Draft Double Taxation Relief and International Tax Enforcement Orders 2013 (Panama, Norway and Isle of Man)
Draft Double Taxation Relief (Netherlands) Order 2013
Draft International Tax Enforcement (Jersey and Guernsey) Order 2013
The Committee consisted of the following Members:
Ainsworth, Mr Bob (Coventry North East) (Lab)
† Barwell, Gavin (Croydon Central) (Con)
† Bruce, Fiona (Congleton) (Con)
† Carswell, Mr Douglas (Clacton) (Con)
† Dakin, Nic (Scunthorpe) (Lab)
† Gauke, Mr David (Exchequer Secretary to the Treasury)
† Gilbert, Stephen (St Austell and Newquay) (LD)
† Halfon, Robert (Harlow) (Con)
† Healey, John (Wentworth and Dearne) (Lab)
† Hemming, John (Birmingham, Yardley) (LD)
Hepburn, Mr Stephen (Jarrow) (Lab)
† Jones, Andrew (Harrogate and Knaresborough) (Con)
† Latham, Pauline (Mid Derbyshire) (Con)
† Love, Mr Andrew (Edmonton) (Lab/Co-op)
† Mahmood, Shabana (Birmingham, Ladywood) (Lab)
† Raynsford, Mr Nick (Greenwich and Woolwich) (Lab)
Shannon, Jim (Strangford) (DUP)
† Shelbrooke, Alec (Elmet and Rothwell) (Con)
Mark Etherton, Committee Clerk
† attended the Committee
Tenth Delegated Legislation Committee
Thursday 28 November 2013
[Mark Pritchard in the Chair]
Draft Double Taxation Relief and International Tax Enforcement (Panama) Order 2013
11.30 am
The Exchequer Secretary to the Treasury (Mr David Gauke): I beg to move,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Panama) Order 2013.
The Chair: With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Norway) Order 2013, the draft Double Taxation Relief (Netherlands) Order 2013, the draft International Tax Enforcement (Jersey) Order 2013, the draft International Tax Enforcement (Guernsey) Order 2013 and the draft Double Taxation Relief And International Tax Enforcement (Isle Of Man) Order 2013.
Mr Gauke: It is a great pleasure, Mr Pritchard, to serve under your chairmanship. I think it is the first time I have had that pleasure.
The Chair: It is the second time.
Mr Gauke: I apologise—[ Interruption. ] I will stop digging. You chair these events so smoothly that they go through seamlessly.
The six draft orders deal with the comprehensive double taxation agreements with Norway and Panama, protocols amending our existing agreements with the Netherlands and the Isle of Man, and protocols amending the tax information exchange agreements with the other two Crown dependencies, Jersey and Guernsey.
I begin with the Netherlands and will speak later about the three Crown dependencies as a group. The protocol with the Netherlands, which was signed earlier this year, amends our double taxation agreement of 2009 and updates the provisions for the treatment of business profits earned through a foreign branch, in line with the latest model provision from the OECD. It also updates the article on income from Government service, resolving an anomalous interaction with domestic law that in some circumstances could lead to the non-taxation of the salaries of Government officials working outside their country of origin.
On the Norway order, Norway asked us to review the DTA to bring certain articles into line with the latest OECD standard and to amend the pensions article to take account of changes in its domestic law. It quickly became apparent, however, that given the number of changes needed, it was easier to have a new DTA, even though the existing one was only signed in 2000. As a
result, we now have the latest OECD articles on business profits, exchange of information and assistance in collection. We have also included an arbitration provision in the mutual agreement procedures article. At our request, Norway agreed to a zero withholding tax on dividends received by pension funds and by companies that have 10% or more control of the paying company. It is the first time Norway has agreed to a zero rate for pension finds.A change to the pensions article allows pensions to be taxed at source. That was an important point for Norway, which, like an increasing number of countries, wants to tax pensions where it has given tax relief on the contributions from which the pension is paid. Existing pensioners may elect to continue to be taxed solely in their state of residence, as provided by the current treaty.
The first-time comprehensive double taxation agreement with Panama was signed earlier this year by my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs. Several EU member states have already signed agreements with Panama, and UK companies have welcomed our now having a treaty with it. The agreement will provide several important benefits. It eliminates withholding taxes on dividends for certain UK companies owning more than 15% of the paying company. It also limits the circumstances in which Panama can charge tax on the gains made by UK companies on disposal of their interests in Panamanian entities. Withholding taxes on interest and royalties are also reduced from the domestic rates applying in Panama.
The agreement contains the latest OECD exchange of information provisions and will for the first time grant HMRC access to ownership information for Panamanian entities used in structures aimed at evading UK taxes. It also has anti-treaty shopping provisions to guard against abuse of the treaty by residents of third countries, and a measure in the interest article to ensure that only residents of Panama are granted the benefit of reductions in UK withholding taxes.
John Healey (Wentworth and Dearne) (Lab): On the new agreement with Panama, the Minister said that there are Panamanian entities which HMRC will be able to access for information under the terms of the convention. What is the extent of the interest that HMRC has in the Panamanian entities, and how much tax does he and HMRC expect to raise that we would not have got otherwise?
Mr Gauke: The right hon. Gentleman might be reflecting on the many years when he was a Treasury Minister. He is right that Panama is a country in which the UK and other jurisdictions want to make advances in ensuring that information is shared between the authorities there. On occasion, as we know, Panama has been used in a way that is detrimental to the proper payment of taxes—where and when they should be paid—and it is therefore important for us to make progress with Panama, just as we are making progress with many other states and jurisdictions.
On identifying particular sums of money that could be gained as a consequence of such agreements, the right hon. Gentleman will be aware that it can be difficult to make such an assessment, which often
depends—as Donald Rumsfeld might say—on known unknowns. We know that there is information that would be useful, but we do not know its extent. Although we can sometimes make an estimate, that can be difficult in certain circumstances. We know that Panama is used for tax avoidance, and we will now have access to information that will allow us to gauge the extent and to recover tax due, but I cannot give the Committee a figure.John Healey: I welcome the agreement and applaud HMRC for the work it has done in striking it, but there is a discrepancy between the Minister’s answer and the Chancellor and the Chief Secretary to the Treasury’s trumpeting of the sums—and the number of sums—that might be recovered but are presently avoided under the tax and disclosure agreements with certain other countries. It seems strange that in some circumstances, the Chancellor and Treasury Ministers can do that, but in others such as this, the Minister cannot.
Mr Gauke: In some circumstances we have more information to go on, and to some extent if the scale is somewhat greater, we can make a more informed estimate. That is not to say that there are not challenges in all such cases, but in this case we do not have sufficient evidence to make some of the assumptions necessary to come up with anything. It is also worth pointing out that there is no disclosure agreement that might assist us with Panama, such as we have with other places. I take the right hon. Gentleman’s point, but we need to look at the situation country by country—each individual case on its own merits.
Mr Gauke: I am grateful for the right hon. Gentleman’s acknowledgement of that point.
The draft orders relating to the Crown dependencies of Jersey, Guernsey and the Isle of Man all do the same thing: amend provisions on the exchange of information to allow the tax authorities to provide each other with information automatically and spontaneously—in other words, not only in response to a request. That is the standard in the OECD model exchange of information provision, and it is necessary to allow the recently signed intergovernmental agreements to operate. The Committee will recognise the similarity of these agreements to the agreement that the UK reached with the US in September 2012 to implement the US Foreign Accounts Tax Compliance Act, or FATCA. They represent the first tranche of agreements introducing automatic exchange of information with our Crown dependencies and many of our overseas territories.
These intergovernmental agreements are an important element in our drive to enhance global transparency as part of the fight against tax evasion. Together with the rapid development of a common reporting standard for automatic exchange of information, they will enhance the secure reporting of financial data across international borders. The information exchanged under these agreements will provide evidence not only of sources of annual income such as interest, but will also help to identify capital hidden offshore which is made up of unreported profits diverted from a person’s home jurisdiction.
Mr Douglas Carswell (Clacton) (Con): My reading of the six orders before us shows me that their purpose is to allow the Government to extort yet more money in order to fund a bloated, unsustainable public administration system. Instead of chasing after other people’s money and giving HMRC officials yet more power to be yet more officious on a supranational scale, will the Minister at some stage try to ensure that the Whitehall machine over which he helps to preside lives within its means? It was Louis XIV’s Finance Minister who described the art of taxation as plucking feathers from a goose with the least amount of hissing. Surely, in the modern age the whole point is that the goose can fly, and the very need for these orders is proof of that. They will no doubt be seen in the Treasury as an attempt to close pesky loopholes. Does not the digital revolution make the tax base inherently more fluid, and do we not need to rethink the way we view the tax base?
The Chair: On that festive note, Minister.
Mr Gauke: Thank you, Mr Pritchard, and I thank my hon. Friend, who raises some broad issues, for his intervention. We can have a debate about the size of the state, and I suspect that he and I would agree that many of the deficit-related problems we have faced have principally been about spending too much, as opposed to taxing too little. However, if we have a tax system in place, as we must, it is important that it be properly administered and enforced, and that those who seek to evade their responsibilities under the law cannot find anywhere to put the proceeds of evasion, out of the tax collector’s reach. Our constituents may well want lower taxes but they also expect the tax system to be properly enforced, and the orders before us enable us properly to enforce the system that is in place. We can then have a debate about what the tax base and the level of public spending might be, but the tax system must be properly enforced and this Government have a very proud record of ensuring that those seeking to evade, and those seeking aggressively to avoid, their responsibilities are not able to do so.
John Hemming (Birmingham, Yardley) (LD): On the question of whether there will be a debate among Government Members about the size of the state, we need first to bring the deficit under control, hence these orders dealing with tax havens are very welcome.
Mr Gauke: I agree with my hon. Friend. Particularly in circumstances where we have a deficit the size of the current one, ensuring that those who have evaded their legal responsibilities are brought to book has to be a priority, as well as taking measures to ensure that public spending is brought under control.
Mr Andrew Love (Edmonton) (Lab/Co-op): I welcome the orders before us, but what our constituents want is for all tax havens to come under proper jurisdiction and for all loopholes in the tax system to be closed.
Mr Gauke: I point out to the hon. Gentleman that we have made considerable progress in recent years, and the orders are evidence of that. Some credit must go to the Crown dependencies and overseas territories that
are at the forefront of meeting the new, higher international standards. It is right that the UK push for those higher international standards. The orders are not about putting higher taxes in place, but ensuring that taxes are paid by all. I hope there is consensus in support of that.I hope my explanations are helpful, and I commend the orders to the Committee. I am happy to answer any questions that Members may have.
11.45 am
Shabana Mahmood (Birmingham, Ladywood) (Lab): It is a pleasure to serve under your chairmanship today, Mr Prichard; I am pretty sure that this is my first time. I again thank the Minister—his team of civil servants briefed me on the details of these orders and those we debated in yesterday’s Delegated Legislation Committee, and I am grateful for that illuminating discussion. Today’s agreements follow on from a series of similar agreements that were debated yesterday and on previous occasions, and the Opposition support the thrust of what the Government are trying to achieve with the orders.
The Panama order brings into effect arrangements between the Governments of the United Kingdom and the Republic of Panama for avoiding double taxation and preventing fiscal evasion of taxes on income and capital gains. It is the first time such a treaty has been in place, and we welcome and support it.
John Healey: I am grateful to my hon. Friend for confirming the Opposition support for the orders. Her statement contrasts with intervention from the hon. Member for Clacton, who seemed to be against the orders and to condone tax avoidance and therefore lawbreaking. Would she like to comment on his comparing the Chancellor to Louis XIV?
Shabana Mahmood: I am grateful to my right hon. Friend, but if he will forgive me, I shall duck commenting on that comparison; my knowledge of history is perhaps not as good at that of the hon. Member for Clacton. I will state for the record and the benefit of my right hon. Friend that the Opposition absolutely support all attempts to crack down on international tax avoidance, to deal with the problem at international level and to ensure that the UK plays its full part in the negotiations. Many such agreements began their lives under the Labour Government. The discussions take a long time to conclude and a consensus-based approach from Governments of all colours is important when entering into such arrangements.
Mr Carswell: Can the hon. Lady confirm that Government policy was the same under the previous Administration and that in a sense, the orders are a continuation of what the right hon. Members for Edinburgh South West (Mr Darling) and for Kirkcaldy and Cowdenbeath (Mr Brown) began?
Mr Carswell: No further questions.
Shabana Mahmood: We are grateful to the hon. Gentleman for his intervention.
The orders relating to the Netherlands and Norway primarily update the arrangements and bring them into line with the OECD standard, which we also welcome. Following my discussion with the Minister’s team of civil servants, I understand that there will be a period of time between the orders relating to the Crown dependencies being “switched on” and their coming into force, which is at some point in 2016. Will he explain the practical difference between switching on an order and the first exchanges of information taking place? The delay between the so-called switching-on and the first exchanges taking place relates to infrastructure, but exchanges with other countries could take place sooner. If the Crown dependencies can get their infrastructure in place to allow exchanges of information, it seems odd that that should not occur across the board in all nations at the same time.
The orders also allow for spontaneous, in addition to automatic, exchanges of information, which is a welcome step. How does the Minister think this will evolve? I have in mind a scenario where, at a certain point, information comes to light and it becomes clear that it could have been spontaneously exchanged earlier by one of the Crown dependencies. Does he envisage an arrangement to resolve such issues? I am not thinking of punitive measures, but how do we ensure that information is spontaneously exchanged as it ought to be, when it is available? How will the Minister ensure that exchanges take place in a timely manner?
When we discussed similar orders yesterday, I asked the Minister about the overall impact on the Exchequer and he said that that question comes up every time a shadow Minister responds to such orders. I am trying to be a bit more original in putting that question to him today. I take the point he made in response to my right hon. Friend the Member for Wentworth and Dearne: it is difficult sometimes to give an overall figure, but presumably HMRC reviews these matters and at some point it becomes clear that we are losing revenue from certain countries, and we might want to negotiate with them. How are these matters reviewed, and how is the overall effect on the Exchequer measured?
11.52 am
Mr Gauke: I thank those Members who have spoken for their contributions. On the questions raised by the hon. Lady, I can provide more information on timing. The first exchange under all three intergovernmental agreements will take place on 13 September 2016. The agreements cover financial accounts held by residents of the UK or of the Crown dependency in the other territory—for example UK residents’ bank accounts in the Isle of Man, and vice versa—that exist on or after 30 June 2014. That date was chosen to allow the territories and their financial institutions sufficient time to build the necessary reporting systems. This is a change to a new system that places new requirements on financial institutions in these territories. The timing we are permitting is not out of line with what other jurisdictions are doing to ensure that the process can work administratively.
The ability to provide information spontaneously is consistent with the international drive towards greater transparency. Although, in common with all our treaties, there is no explicit agreement that spontaneous exchanges will take place, we would regard a good faith application of the agreement as required when relevant information
comes to light. For our part, HMRC will certainly look to provide information spontaneously to the territories, and our experience with other countries shows that that encourages reciprocal exchanges.The hon. Lady tried to ask her question about the money raised with greater originality. I can to some extent depart from the usual ministerial response and from the response I gave yesterday, which was that it was not possible to give an estimate, and say a bit more about the Crown dependencies. At the 2013 Budget, the intergovernmental agreements and the disclosure facility signed by the Isle of Man, Guernsey and Jersey, which run until reporting commences, were expected to bring in just over £1 billion for the years 2013-14 to 2017-18. We were able to give that estimate based on the information we had in those circumstances.
I come back to the point I made to the right hon. Member for Wentworth and Dearne: it is not always possible to have sufficient information to make the assumptions necessary to draw up these sums. On the broader issue of double taxation agreements, this all depends on flows of trade and so on, but our view is that an extensive network of DTAs is beneficial for business as it increases the flow of trade between jurisdictions. Indeed, that we have an extensive network of DTAs is one of our competitive advantages.
I conclude by re-emphasising the point I made earlier: yes, of course it is right that we have this network of treaties for the benefit of taxpayers, businesses and trade, but it is also right that we move towards greater information exchange. That is entirely consistent with the belief that, whatever tax system we have, it should be properly enforced. From my perspective, that means that we can keep rates lower. If we had a tax system that was not being enforced and that enabled certain people and businesses to evade their responsibilities and break the law by hiding funds offshore, that would involve a cost that would be borne by the vast majority of honest, compliant taxpayers. That is why the Government are committed to ensuring that we have an effective tax administration, and to working hard to eliminate the loopholes and abuses that permit a minority not to pay the taxes due.
The steps we are taking through these orders are further evidence of the progress the Government are making and of the point I made to the hon. Lady in recent weeks: no other Government have as strong a record in dealing with tax avoidance and tax evasion. I am pleased the orders have the support of the majority, at least, of the Committee.
Alec Shelbrooke (Elmet and Rothwell) (Con): On a point of order, Mr Pritchard. Is there a way the Committee can not only thank you for your smooth running of proceedings but put on the record congratulations to
my hon. Friend the Member for Harrogate and Knaresborough, who did something today that no England batsman has recently managed to do: notch up a half-century?The Chair: I certainly agree with finding time for the first part of the hon. Gentleman’s point of order. As for his second point, I doubt whether that is a point of order, but given that he asked in such a polite way—and certainly given his preamble—I am very happy to put that on the record; it is long overdue. I would not, however, encourage him to ask too many points of order along those lines.
DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (NORWAY) ORDER 2013
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Norway) Order 2013.—(Mr Gauke .)
Draft Double Taxation Relief (netherlands) Order 2013
That the Committee has considered the draft Double Taxation Relief (Netherlands) Order 2013.—(Mr Gauke .)
Draft International Tax Enforcement (jersey) Order 2013
That the Committee has considered the draft International Tax Enforcement (Jersey) Order 2013.—(Mr Gauke .)
Draft International Tax Enforcement (Guernsey) Order 2013
That the Committee has considered the draft International Tax Enforcement (Guernsey) Order 2013.—(Mr Gauke .)
Draft Double Taxation Relief and International Tax Enforcement (Isle of Man) Order 2013
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Isle of Man) Order 2013.—(Mr Gauke .)