The Committee consisted of the following Members:

Chairs: Mr David Amess  , Mr David Crausby 

Ashworth, Jonathan (Leicester South) (Lab) 

Baker, Steve (Wycombe) (Con) 

Cryer, John (Leyton and Wanstead) (Lab) 

Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

Duddridge, James (Rochford and Southend East) (Con) 

Evans, Chris (Islwyn) (Lab/Co-op) 

Gauke, Mr David (Exchequer Secretary to the Treasury)  

Gilmore, Sheila (Edinburgh East) (Lab) 

Gummer, Ben (Ipswich) (Con) 

Hands, Greg (Chelsea and Fulham) (Con) 

Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op) 

Javid, Sajid (Economic Secretary to the Treasury)  

Jones, Mr Marcus (Nuneaton) (Con) 

Kwarteng, Kwasi (Spelthorne) (Con) 

Leslie, Chris (Nottingham East) (Lab/Co-op) 

McKinnell, Catherine (Newcastle upon Tyne North) (Lab) 

McDonald, Andy (Middlesbrough) (Lab) 

Mearns, Ian (Gateshead) (Lab) 

Menzies, Mark (Fylde) (Con) 

Mills, Nigel (Amber Valley) (Con) 

Mowat, David (Warrington South) (Con) 

Murray, Sheryll (South East Cornwall) (Con) 

Nash, Pamela (Airdrie and Shotts) (Lab) 

Newmark, Mr Brooks (Braintree) (Con) 

O'Donnell, Fiona (East Lothian) (Lab) 

Offord, Dr Matthew (Hendon) (Con) 

Pearce, Teresa (Erith and Thamesmead) (Lab) 

Pugh, John (Southport) (LD) 

Qureshi, Yasmin (Bolton South East) (Lab) 

Shannon, Jim (Strangford) (DUP) 

Stephenson, Andrew (Pendle) (Con) 

Stewart, Rory (Penrith and The Border) (Con) 

Thornton, Mike (Eastleigh) (LD) 

Uppal, Paul (Wolverhampton South West) (Con) 

Williams, Stephen (Bristol West) (LD) 

Simon Patrick, Committee Clerk

† attended the Committee

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Public Bill Committee 

Thursday 20 June 2013  


[Mr David Amess in the Chair] 

Finance Bill

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

11.30 am 

Steve Baker (Wycombe) (Con):  On a point of order, Mr Amess. I cannot help observing that in the selection of new clauses, Government new clause 4 has been selected before new clause 1. I have not been in the House long. Can you advise me whether it is in order for the fourth new clause to be selected before the first and what I might do to ensure that new clause 1 is not talked out later today? 

The Chair:  This is entirely in order. Government new clauses come first, and it was the Government’s decision to put new clause 4 before new clauses 1 and 2. That is the advice that I have been given, but thank you, Mr Baker, for raising the issue. 

Clause 217 

Controlled foreign companies etc 

Catherine McKinnell (Newcastle upon Tyne North) (Lab):  I beg to move amendment 149, in clause 217, page 126, line 13, at end add— 

‘(2) The Chancellor of the Exchequer shall consider what steps Her Majesty’s Government could take, working alongside developing country governments, to assess the impact of changes to the Controlled Foreign Company Rules in the Finance Act 2012 and as a result of this Part of this Act on the overall tax take of developing countries. He shall report on this issue to Parliament within six months of Royal Assent.’.

The Chair:  With this it will be convenient to discuss the following: 

Clause stand part. 

That schedule 45 be the Forty-fifth schedule to the Bill. 

Catherine McKinnell:  It is a pleasure to be debating the Finance Bill on its final day in Committee. Clause 217 introduces schedule 45 to ensure that the controlled foreign companies regime introduced by the Finance Act 2012 operates as intended. As the explanatory notes state, 

“The Schedule addresses two tax planning opportunities, and in addition makes six minor consequential amendments to provide consistency of interpretation”. 

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The Opposition of course welcome the moves to close down potential loopholes in the CFC provisions so I will restrict my comments on clause 217 to just one main question. Can the Minister provide some detail on those tax-planning opportunities? I ask that because the tax information and impact note suggests that the changes in clause 217 will have nil impact on the Exchequer, but it also suggests that they 

“will remove some specific opportunities for corporation tax avoidance.” 

Can the Minister confirm whether any of those opportunities have been exploited to date and, if so, at what cost? What are the expected savings to the Exchequer from closing the loopholes? 

Our amendment 149 relates to the way in which the Government’s changes to the CFC rules may impact on developing countries. I am sure that the Minister will want to draw attention to the fact that the Opposition’s concerns on this issue were discussed at length in the Committees considering the Bills that became the Finance Acts of 2011 and 2012. We have also discussed the issue more recently than that—in the Committee of the whole House on this Bill on 17 April. 

We are keen to reinforce the serious concerns that have been expressed on the issue and the Opposition have proposed a way in which they might be addressed. As we all know, many development charities believe that the CFC rule changes will make it easier for UK companies to avoid paying tax in developing countries in which they own subsidiaries. Although the changes have been estimated to cost the UK Exchequer £1 billion a year, ActionAid, one of the development charities campaigning on this issue, has estimated that they could cost some of the poorest countries in the world a staggering £4 billion a year, so although the Prime Minister and other Ministers express their commitment to supporting developing countries, some of the poorest countries, with minimal public services, could be losing as much as £4 billion a year in vital revenue that they should be investing in health care, education and sanitation. That could be a direct result of these taxation changes made in the UK. 

We all know from the excellent “Enough Food For Everyone IF” campaign how vital increasing the tax take of developing countries is to ensuring that we end the 21st-century scandal of 1 billion children and young people growing up hungry and malnourished and more than 2 million dying of hunger every year. 

Sheila Gilmore (Edinburgh East) (Lab):  Obviously, at various times in the discussion of this issue—we discussed it in the Finance Bill last year and it has been under discussion since—it has been said that someone has cast doubt on some of the figures. The Government, for example, have perhaps felt that some of the campaigning organisations exaggerated the issue. When there is that degree of difference of opinion, there is all the more reason to ascertain the correct figure. 

Catherine McKinnell:  My hon. Friend makes an extremely important point and it is the reason why we wanted to table the amendment. It is not enough simply to state that the figures are disputed when in fact we believe that the Government should be taking every action they can to be sure that the rules are not contributing

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to those devastating figures of children and young people growing up hungry and malnourished and dying in their millions every year. As the IF campaign states: 

“Taxes are the most important, sustainable and predictable source of finance for developing country governments. Moreover, as the UK government says, ‘governance appears to be better where governments have to earn their incomes by taxing a wide range of citizens and economic activities...well-managed taxation systems can play a major role in state building.’ It is therefore shameful that the Government does not even seem prepared to countenance how its changes to the CFC rules in this country might be affecting the tax take of developing countries elsewhere.” 

Let me remind Committee members of the Minister’s response to the Opposition’s request for a full impact assessment on the CFC rule changes back in 2011. He said: 

“The Government do not consider that a full impact assessment of CFC interim changes and the reforms to foreign branch taxation on developing countries’ tax bases would be appropriate. Such an impact assessment would need to focus primarily on the nature of tax regimes in the developing countries, making it an assessment not of our tax rules, but of the tax rules of other countries. Such an assessment would not be relevant to the task of creating the most competitive corporate tax system in the G20 and encouraging more businesses to be based in the United Kingdom…The Government are committed to providing advice and guidance to developing countries to enable them to create and maintain their own effective tax regimes. That approach should ensure that those countries have appropriate taxing rights over businesses that operate there.––[Official Report, Finance Public Bill Committee, 7 June 2011; c. 423.] 

The response that we got last year was not much better. The Minister said: 

“Any assessment of the impact of CFC reform on developing countries would need to focus on, and would require, a full understanding of the interaction between multinational companies and the tax regimes in the developing countries in which they are located. It would be an assessment, not of our tax rules but of the tax rules of a range of other countries.”––[Official Report, Finance Public Bill Committee, 19 June; c. 468.] 

The Minister’s comments in April, in response to our earlier Opposition amendment to the Bill, were equally unforthcoming. He simply said: 

“The answer…is that as a matter of practicality it is difficult for HMRC to perform the roles required by the amendments as they require assessments not of our tax rules but of the tax rules of developing countries. That takes us outside what HMRC can realistically do.”—[Official Report, 17 April 2013; Vol. 561, c. 447.] 

So amendment 149 does not ask HMRC or the Government to form anything the Minister might consider to be unreasonable, unrealistic or impractical. Instead of the Minister having to give his “computer says no” answer on this issue, the Chancellor is simply asked to consider what steps the Government could take, working alongside developing countries’ Governments, to assess the impact of the changes to the CFC rules on the overall tax take of developing countries. 

We do not need to hear again about what is impossible for the Government to do. The Government should think about what they can do rather than dismissing such concerns out of hand. I remind the Committee and the Minister that both the Prime Minister and the Chancellor have frequently stated their commitment to championing tax transparency during the UK’s presidency of the G8, and obviously we have heard much about that this week. They are also on record as being absolutely committed to ensuring that developing countries benefit from the reforms yet, with the exception of a relatively

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small pot of money for capacity building work, the measures to combat tax avoidance under the Bill do nothing to assist poor countries. 

It is time for joined-up thinking on the issue. The Government, who boast of their commitment to spending 0.7% of gross national income on overseas aid—building on Labour’s legacy, I might add—are not just giving with one hand but taking away much more with the other from the very areas where it would be most important to ensure that developing countries can support themselves. 

Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op):  Was my hon. Friend, like me, concerned to read the comments from several of the campaigning organisations, including the IF campaign yesterday, about the G8 summit and the tax agreements made there, saying that there was a large amount of unfinished business, especially regarding the position of developing countries? I was a little disappointed by the Prime Minister’s response yesterday about what steps he would take next. Was she also disappointed? 

Catherine McKinnell:  It is fair to say that many development agencies that are campaigning so hard on the issue have been fairly lukewarm in their response to the outcomes from the G8. But we have an opportunity today to make a difference, and the Government have an opportunity to put their commitment into reality by supporting the amendment. I am pleased that the hon. Member for Bristol West (Stephen Williams) is now in Committee. Indeed, only last year his amendment was disappointingly withdrawn, but at the time he said that the 

“purpose behind this amendment was to strive for joined-up government, in particular between Her Majesty’s Treasury and the Department for International Development…The reason why I mentioned joined-up government in the context of an enormous increase in the Department for International Development’s budget is that, given the budget pressures elsewhere, it would be perverse to increase the largesse that British taxpayers spread across the world while the foreign Governments who receive that increased assistance are unable efficiently to collect the tax revenues that are due.”––[Official Report, Finance Bill Public Bill Committee, 19 June 2012; c. 464-465.] 

Stephen Doughty:  Is it not ironic that we have seen a lack of progress on tax in the past couple of days while on aid spending, we, in fact, saw an 8% underspend in the Department for International Development’s budget, on the instructions of the Chief Secretary to the Treasury. We need to see the action on both aid and tax in respect of nutrition, hunger and other important issues. 

Catherine McKinnell:  My hon. Friend has put his case passionately and very much makes the case that I am putting across, as well as the argument advanced last year by the hon. Member for Bristol West. We could not agree more with the hon. Gentleman’s sentiments. The Government should be doing everything that they can to consider how changes to our taxation system impact on some of the poorest countries in the world. 

Stephen Williams (Bristol West) (LD):  Good morning, Mr Amess. I do not resile from the words that I used last year. In fact, I am pleased to see the progress that has been made as a result of the amendment and our discussion this time last year. 

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One of the reasons why the amendment was withdrawn was that those on the Opposition Front Bench at the time said privately that they had no intention of supporting it. 

Catherine McKinnell:  I dispute what the hon. Gentleman has said. I do not know how to express my words in a parliamentary manner, but I am surprised by the tone he used, given that he was supportive of such changes. We have been at pains in tabling the amendment today to make sure that it is worded reasonably and that it is not requesting anything unreasonable, impractical or unrealistic from the Government or, indeed, members of the Liberal Democrat party on the Government Benches. Therefore, we hope that members of the Committee will stand by the warm words from the Government Benches about supporting developing countries in their efforts to secure their own tax base and live up to the promises of the G8 on tax transparency and support for developing countries, and vote for our amendment today. 

Sheila Gilmore:  It is a pleasure to continue to serve on the Committee under your chairmanship, Mr Amess. Many of us are seeing the light at the end of the tunnel and hoping that we will soon be given the freedom not to be in this room—until, perhaps, next year, when I am sure many of us will have the great pleasure of coming together for another Finance Bill. It is significant that we are again debating an issue—one that is very important—that has been raised each time we have had a Finance Bill, certainly in my short time in this House. That shows the seriousness of this question. 

11.45 am 

The provisions and changes that have been introduced in relation to controlled foreign companies are largely designed, it is argued, to improve the British economy. The argument in favour of what is being done in this field is that it will encourage companies to headquarter in the UK, bringing their main business here, from which substantial benefits will flow to all of us in the UK. The argument has been put that, even with the changes pending a couple of years back, companies were already deciding to change their headquartering arrangements and come to the UK for the first time, or else, having previously offshored themselves—presumably for financial and tax reasons—were deciding to come back to the UK. I do not know whether the Minister thinks it is relevant in this context, but it would be interesting to know exactly how many companies had done that, rather than hearing a reiteration of the same couple of names, which seem to come up in debates on this issue all the time. 

We have to strike a balance between the advantages to the UK economy of having companies headquartered here and the impact—perhaps not an intended one—on developing countries. A number of NGOs working in the field have been making that argument throughout in debates on this issue. The crux of their concerns is that, as a result of these changes, the arrangements that companies can put in place could, albeit not intentionally, damage the economies of developing countries. 

We all pay a great deal of lip service to the importance of helping developing countries to boost their economies. We also all agree that aid can only be one part of that;

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aid is, sadly, still essential in many circumstances, but in itself it is a sticking plaster—a measure to help in situations that have already gone bad. Getting the tax situation right for developing countries is therefore extremely important. Given that context, it is important to take steps to ensure that what we have agreed to do will not have an inadvertent effect on developing countries. 

Nearly two years on from a very similar debate—doubtless held in this very room—I would hope that the Government are now prepared to agree that it would be good to assess this area, rather than merely saying that that is happening internally anyway; that is neither public nor transparent, and does not give the opportunity to those with very grave concerns in this field to make their contribution. I therefore hope that, on this occasion, the Minister will accept our amendment. 

James Duddridge (Rochford and Southend East) (Con):  It is a pleasure, as always, to serve under you, Mr Amess —if not next to you today, as your parliamentary neighbour. 

I oppose the amendment, and in all candour am not sure whether it is an effective use of money. If there is a pot of money available, I am not convinced that it is best to spread it thinly across all developing countries. In the continent I know best, Africa, there are 54 different countries with 54 different tax systems. 

If we have money to support developing economies by analysing their tax take in relation to their problems and looking at issues relating to how we tax controlled foreign companies, it would be better to add it to the pot of what DFID already spends. I have seen good work done in Lesotho, where DFID money goes to supporting customs and revenue collection. I feel that the amendment is flawed because an analysis would be expensive, given how many countries it would be spread across. 

Catherine McKinnell:  I sincerely apologise for my electronic device playing Radio 4 just now. I appreciate the argument that the hon. Gentleman is very sincerely making. However, I question whether he is responding to the amendment, which simply asks the Government to assess how it might go about assessing the impact of these changes. It does not try to prescribe how that should be done; it simply asks the Government to look sincerely at the way in which they could improve the impact of the changes to the CFC rules. Therefore, I suggest that the hon. Gentleman’s argument goes some way towards supporting the amendment. 

James Duddridge:  I was speaking specifically to amendment 149, which, I appreciate, does not give a figure for the costs. However, it is always costly to ask a Department to look at anything, and that time and money could be better used elsewhere. It would be much more effective to look at a specific country. If that country—be it Lesotho, Swaziland or Botswana, countries I know something about—says it has a problem with this piece of legislation, we should investigate it through the prism of the work DFID does in that country, rather than getting the Treasury to look at it from the centre. 

The Exchequer Secretary to the Treasury (Mr David Gauke):  It is a great pleasure to serve under your chairmanship, Mr Amess, on this final morning of our Committee proceedings. Clause 217 introduces schedule

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45, which makes eight amendments to the new controlled foreign company rules. The amendments close one tax planning opportunity, close one disclosed avoidance scheme, and introduce six minor changes to ensure that the rules work as intended and to protect the UK’s corporation tax base. 

The CFC rules are designed to protect the UK tax base from artificial diversion of profits. The rules were extensively reformed last year to ensure that the necessary protection for a more territorial corporate tax base is provided in a way that reflects modern global business practices while significantly reducing the compliance burdens on business. The CFC rules were reformed as part of the Government’s corporate tax road map, which gave businesses a competitive and stable tax system that provides the right conditions for investment in the UK. 

The changes made by clause 217 will apply to UK resident companies that hold an interest in controlled foreign companies. Two of the changes will ensure that the protection to the UK tax base provided by the CFC rules is maintained. The other six will ensure the CFC rules remain targeted on profits that have been artificially diverted from the UK. The changes will extend the scope of the new CFC rules to include profits from all finance-leased assets, including hire purchase and similar types of contract. They will limit the amount of double taxation relief for UK companies where arrangements involve the routing of a loan between two CFCs via a UK company; ensure that references to certain accounting practices are consistent throughout the new CFC rules; introduce a minor consequential amendment to the arbitrage anti-avoidance rules; and ensure that the definitions of a group treasury company and the worldwide debt cap rules and the CFC rules remain aligned. In two specified circumstances, the changes will also relax the current rule that limits the scope for full exemption for intra-group profits where funding arrangements involve UK debt and ensure that the rules that limit the total CFC charge from partially exempt intra-group lending profits to the aggregate net borrowing costs of the UK members of the group are applied to all such intra-group lending profits. 

The changes to prevent there being an avoidance-of-tax planning opportunity, along with two of the minor technical amendments, were published as draft legislation for technical consultation in December last year. The changes to maintain the protection provided by the CFC rules were considered a proportionate response. A proposal to relax the amendment limiting double taxation relief was considered, but it was rejected as it would increase complexity, would be inconsistent with how such relief is normally given, and would encourage the use of UK companies to help create offshore tax shelters. 

Since 1 January, businesses have been subject to new CFC rules, and Her Majesty’s Revenue and Customs has been extensively engaged in clarifying points of uncertainty. That work has identified the need for four additional minor changes, which were subject to a short informal consultation. It was agreed that they were sensible changes that will help to ensure that the CFC rules target profits artificially diverted from the UK. As the new rules have been operational only since 1 January, their application will continue to be monitored to ensure that they work as intended. Their introduction last year was an important part of our reforms of the corporate

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tax system. The schedule makes eight amendments to those rules to close tax planning opportunities and introduce six minor changes. 

In response to the hon. Member for Newcastle upon Tyne North, the two tax planning opportunities were identified before businesses had the chance to exploit them. We have acted quickly, and there will consequently be no loss of tax to the Exchequer. 

Catherine McKinnell:  If the loopholes were identified before anybody had the opportunity to exploit them, how were they identified? Was it through the disclosure of tax avoidance schemes, for example? It would be useful to understand why the changes are being made in this year’s Finance Bill instead of being dealt with last year, when the rules were changed by the Finance Act 2012. 

Mr Gauke:  As I mentioned, the amendment to the relevant finance lease definition arose from a submission under DOTAS, but I did not say that the amendment to the amount of double taxation relief available for certain loan arrangements arose from HMRC’s ongoing discussions with business on the new CFC regime. I hope that that is helpful. 

Catherine McKinnell:  I note the various changes introduced to the CFC rules this year that were obviously not detected last year, when the rules were changed. Does the Minister have any concerns that that might undermine the Government’s initial assessment of the impact on developing countries? That was estimated at £1 billion, but that is disputed by development agencies that fear it is more in the region of £4 billion. Given that the Government did not quite get the rules right when they brought them in last year, does that not add weight to the argument that they should reassess the impact of these changes on developing countries? 

12 noon 

Mr Gauke:  The fact that we have made some amendments underlines the fact that we are serious about ensuring that the new CFC rules protect the UK’s corporation tax base while contributing to a competitive corporation tax regime. The other changes are minor. Given the more than 100 pages of legislation that we introduced last year, as I am sure the hon. Lady will recall, I do not think that the changes would in any way undermine confidence in the CFC regime. From time to time there will be a need to make amendments to reflect disclosures—under DOTAS, for example—and we remain vigilant. I should also correct her by saying that the Government have not made an estimate of the impact on developing countries of the changes to the CFC regime. 

Amendment 149 asks the Government to consider how they could work with Governments of developing countries to assess the impact of changes to the UK’s CFC rules, including any effects on the overall tax take of those countries. The amendment is similar to proposals that we have debated in the past. The hon. Lady tried to draw a distinction between us. The way that I would draw the distinction is that in the past she called for a review, whereas now she appears to call for a review into having a review. The essence of the case is much the

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same, and my response is also much the same: it is not feasible to carry out an assessment of the sort that she is calling for. Any assessment of the impact of CFC reform on developing countries would need to focus on and require a full understanding of the interaction between multinational companies and the tax regimes of all the developing countries in which they are located. The assessment would not be of our tax rules but the tax rules of a range of other countries. Even with the assistance of those countries’ Governments, an assessment of that nature would be a hugely complex task. 

Catherine McKinnell:  The Minister is churning out the “computer says no” response again. What our amendment is asking for, and what many development aid agencies are asking for, is something quite reasonable, which is for the Government to provide not short responses as to why the issue is impossible, unrealistic or too expensive to look at, but a report to explain why they believe that that is the case and what they could do to resolve the concerns that have been expressed. This is the third time that we have visited this argument. Would it not therefore be in the Government’s interest at least to take a more proactive approach to resolve the concerns? 

Mr Gauke:  The debate is essentially the same that which we have had in the past, as is my response: we do not think that such assessments would be proper or feasible. We are committed to ensuring that developing countries have the assistance they need to ensure that their own rules reduce tax avoidance and protect their own tax base, but what has been proposed is not the right response. Our corporate tax system is not the right way to help developing countries. Our system and CFC regime are designed to protect the UK’s tax base, not that of other countries. 

Catherine McKinnell:  Will the Minister give way? 

Mr Gauke:  Let me make this point. The key issue is to ensure that developing countries have effective systems that protect their own tax bases and that they can access and act on tax information, which is exactly what we are doing. 

The UK provides considerable support through the Department for International Development and HMRC to provide robust, fair and sustainable domestic taxation systems. Our priorities in achieving that are building capacity in developing countries to allow them to establish and maintain effective tax systems of their own, improving exchange of tax information, and increasing transparency in the extractive sector to address corruption. Indeed, we have made considerable progress, not least in the past few days, in meeting those objectives. Perhaps I can give the Committee some specific examples of our work in this area. 

Stephen Doughty:  The Minister’s argument is basically that this is all too complicated and difficult to look at. We already engage in extremely detailed analysis of developing countries’ governmental, fiscal and tax systems to provide the sort of support he describes, so why would this be so complicated? It is just a simple request.

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The sums of money involved are huge. I do not understand the logic of his argument if we are giving aid to countries when they could be raising it from their own tax bases and doing things that could make that more problematic. 

Mr Gauke:  The logic of the argument is that our tax rules are designed to protect our tax base and to ensure that we have a competitive tax system. If we were to go down the route advocated in the amendment, we would need to have an understanding of every developing country’s tax system in order to provide that assessment. We do not write tax laws for other countries; we provide support to other countries. I will give some examples. 

James Duddridge:  On reflection, is it not even more complicated than that? If we accepted this amendment and found that there was a gap in developing countries, we would need to look to see what could be done to close that gap in a way that did not haemorrhage our tax take to developed countries. 

Mr Gauke:  My hon. Friend is right; we would need to have a deep understanding of the interaction of all of these rules. In order to do that, we would need to have an understanding of developing countries. He noted earlier that there are 54 countries in Africa—I think that was the number he used—and it would presumably require analysis of a vast number of those. The Opposition appear to be calling for a report on their tax systems and their interaction with our tax system. That is a huge task for which HMRC is not well suited. I would rather use its resources in this area, with the support of DFID, to help developing countries to develop their own tax systems so that they can protect their own tax base, and that is exactly what we are doing. 

Catherine McKinnell:  What the Minister is telling us seems to be entirely at odds with the statements made by the Prime Minister at the G8 summit. The Lough Erne declaration published yesterday states: 

“Tax authorities across the world should automatically share information to fight the scourge of tax evasion. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where… Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.” 

It is there in black and white. We are providing the means by which the UK tax authorities could help developing countries better to understand how changes to our tax rules could help or undermine their ability to collect their taxes. 

Mr Gauke:  What I am saying is entirely consistent with the Lough Erne declaration. What we can do to help developing countries is help them develop their tax capacity. I want to give some examples of what we are doing. In February, HMRC tax professionals supported their counterparts from Tanzania and Uganda through a knowledge sharing event on exchange of information, tax treaties and transfer pricing. HMRC has also worked closely with the Tanzanian revenue authority to support the development of a new website which was launched in April. The new site has been well received by taxpayers and brings together online services in one place. I should add that I had the pleasure of meeting some

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representatives from the Tanzanian revenue authority a couple of weeks or so ago to discuss the work we are doing there. 

HMRC supported the Rwanda Revenue Authority through hosting a study visit in March to share best practice on tax audit. We are preparing to welcome 30 delegates form Nigeria, Malawi, Burundi, Malaysia, Sri Lanka and Namibia for two training programmes which HMRC hosts every summer on behalf of the Commonwealth Association of Tax Administrators. The training programmes develop the leadership and technical skills of senior managers and tax inspectors and cover all aspects of tax administration, from transfer pricing to debt management. 

Projects such as those play a vital role in helping the Governments of developing countries put in place effective tax policy and collect the tax that they are owed. Indeed, at the G8 summit earlier this week, it was agreed that we would continue to provide practical support to developing countries’ efforts to build capacity to collect the taxes owed to them and to engage in and benefit from the exchange of information. The G8 called on all jurisdictions to join the global forum on transparency and exchange of information for tax purposes and the multilateral convention. The G8 reiterated that we would continue to provide practical support to developing countries looking to join that forum. In addition, the G8 committed to continue to share expertise and to help to build capacity, as well as to engage in long-term partnership programmes to secure success. Those are considerable matters. 

I want to make a point about the Labour party. Yes, it has consistently asked for reviews and for us to devote a lot of HMRC staff to investigating the area—we will not reach agreement on whether that is a practical step—but there has been no indication that the Opposition would reform CFC rules as a consequence. I am pleased to say that, because they were right to support our reforms. On the one hand, the Opposition are taking a sensible pro-business position in supporting our position on the CFC system, but on the other they are tabling amendments that would reform it, when they are not committed to doing so. I have this horrible suspicion that they are trying to give an impression to NGOs that they support a position that they do not really hold. 

Catherine McKinnell:  Will the Minister give way? 

Mr Gauke:  If the hon. Lady wants to provide clarity, I should give her that opportunity. 

Catherine McKinnell:  The Minister is heading down a cynical road. Given the incredible efforts that the Prime Minister appears to have been putting into this agenda, this measure seems to undermine and go against the grain somewhat. I appreciate the list of efforts that HMRC is making to work with DFID in assisting developing countries in collecting their taxes, but we did support the controlled foreign company rule reforms, although we expressed the concerns expressed to us on the impact those reforms would have on developing countries. 

This is what the measure boils down to: we have made a change to our tax system that could have a devastating impact on developing countries, yet the

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Government are unwilling to even look at what that impact might be. Our point is that they have a responsibility to look at the impact and on the basis of that take, whatever actions are necessary to mitigate it. That is why the amendment asks them to look harder at the issue and come back to Parliament with a report in the spirit of transparency, which they seem to trumpet so loudly. 

Mr Gauke:  I do have to point out that it is under this Government that we will meet the 0.7% target and that we have made the most enormous strides in the automatic exchange of information. Overseas territories and Crown dependencies have signed up to the multilateral convention, which no one would have thought was possible a year ago. It is under this Government that we are increasing our support to developing countries, so that they can participate in some of the conventions and treaties that give them access to the information. We have got a proud record in this area, but I have to emphasise that the best way of supporting developing countries is by helping them build capability and gain access to tax information and to not try to use our tax system as a world policeman. Our tax system is designed to protect our tax base, and that is one of the principles behind the CFC reforms that were supported by the Labour party, so if the party is backing away from that it should say so. I do not believe that it is doing that— 

12.15 pm 

Stephen Doughty:  Will the Minister give way? 

Mr Gauke:  But perhaps the hon. Gentleman is. 

Stephen Doughty:  The Minister is being extremely generous in giving way. He is painting a rosy picture of the Government’s current international commitments, and I do not think that is borne out in the facts. Despite the Minister’s claims, we see the underspend in the Department for International Development and the lack of a Bill about the 0.7%, and in the past few days we have seen that agreement, which contains some important principles but also huge holes. 

I again press the Minister on the complexity point. He makes out as if HMRC would somehow have to do it all on its own and that it is such a difficult thing to do, but the International Monetary Fund, the World Bank and many other bodies, including non-governmental organisations such as ActionAid, are conducting the type of analysis that HMRC could draw on to find out the answers to the important questions asked by my hon. Friend the Member for Newcastle upon Tyne North. 

Mr Gauke:  I will make the point one last time. What is being proposed would require a very detailed understanding of the tax codes of other countries, which is not something that HMRC does or is designed to do. I think that the hon. Gentleman is being somewhat peevish about our contribution to the developing world. Let us not forget the scale of the deficit that we inherited when we came into government, and the difficult decisions we have had to make to cut spending. We have, nevertheless, been able to find additional resources, spending more on international development than any previous Government. Let us not, therefore, be peevish. Our record and determination here are strong, and I am

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proud of our big contribution: HMRC and DFID working together have a good reputation for helping other countries to develop their tax systems. 

Stephen Williams:  I thank the Minister for giving way to a triangular intervention, in response to the comment made by the hon. Member for Cardiff South and Penarth about a rosy picture being painted of the Government’s contribution to overseas aid. Will the Minister have soon at his fingertips what the expenditure on overseas aid was in 2010, and what it will be by the end of the year? I think it will be nearly double. 

Mr Gauke:  I am not sure that I do have those figures at my fingertips, but my hon. Friend may well be right. There has been a rapid increase in expenditure on overseas aid under this Government, and we are proud of that. 

In conclusion, the clause introduces changes to the CFC rules to close two tax planning opportunities and to ensure that the rules work as intended. I hope that there is support for all that, and that we can remain united on our CFC regime. I ask the hon. Member for Newcastle upon Tyne North to withdraw her amendment, because we do not believe that it is the right way to help developing countries in practice. 

Catherine McKinnell:  We have debated the issue at some length, and it is obvious that we disagree. We believe it to be entirely reasonable that when the Government make such a significant change to their taxation system, in the spirit of international co-operation and Government transparency they should report back on the potential impact of the change on developing countries. That would serve not only this Parliament but members of public. We will, therefore, press the amendment to a vote, and particularly test the will of the Liberal Democrat members of the Committee, who have previously expressed much support for the matter. 

Question put, That the amendment be made. 

The Committee divided: Ayes 8, Noes 17. 

Division No. 9 ]  


Ashworth, Jonathan   

Cryer, John   

Doughty, Stephen   

Gilmore, Sheila   

McKinnell, Catherine   

McDonald, Andy   

Mearns, Ian   

Pearce, Teresa   


Baker, Steve   

Duddridge, James   

Gauke, Mr David   

Hands, Greg   

Javid, Sajid   

Jones, Mr Marcus   

Kwarteng, Kwasi   

Menzies, Mark   

Mills, Nigel   

Mowat, David   

Murray, Sheryll   

Newmark, Mr Brooks   

Pugh, John   

Stephenson, Andrew   

Stewart, Rory   

Thornton, Mike   

Williams, Stephen   

Question accordingly negatived.  

Clause 217 ordered to stand part of the Bill.  

Schedule 45 agreed to.  

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Clause 218 

Agreement between UK and Switzerland 

Question proposed, That the clause stand part of the Bill. 

Catherine McKinnell:  The clause would amend schedule 36 to the Finance Act 2012, which gave statutory effect to the terms and principles of the UK-Swiss Confederation taxation co-operation agreement, which was signed on 6 October 2011 and has been effective since 1 January 2013. The clause clarifies that certain transfers made to HMRC under the agreement will not give rise to a taxable remittance. The stated purpose of the UK-Swiss agreement is to provide for bilateral co-operation between the UK and Switzerland to ensure the effective taxation in the UK of individuals who have financial assets in Switzerland. 

On announcing the agreement in 2011, the Government said: 

“The agreement will resolve the long-standing abuse of Swiss banking secrecy by those who seek to conceal the proceeds of tax evasion and is expected to secure billions of pounds of unpaid tax for the UK Exchequer from 2013.” 

The Committee that considered last year’s Finance Bill had a passionate debate on the agreement, the principles behind which the Opposition, of course, support. However, the Minister will recall our concern that the agreement is riddled with loopholes and exemptions that could seriously undermine its potential to yield anything near what the Treasury has said it will. 

James Duddridge:  Would one of the loopholes be the one that was exposed in the case of John Mills, whom the Labour party was advising on avoidance? Will the hon. Lady confirm that no Swiss shares were transferred, as well as UK shares? 

Catherine McKinnell:  The hon. Gentleman is grasping at straws. 

The agreement allows individuals to hide money in their Swiss bank accounts and maintain anonymity. 

Sheryll Murray (South East Cornwall) (Con):  Will the hon. Lady confirm that, if the shares involved are indeed Swiss, the Labour party will repay the sum—I think it is in the region of £724,710—to the Exchequer? 

Catherine McKinnell:  I cannot confirm either way the hon. Lady’s question about “Swissness”. 

The interventions somewhat undermine the seriousness of the issue, which is how important it is that the agreement should have the intended effect. Hon. Members who served on last year’s Committee will remember the concerns expressed—that the agreement covers only accounts held by individuals, and that the UK is permitted to request the details of only 500 individual Swiss accounts a year, half the number that was agreed with Germany. We also expressed concerns about the limited involvement of HMRC in identifying accounts and the significant lead-in time between the agreement being announced—October 2011—and its coming into force in January 2013, which gave many account holders the opportunity to switch the location of their funds. 

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In light of those concerns, and the debate we had last year, I am keen for the Minister to update us on how the agreement is operating and what its impact has been. In January 2013, the Chancellor announced that a down payment of £340 million, or 500 million Swiss francs, had been paid to the UK as part of a one-off levy contained in the agreement. Will the Minister inform the Committee when the next instalment of money is due to be received from the Swiss and how much he anticipates? 

The Minister has previously stated that, overall, the agreement will deliver around £5 billion of previously unpaid tax to the UK. Has there been any change to that anticipated figure? From how many individual Swiss bank accounts has the UK requested details since January? We have a limit of 500 per year; does he believe that that limit will need to be increased, and, if so, is there any mechanism for doing so? Are the Government aware of any evidence of people moving their accounts from Switzerland to other secretive jurisdictions between the time the announcement was made and the time the agreement came into force? What is the UK doing to encourage international action in respect of countries to which funds previously held in Swiss bank accounts may have been moved? Updates on those matters will be useful to the Committee. 

Mr Gauke:  The clause amends legislation introduced in the previous Finance Bill to implement the UK-Swiss tax co-operation agreement, and will ensure that the policy objectives behind the agreement are delivered in full. Specifically, it removes an unintended effect, so that the levies paid by non-UK domiciled individuals to HMRC under the agreement will not be treated as taxable remittances where those individuals use their foreign income and gains to pay them. 

The agreement was signed on 6 October 2011 by the UK and the Swiss Confederation, and is expected to yield more than £5 billion over the next six years. It came into force on 1 January 2013 and, as we have heard, a down payment of over £300 million has already been received from the Swiss banks. The agreement gives UK residents two choices: to suffer a withholding tax or to disclose their Swiss accounts to HMRC. 

Schedule 36 to the Finance Act 2012 was introduced to bring into effect changes to UK law that would allow the agreement to be implemented. Under the existing rules, where an individual who is taxed on the remittance basis makes a payment under the agreement using their untaxed foreign income and gains, that payment will itself be treated as a taxable remittance. That was never the intention. The clause will amend the rules as they apply to remittance basis taxpayers who are subject to the agreement. It will ensure that, where levies are made under the terms of the agreement, those levies are not themselves treated as remittances for UK tax purposes. The changes made by the clause are estimated to have a negligible Exchequer cost. 

James Duddridge:  I suspect the Minister will not want to be drawn into commenting on specific cases, but by way of illustration, I will raise the case of Andrew Rosenfeld, who returned after five years of exile in Switzerland and who I believe is the biggest donor to the Labour party, specifically to the Labour

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leader, donating well over £1 million. Will the clause be relevant to and impact on Mr Andrew Rosenfeld? [ Interruption. ]  

The Chair:  Order. Before the Minister responds, one or two private conversations are going on that are distracting various Members. 

Mr Gauke:  My hon. Friend is right to say that I would not want to be drawn into commenting on individual cases. Let me say simply that the arrangements would be applicable only if somebody had not declared income properly to HMRC. I would like to think that proper checks are undertaken by the Labour party on any of its donors, but of course it is not for me to comment, even though that particular case involves someone who lived in Switzerland for all those years. 

James Duddridge:  I do not want to draw the Minister into a position in which he is responsible for Labour party activity. However, I will, if I may, be critical of him and say that he is responsible for HMRC. Will he be able to review the matter from an HMRC perspective? 

12.30 pm 

Mr Gauke:  Of course I cannot direct HMRC on individual cases; it has complete operational independence. If anyone from the Opposition wishes to comment on the tax affairs of Labour donors, I for one would not want to stop them. 

James Duddridge:  I can see that the Minister would not want to be drawn into discussing individual cases. Perhaps he could look not at individual cases but at everyone who has returned from Switzerland and donated more than £1 million to a political party. He could also look at the Electoral Commission and see whether it wants to review the individual case rather than the more generic position. 

Mr Gauke:  I think I should say that my hon. Friend has thoughtfully put his point on the record and leave it there. It may be that the debate goes further in that direction. We will see what the hon. Member for Newcastle upon Tyne North has to say about that. 

At the time the agreement with Switzerland was signed, we said that we wanted to make the world a smaller place for tax evaders. As was announced at the last Budget, we have taken steps to make it more difficult for evaders to hide money offshore and signed agreements with the Isle of Man, Guernsey and Jersey for disclosure facilities. We also agreed to exchange a wide range of tax information with them. Those agreements are expected to raise up to £1 billion over the next five years. We have also agreed to much greater information exchange with the British overseas territories. Additionally, we have made great progress in embedding a new global standard in the automatic exchange of tax information, receiving support on that agenda at the G7, G20 and the European Council in May. That has also been a part of our G8 agenda. 

Let me turn to the questions raised by the hon. Member for Newcastle upon Tyne North. Essentially, she was asking how the agreement was operating and what has been the impact to date. As I have said, we

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received an initial payment and, under the detailed terms of the agreement, expect subsequent payments to be received over the coming year. The estimate remains as announced at the autumn statement in 2012. That indicated that we would receive £3 billion by June next year. It is also worth pointing out that this is the largest tax evasion settlement in our history, and the estimates for revenue raised have been approved as being a central estimate by the independent Office of Budget Responsibility. 

As for the question of evidence of individuals moving accounts between the announcement and the legislation coming into force, under the terms of the agreement the Swiss will inform us of locations where funds are being moved to in order to avoid the agreement. 

We also have to point out that given the progress that has been made in terms of the automatic exchange of information and the Foreign Accounts Tax Compliance Act standards becoming new worldwide standards, the options—for those who have evaded tax, who have previously had a Swiss bank account and who have moved to other jurisdictions—become increasingly unattractive. I hope that the hon. Lady will take some comfort from that. 

The hon. Lady asked how many accounts had been identified since January. The Swiss banks are currently identifying accounts owned by UK residents. In the meantime, a number of UK residents are coming forward directly to sort out their affairs. 

The clause itself ensures that the policy objectives behind the original agreement are fully delivered. The agreement was an historic milestone, but it should be noted that the progress that we continue to make on closing the net on tax evaders is very significant. It is a significant achievement for the Government—something of which we can be proud. I hope that this clause, which it appears is not controversial, can stand part of the Bill. 

Question put and agreed to.  

Clause 218 accordingly ordered to stand part of the Bill.  

Clause 219 

International agreements to improve tax compliance 

Mr Gauke:  I beg to move amendment 141, in clause 219, page 127, line 13, leave out ‘the purpose of’ and insert ‘or in connection with’. 

The Chair:  With this it will be convenient to discuss the following: 

Government amendments 142 to 146. 

Amendment 109, in clause 219, page 128, line 8, at end add— 

‘(8) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures to work in conjunction with other G8 countries and the members of the Organisation for Economic Co-operation and Development, to require multi-national companies to publish a single easily comparable figure for the amount of corporation tax they pay, and within six months of the passage of this Act, place a copy of the review in the House of Commons Library.

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(9) The Chancellor of the Exchequer shall review the effects of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency, including a requirement on companies to publish a single easily comparable figure for the amount of corporation tax they pay in the UK, on Treasury tax receipts within six months of the passage of this Act, and consult with G8 countries on their effectiveness. He shall place a copy of the review in the House of Commons Library.’.

Clause stand part. 

New clause 6—Transfer pricing arrangements—  

‘Within 30 days of the coming into force of this Act, Her Majesty’s Government shall propose to the governments who are members of the Organisation for Economic Co-operation and Development that co-ordinated action be taken at the earliest opportunity to prevent the abuse of transfer pricing arrangements by multi-national corporations and that early consideration should be given to a review of the current Transfer Pricing Guidelines for Multi-national Enterprises and Tax Administrations.’.

Mr Gauke:  Clause 219 introduces powers to allow the Treasury to give effect to our agreement with the USA to improve international tax compliance. I touched on that a moment or so ago. The clause also allows for further regulations to be made to bring into effect similar agreements and also, as a result of the tabled amendments, similar arrangements with other jurisdictions. 

FATCA is the acronym given to the US provisions known as the Foreign Account Tax Compliance Act. In 2010, the US introduced FATCA to combat tax evasion. Under the FATCA provisions, all financial institutions outside the US are required by law to pass information about the accounts of US persons directly to the US tax administration—the Internal Revenue Service. However, UK and EU data protection laws do not allow financial institutions to pass on such information. That prohibition would leave many UK financial institutions in breach of FATCA and, under the US rules, open to a 30% withholding tax on any US source income. 

To combat the practical implementation issues faced by UK institutions, as well as to tackle the evasion of UK taxes, the Government, in September 2012, signed an intergovernmental agreement with the US to implement FATCA in the UK. It was the first agreement of its kind and has set a new standard in international tax transparency. In exchange for the different information-sharing arrangements under the agreement, the 30% withholding tax will not be imposed on UK institutions. Under the terms of the agreement, UK financial institutions will submit account data to HMRC, which will then automatically exchange those data with the IRS, using our existing double tax convention provisions. 

Importantly, the agreement is reciprocal. The US Treasury has issued bank deposit interest regulations that will substantially increase the amount of information that the US collects, which it will then share automatically with the UK where it concerns UK residents. Although current legislative constraints in the US mean that the authorities there are unable to collect certain information at present, the agreement contains a commitment by the US Government to pursue these equivalent levels of information exchange. 

The powers conferred by clause 219 allow the Treasury to make regulations to implement the UK obligations in the agreement entered into between the Government and the US. It also empowers the Treasury to make

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regulations implementing similar agreements that the Government may enter into with other jurisdictions to improve tax compliance. 

The Committee has been sent a copy of the draft regulations relating to the UK-US agreement. Following consultation, the initial draft of the regulations was published on 18 December 2012. Following further lengthy public consultation with business and its representatives, the latest version was published on 31 May. Those regulations are subject to the negative procedure. They will take effect later this year after the Bill receives Royal Assent, thereby giving businesses time to put in place the processes and IT systems needed to comply with their first reporting obligations in March 2015. 

At Budget 2013, HMRC’s new offshore evasion strategy team published their new offshore evasion strategy, “No safe havens”. Central to that strategy is greater sharing of information between Governments. With an increase in information flows comes an increase in the likelihood of evaders getting caught. 

Building on our enhanced automatic exchange agreement with the US, we have reached agreement with the Isle of Man, Guernsey and Jersey to enter into similar arrangements, and to provide disclosure facilities to address historical tax evasion by UK taxpayers. We intend to conclude similar agreements with other jurisdictions. 

The network of international agreements that underpin an increase in tax information exchange is making the world a smaller place for those wanting to conceal their assets offshore. In short, there are no safe havens for tax evaders. 

On 9 April 2013, the UK—with France, Germany, Italy and Spain—announced an agreement to develop and pilot multilateral tax information exchange based on our agreements with the US. To date, a total of 17 EU member states, including the UK, have committed to joining the pilot. The British overseas territories and Crown dependencies have also agreed to join, and both Norway and Mexico have recently joined, so the political momentum continues to build. Setting a new global standard in the automatic exchange of tax information has been a key element of our G8 agenda. 

As we conclude similar agreements with other jurisdictions, further regulations under the power provided for in the clause will be laid for consideration by the House. It is envisaged that the regulations on the similar agreements with the Isle of Man, Guernsey and Jersey will be published in 2013. 

Turning to the Government amendments, we have stated that we intend to build on the agreement with the US to embed a new global standard for the automatic exchange of tax information. That will provide a step change in our ability to tackle offshore tax evasion, and by closely mirroring our agreement with the US, we will minimise burdens on Governments and business where possible. With our eyes firmly on the future, we are making two changes to the clause. 

The first change, amendment 141, will allow the Treasury to make new regulations to implement arrangements similar to our agreement with the US, including those that can be concluded with the relevant jurisdictions as administrative matters. The details of those arrangements will need to have similar provisions to our agreement with the US, but by increasing the scope and nature of the arrangements covered by the

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power, we can ensure that we will be best placed to move with the latest international developments in the setting of a new global standard in the automatic exchange of tax information. 

The second change, amendments 142 to 146, addresses an issue raised by business in the consultation. It provides the necessary legal cover to enable financial institutions to obtain details of the tax residency of all their account holders, rather than only those with links to the US. That is another key element in moving to a new global standard in the automatic exchange of information. 

Amendment 109 asks for HMRC to review the possibility of bringing forward work with the OECD and G8 countries to require multinational companies to publish a single, easily comparable figure for the amount of corporation tax that they pay. 

The Government welcome greater transparency by businesses on their tax affairs. In fact, many companies already release data or other information relating to their tax payments, and we welcome such efforts. As I have explained, the UK is at the forefront of international work to improve transparency in this field. We have made tax and transparency key priorities of the G8 that we chaired this week. 

We do not, however, believe that requiring multinational companies to publish a single figure for the amount of corporation tax paid would be useful either for tax authorities or the wider public. In fact, without any accompanying explanation of that figure, the information may serve only to muddy the waters further. In many cases, there are genuine reasons why a company may pay little or no corporation tax in the UK, as the hon. Member for Newcastle upon Tyne North acknowledged on a number of occasions, such as by making use of legal and legitimate reliefs. 

12.45 pm 

There is a case for improving transparency between multinational companies and tax authorities. There is currently a mismatch between the information that multinational corporations hold and that available to tax authorities. Providing greater transparency over the tax affairs of multinational companies can help tax authorities to identify and assess risks efficiently, but requiring publication of that information would put the UK at a competitive disadvantage to other countries that do not require that publication. That would also impose costly administrative burdens on business and Government. 

Amendment 109 also calls for a review on the effects of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency. International standards on the disclosure of company ownership already exist and are set by the Financial Action Task Force. 

We are committed to the full implementation of those standards, which is why the Prime Minister announced at the weekend that the Government will introduce new rules that will require companies to obtain and hold information on who owns and controls them, and for that information to be held by Companies House in a central registry where it will be accessible to law enforcement agencies and tax authorities. We will conduct a consultation on whether the information should be made publicly accessible. We have set that out in a national action plan. 

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We also welcome the commitment made by our G8 partners to publish individual action plans setting out the concrete steps that they will take to increase transparency of beneficial ownership. We have been at the forefront of international efforts to improve tax transparency. For those reasons, we believe that a review is unnecessary, so I therefore ask the Opposition Members not to press their amendment. 

In conclusion, our landmark agreement with the US has set a new international standard in tax transparency. We are looking to build on that. The powers introduced by the clause provide for regulations to be made to enact that agreement. The amendments tabled by the Government facilitate the entering into and operational future arrangements of agreements with other jurisdictions. 

This measure, and the amendments we have brought forward, will significantly enhance HMRC’s ability to tackle evasion of UK taxes, allow businesses to comply with their obligations without breaching data protection rules and ensure that we can continue to move quickly towards setting a new international standard in the automatic exchange of tax information. I hope that the clause and amendments 141 to 146 will meet with the Committee’s approval. 

Catherine McKinnell:  As the Minister explained, the clause gives the Treasury the power to make regulations to give effect to the agreement between the UK and the US to improve international tax compliance, and to implement the Foreign Account Tax Compliance Act. The Government amendments helpfully seek to provide legal cover for any similar future agreements. It is in the context of the recent agreements reached with Britain’s Crown dependencies and overseas territories, and the announcements made just before this week’s G8 summit, that I want to speak to amendment 109. 

Committee Members may recall that, as long ago as January 2012, the Leader of the Opposition pressed the Government to show international leadership on tax havens and to force our Crown dependencies and overseas territories to co-operate with HMRC’s requests to exchange tax information or face being placed on the OECD’s blacklist. Last month, ahead of the G8 summit, the Opposition called on the Government to push our Crown dependencies and overseas territories to sign a convention on mutual administrative assistance on tax matters, which supports the multilateral exchange of tax information. They now seem to have grasped the urgency of sharing that information and signing up to the convention is clearly a welcome step in the right direction. Will the Minister confirm by what date he expects all of the Crown dependencies and overseas territories to be participating fully in the convention and what steps, if any, will the Government take if they are not fully compliant by the end of the year? 

Also announced on Saturday was the apparent intention of the Crown dependencies and overseas territories to publish national action plans on beneficial ownership detailing the true owners of so-called shell companies, but not trusts. The UK Government announced their intention to establish a register at Companies House of beneficial owners of companies in the UK, but for it to be made available only to HMRC and not to the public. 

Again, those are all welcome steps in the right direction but many believe that they do not go far enough. We believe that proper transparency about who is really

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holding wealth behind both shell companies and trusts in tax havens will not be achieved by secret lists held in the UK, vague promises of future action and, like the “Enough food for everyone IF” campaign, we believe that we need a proper global standard for public registration of ownership of companies and trusts. That could be achieved by the tax convention on transparency that many thought the UK should have launched at the G8 as the centrepiece of our presidency. 

There is no point in signing up to automatic exchange agreements with the Crown dependencies and the overseas territories if we are asking them to share information that they do not have. The only way we can make this work is by establishing a globally agreed public register, and that needs to be done as a matter of urgency. Of course, for the reasons I outlined when we discussed clause 217, whatever agreements are reached on tax transparency during the G8 presidency, they have to benefit developing countries too. We need to end the era of tax secrecy. Therefore the information must include multinationals’ revenues, profits and taxes in every country in which they operate. We need to include the key pieces of information so that people, whether experts or not, can properly assess the amount of tax that was paid and which should be of benefit to British consumers in the choices that they make, and to developing countries. 

Demonstrating our determination to take meaningful action here in the UK will give us a much better platform and much greater leverage when demanding that transparency elsewhere. While far greater transparency is an important part of achieving tax fairness, we also need to see some fundamental reform of our own corporate tax system, because the shifting of profits and the use of tax havens to avoid tax are symptoms of a system that is failing to keep up with global economic developments. As Committee members will no doubt know from the debate that has raged on this issue, the transfer pricing rules are intended to prevent two companies under common control from trading with each other on a basis that no two unconnected companies would trade. It is in order to stop them arranging that trade at a price that would shift profits to low tax jurisdictions and their costs to high tax locations. 

However, it is becoming increasingly clear that the transfer pricing rules are not sufficiently reducing those opportunities for the shifting of profits. This particularly disadvantages not only revenue collection in the UK but in developing countries. In the 21st century economy—where value is now often in brands, intellectual property, customer loyalty and ideas, which can be traded globally and operated from different parts of a corporate group—we need to develop a clear, tight and properly enforced system of corporate taxation that keeps up with those developments and demands. 

Stephen Doughty:  My hon. Friend makes a strong and compelling case for the amendment and the new clause. Is this not absolutely in line with the principles outlined in the G8 agreement which said: 

“We agree to work together to address base erosion and profit shifting, and to ensure that international and our own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions”? 

Like me, does she hope that the Government will accept the amendment? 

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Catherine McKinnell:  Indeed, it provides an opportunity and a platform for the Government to take a proper look at how we can make changes here in the UK that will protect not only our tax base but those of developing countries. Capacity-building measures, which we debated on clause 217, are obviously welcome and incredibly important. But on their own, they will not make that transformational impact on developing countries that is required. They certainly will not put an end to the indefensible situation that sees countries losing three times more in tax avoidance than they receive in aid. 

Like all our amendments to the Bill, amendment 109 is eminently sensible. It urges the Government to consider the possibility or the impact of introducing the measures we have outlined. We do not believe that the work that the Government have done to date on this issue has

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been sufficient. There is no justification for any member of the Committee to vote against as it clearly is in line with the Government’s stated aims and intentions. 

New clause 6 proposes that the UK should push for 

“co-ordinated action be taken at the earliest opportunity to prevent the abuse of transfer pricing arrangements by multi-national corporations and that early consideration should be given to a review of the current Transfer Pricing Guidelines”. 

Given that it is an eminently sensible proposal, which is difficult to argue or vote against, I urge hon. Members to support it today. 

Ordered, That the debate be now adjourned.—(Greg Hands.)  

12.56 pm 

Adjourned till this day at Two o’clock.  

Prepared 21st June 2013