment is made.
Finally, some of the amendments made in Committee, particularly those to schedule 1, relate to Northern Ireland, and I wonder why those issues were missed earlier. When the Minister responds to this point, will he say something about the process when new issues arise in Committee? Where do they come from, who identifies them and are they part of the consultation process? We would like to get a better idea of the point at which weaknesses and omissions are addressed.
Subject to those queries and questions, we welcome the Bill. The tax law rewrite project might not be perfect and might have too limited a remit, and there is more to be done to move towards simplification, but we should none the less acknowledge the enormous efforts that have been made by many people to improve the clarity of our tax law. That is an important objective. A start has been made, and we hope that a future Government will take on the project and do more to simplify our tax system, not just to clarify it.
2.2 pm
Dr. John Pugh (Southport) (LD): I have not had the advantage, or indeed the pleasure, of being on the Committee, but I pay tribute to all the people who have laboured long and hard to bring the Bill before the House. This kind of legislation takes me back to my days as a council leader when members were annually shown for comment long papers on treasury management that were full of algebra, rather like pages 13 to 16 of the Bill. They were always passed without undue comment, and I note in passing that hon. Members have not exactly been fighting to get into this debate. If the truth were told, only a few pointy-headed people in the Treasury have complete mastery of the entire legislative feast that confronts us-and that includes the Minister, whose knowledge is encyclopaedic, so I assume that he understands it. There is a real case, as the hon. Member for South-West Hertfordshire (Mr. Gauke) said, for expert advice in certain areas in which Members' background knowledge is deficient.
The measures before us are, in part, highly technical, and largely uncontentious. The document is one for tax lawyers to work with as much as one for politicians to mull over. It is largely a tax rewrite and consolidation, rather than ground-breaking, innovative legislation that we need to get excited and argumentative about. It is, however, important, and it would be wrong and foolish of us to pretend that we could do justice to it all here in the time available, so I shall content myself with probing the Minister simply about the general thrust and shape of the legislation, bearing in mind that I wear another hat as a member of the Public Accounts Committee. The Committee recently did an excellent report on corporation tax, which is an odd tax because research shows that raising it does not necessarily raise the total take and that lowering it does not necessarily reduce the take. I think that we can all conclude from that observation that it is easily avoidable.
One point that the Committee made in its report follows from what the hon. Member for South-West Hertfordshire has just been saying. Conclusion two of the report states:
"Businesses in the United Kingdom can legitimately reduce their Corporation Tax payments by claiming a range of reliefs and allowances. In some cases, the liability may reduce to zero, even though the businesses have made profits. The amount of tax foregone is likely to be substantial, but is not visible."
I cannot tell whether the Bill has been crafted to do what the Committee wants the Government to do, which is ensure that a proper balance is achieved between allowances and overall liability, but I welcome the Minister's assurance that he is mindful of that point.
The Committee also pointed out that the Department does not have
"a robust measure of the Corporation Tax gap",
by which we mean the difference between what large businesses pay and their theoretical liability. The report makes another point that is worth making now, given the long evolution of the legislation-that, in a change from recent times, about half the growth in global trade now comes from transactions between subsidiaries of multinational companies. However, recommendation eight states:
"In the United Kingdom, groups of companies are not required to prepare consolidated Company Tax returns so the Department cannot assess the effective Corporation Tax rate across a group of companies."
It then cites Australia and Canada as counter-examples of where things are done a little better. I do not suppose that the legislation was crafted to resolve all those issues, but can we have an assurance from the Minister that those anxieties require a legislative response, and will he ponder whether vehicles such as this Bill provide an appropriate opportunity for that?
I have other concerns, including concerns about the development of bespoke tax avoidance schemes. The Minister is acutely aware of those concerns, and I know that he is working hard to close loopholes where and when they appear. Corporation tax matters are generally controversial, and no issue to do with taxation and this Government is simple. However, corporation tax is a valuable piece of the fiscal jigsaw, and we have to hope that this legislation has got things right.
2.6 pm
Mr. Timms: I welcome the constructive comments from the hon. Members for South-West Hertfordshire (Mr. Gauke) and for Southport (Dr. Pugh), and the broad support that the Bill enjoys. The hon. Member for South-West Hertfordshire suggested that the work should go further and the underlying tax rules should be simplified, but I remind him that the Government have already committed to simplifying the tax system, and we are working with a wide range of interested parties through the tax simplification reviews. The rewrite complements that commitment. I also draw his attention to the fact that the UK compares very favourably internationally, ranking first among G7 countries for ease of paying taxes. The World Bank "Paying Taxes 2010" survey is well worth a read. It makes the point that in the UK it typically takes 110 hours for a company to comply with paying taxes, whereas in Canada, France, the United States, Germany, Japan and Italy it takes a great deal longer. In Japan and Italy, for example, it takes more than 300 hours.
Ease of compliance is what really makes a difference for businesses. For the reasons that we have discussed, more pages of legislation are appropriate for this issue, because although income tax and corporation tax legislation have been placed in separate locations, ease of use and clarity have been improved. I am happy to repeat the assurance that I gave on Second Reading and in Committee that the powers cannot be used to change the law in relation to periods before the Bill comes into force, so the powers are time-limited. As with previous rewrite Acts, I can confirm that the powers will not be used unless the tax law rewrite project's consultative and steering committees both agree that they should be so used.
The hon. Member for South-West Hertfordshire asked me about the rewriting of the real estate investment trust legislation. That reflects the fact that when the REIT legislation was introduced by the Finance Act 2006, there had not been time fully to work out how it should apply in certain cases, particularly in relation to joint venture companies and groups. Powers were therefore taken in that Act to enable those gaps to be filled using regulations, but the resulting regulations are considered to be equal in importance to the legislation in the Act. So I think that it is appropriate for them to be addressed as they have been.
The hon. Gentleman asked about the powers to correct the legislation. The five rewritten Acts so far include more than 4,500 sections, but a total of only 97 errors have been corrected either by using the powers or by primary legislation. That is a great credit to the extensive consultation process and to those who gave their time and expertise to review the draft clauses. Most of the errors have been corrected in primary legislation, rather than by using the powers that we have discussed.
I am grateful to the hon. Member for Southport for the points that he raised, and I can give him the assurance that he sought. We certainly bear the concerns that he raised in mind.
I pay tribute again to the work of the team led by Robina Dyall. This Bill does not reform tax law, but it is important and has cross-party support. It will make things easier for everyone using tax legislation.
I commend the Bill to the House.
Bill accordingly read the Third time and passed .
Taxation (International and Other Provisions) Bill
Motion made, and Question put forthwith (Standing Order No. 60(8)),
That the Committee of the whole House be discharged from considering the Bill .-(Mr. Timms.)
2.11 pm
The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move, That the Bill be now read the Third time.
This Bill has two themes. First, it rewrites international provisions such as double taxation relief, transfer pricing, advance pricing agreements and tax arbitrage. Secondly, it helps users of tax legislation by relocating and, where appropriate, rewriting provisions that would otherwise have been left unhelpfully in the Income and Corporation Taxes Act 1988 or in one of the Finance Acts.
As we have just discussed, last year the tax law rewrite project completed the first part of rewriting corporation tax legislation when the Corporation Tax Act 2009 was enacted. A second Corporation Tax Bill, the sixth Bill produced by the project, has just received its Third Reading. As a result, the whole of the legislation relating to corporation tax will have been rewritten.
This is the seventh and final Bill produced by Her Majesty's Revenue and Customs' tax law rewrite project. As with the Bills produced by the project in the past, this one continues the work to modernise our direct tax legislation so that it is clearer and easier to use.
There is a further point that I want to make about the approach taken in this Bill. In rewriting the international provisions, this Bill, unlike previous rewrite Bills, does not separate them for income tax and corporation tax purposes. This different approach was agreed in consultation with users represented by the independent committees that oversee and support the work of the project.
The project takes great care to ensure that the effect of the legislation remains the same, but it can encompass minor changes in the law when they improve the legislation. There are 15 such changes detailed in the explanatory notes to this Bill, although of course major changes will always be matters for a Finance Bill. All proposed changes in the law are considered by both the project's committees, and no minor changes are included in the Bill without their approval.
Again, I should like to express particular thanks to the UK tax specialists, and others. My gratitude also goes to members of the project's consultative committee, chaired by Robina Dyall, who have ensured that the consultation has been detailed and thorough. The consultative committee includes representatives of small and large businesses, accountants, lawyers and other tax specialists. They have been very generous with their time and energy, for which we are very grateful.
The strategy of the project is set by its steering committee, chaired by Lord Newton of Braintree, which includes members from both Houses of Parliament, the judiciary, business and consumer groups. I am particularly grateful to Lord Newton for his commitment and guidance, and to the members of his committee.
As we debated previously, the Joint Committee of both Houses was chaired by the hon. Member for Chichester (Mr. Tyrie). It considered the Bill on 11 January and concluded that the Bill is a welcome clarification of the existing law, which as a result will be easier to use and more accessible to all users. The Committee was satisfied that the changes to the law were of very minor significance, and it accepted the amendments.
This Bill is a worthwhile contribution to modernising our direct tax legislation so that it is clearer and easier to use. It maintains the project's excellent record in improving current legislation and has been welcomed by those who use it. Once again, I am grateful for the support that has been shown across the House throughout this work.
I commend the Bill to the House.
2.15 pm
Mr. David Gauke (South-West Hertfordshire) (Con): It is almost tempting to deliver essentially the same speech that I delivered a couple of moments ago, but that would break the heart of the Government Whip and I would hate to do that. I am also very tempted to say, "I refer the House to the speech I gave some moments ago," but perhaps that would go to the other extreme.
The international aspect of taxation is hugely important for an outward-looking economy such as the UK's. We witnessed great difficulties in 2008, when a number of companies moved their head offices out of the UK because of concerns over international taxation, in particular the Government's consultation with regard to controlled foreign companies that was published in 2007. We touched on that point on Second Reading.
We welcome progress towards greater clarity in this respect, but we touched on the issue of controlled foreign companies in the Second Reading debate of 15 December. The Minister made it clear then that a consultation document was to be published in the new year, which would lead ultimately to legislation that I presume will be incorporated in this Bill when it becomes an Act. The consultation document was published in January, and the early indications that we have seen are encouraging. The Government are moving towards a more territorial system, and it is worth putting it on record that the Opposition believe that that is something that we need to pursue.
Of course, the real test will come when we see the details in the consultation document and what will follow from it. It might be useful to mention that one of the points raised with us is that we need to know how the new user-friendly motive regime contained in the consultation document will operate in practice. The outcome must avoid causing difficulties with HMRC and placing an administrative burden on multinationals that are looking to locate in the UK. It is important that we have a competitive tax system that encourages business to locate here.
Many of the remarks that I made earlier also apply equally to this Bill, and I should like to add my thanks to the various organisations and individuals that the Minister mentioned in his remarks, but I want to make a final point that I could also have made about the
previous Bill. That is that witnesses at the Committee stage observed that the engagement by consultees seems to have fallen away slightly. As I noted in the earlier debate, the tax professions and businesses want legislation that goes further than merely clarifying and simplifying the language. They want something that starts to address the substance as well. I make that point again but, those comments apart, we support this Bill.
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