Examination of Witness (Questions 20-33)
Mr Malcolm Gammie QC
23 APRIL 2008
Q20 Lord Paul: But I am still not
sure whether Britain has gained from it or lost. Have you any
view on that?
Mr Gammie: One of the large problems in this
particular area is that most of what is said and most information
available is very anecdotal, so it is extremely difficult to know
precisely what the impact of these sorts of measures are. Inevitably,
any government making any change has to approach that change with
that view, that it is quite difficult to predict.
Lord Paul: I do want to declare that I am non-domiciled
and very proud of that status.
Q21 Lord Sheppard of Didgemere: All
the press comments seem to have been about the resident test applied
to non-Brits working in Britain, mainly in the City, but there
was also an issue, for executives who had gone and run bits of
companies all over the world and were not therefore paying UK
tax, and suddenly—because they used to be very careful in
counting their days—now they have to count them slightly
differently. I do not know if it becomes more complex, but it
becomes another calculation to do, does it not, both for the firm
and for the individual?
Mr Gammie: It becomes a different calculation
for the individual to do and it will be less favourable for the
individual in the sense that more days will now be counted than
was previously the case under the old rule. As I say, it is different
but it is difficult to say that it is more onerous than was previously
the case. It may mean that some individuals who were managing
to maintain non-resident status will either have to alter their
practices or -
Q22 Lord Sheppard of Didgemere: It
gives them another reason for not coming to a UK board meeting
of the parent company!
Mr Gammie: Certainly for counting their days
or spending less days maybe doing that, yes.
Q23 Lord MacGregor of Pulham Market:
Can I go back to the question of the £2,000 de minimis limit
for personal allowances and Capital Gains Tax exemptions and just
ask you not a political question but a really technical question?
How is this actually going to be operated? If you take a high
net worth individual, presumably the Revenue have some suspicions
that his foreign income is not less than £2,000 and will
wish to ask him questions about it. I do not know whether that
is right or whether that is all they can do. If you take the question
of the Polish plumber, for example, people of that sort who are
doing a self-assessment and maybe have substantial property back
in Poland, or wherever, is there any way that the Revenue can
get at that? I understand perfectly well that in the UK under
self-assessment they have lots of means of going to UK banks and
other institutions and finding out what you are actually earning
and interest, but there is no provision whereby you can do that
with other countries, is there? Therefore, how are they actually
going to make it work?
Mr Gammie: As a general matter, they are only
going to make it work, I suspect, if they enquire into an individual's
self-assessment return. So people will self-assess on a particular
basis that they are entitled to this de minimis exemption and
if nothing is done to enquire into their return then that will
just be taken to be a truthful return. If the Revenue chooses
to enquire into the self-assessment, they can obviously ask the
individual questions. To the extent they need to obtain information
from other countries, then generally speaking they would have
to look either to the United Kingdom's double taxation agreements
with other countries to see whether or not they had powers to
get information under that, or within the European Union of course
there is a Mutual Assistance Directive and they would have to
look to those sorts of powers to be able to get information from
the other country about what income or gains the individual was
reporting there, or what information they could supply. But administratively
it is a complicated, difficult and time-consuming exercise to
do all that.
Q24 Lord MacGregor of Pulham Market:
So presumably it is going to be directed more at high net worth
individuals than the average plumber who is assumed not to have
that income or capital gains, or it is just not worth following
up?
Mr Gammie: I think that is a fair assumption
to make, yes.
Q25 Lord MacGregor of Pulham Market:
Could you just explain a bit more how the EU thing works? They
may have the right under it to find out from the opposite number
at HMRC in another EU country what the tax returns of that individual
are, is that right, or can they even go further and see whether,
in the same way as they can do here, those tax returns are accurate?
Mr Gammie: They would not have exactly the same
powers under either the Treaty or the Directives to be able to
get information as they have, for example, powers here to get
information from third parties and from the taxpayer himself.
As I say, to invoke those powers is time-consuming and difficult
and one suspects that unless they believe there was a significant
amount of tax at stake I would not imagine they would go to the
trouble to do that.
Q26 Lord Sheppard of Didgemere: The
other problem with this is that one does not know the economic
effect long-term until long-term? In other words, you cannot measure
the psychological effect on whether people are willing to com
to this country or not until after maybe some years' time?
Mr Gammie: I think there are two comments one
could make on that, for example in relation to the remittance
basis but also the residence rules. To the extent you are dealing
with high net worth individuals, whether one likes the statement
or not the reality is they are not in business to pay more tax
to the United Kingdom than they absolutely have to, so one can
assume that under the new rules, just as under the previous rules,
they will take whatever measures are open to them to minimise
their liabilities. That does not necessarily mean that they leave
the United Kingdom or that they do not invest in the United Kingdom.
They will just structure their arrangements in a way which minimises
their tax, and that is an inevitable consequence. The question
of whether or not it has a broader economic impact, for example
on the City of London, because people are no longer prepared to
come to the United Kingdom because of the greater tax or greater
administrative burden, I think is extremely difficult and that
is where I say information is largely anecdotal, but one would
assume that at the margin at least there will be some impact on
individuals staying for more than seven years, for example. Quite
how large that effect is and whether it is significant I think
is probably impossible to say, but you would expect it to have
some small impact at the margins.
Chairman: I would like to move on. Lord Barnett
has one short question.
Q27 Lord Barnett: The Revenue reckons
that all the loopholes and anomalies of the remittance-based rules
have been removed. Would you agree with that?
Mr Gammie: I would say a significant number
of the more obvious loopholes have been removed. It would be optimistic
to think that highly paid lawyers and accountants will not be
scrutinising the new legislation extremely carefully to see what
alternative loopholes may have been created.
Q28 Chairman: The last topic we have
taken is encouraging enterprise and, as you rightly say, there
is a very small change in the Finance Bill relating to it, but
we were also quite interested in the University of Sussex's study.
Most of us have been Treasury ministers and quite a few around
here have all been busy promoting these schemes over the years
and they are great things for politicians to make speeches about,
and of course they have some effect on the individuals who use
them because they get tax relief from doing it. The question I
am interested in is whether they have any serious economic effect
on the country and the prosperity of the country generally. Is
there any evidence of that at all?
Mr Gammie: My Lord Chairman, I have obviously
seen the report. I will not necessarily claim to be an expert
in the sorts of things which that report is looking at, so I read
it and I am sure your assessment of it is probably better than
mine, but I did not take away from it the impression that these
had been particularly significant. On the other hand, of course,
they represent a series of measures which over many years, I think
probably starting with Lord Howard about 1981with the business
start-up scheme, governments have introduced to try and encourage
equity investment in smaller businesses. If we had never had them,
would we be in a significantly worse position or are we in a significantly
better position because we have had them? I think that is very
difficult to assess.
Q29 Lord Barnett: Do you know any
small businesses which read econometric studies?
Mr Gammie: Not many, no, but I know some small
economics businesses which probably do, but there are not many
of them.
Q30 Lord MacGregor of Pulham Market:
I do remember one scheme at that particular period because I was
minister for small businesses at the time when the business start-up
scheme was starting, and so on. We had one to encourage investment
in small workshops, which were almost non-existent at that time,
and it was so successful that we actually felt after a while that
we had achieved our objective and stopped it. So it can happen
and it can also, I think, change a culture and that cannot be
demonstrated in an econometric study. So the question really is
what things would have been like if you did not have them, and
that is the one which, as you say, is difficult to assess?
Mr Gammie: Yes, indeed. Inevitably most of these
schemes have targeted at what governments have tended to describe
as sort of high risk businesses, and so on. Inevitably, as soon
as you put a tax relief into the system people look to find the
securest investment which will meet the conditions laid down for
the relief. So the incentives can work both in a good way and
in a perverse way, but as you say it is extremely difficult to
say what the impact would be if you had never had them.
Q31 Lord MacGregor of Pulham Market:
Were you aware of any demand for an increase in the EIS investment
limit?
Mr Gammie: Not specifically, no.
Q32 Lord MacGregor of Pulham Market:
So it is probably a lollipop rather than something which is responding
to a real requirement?
Mr Gammie: Well, inevitably the Government,
I assume, reviews the limits which are put in place for these
schemes and decides whether or not there will be some incremental
value by increasing their limits. In this case the EIS, I think,
has gone up from £200,000 to £400,000 and now £500,000
and that is presumably based on some assessment that it is having
some impact upon firms and the capital they can raise.
Q33 Lord Sheppard of Didgemere: Certainly
in terms of impact they are quite useful, as a small company,
for individuals (not so much institutions obviously) to be able
to say to the potential investors other than, "We're marvellous!"
Whether they believe you is another question.
Mr Gammie: It must be true to an extent. Again,
I suspect this is anecdotal rather than anything else, but there
is a number of reasonably wealthy individuals who would probably
not know about specific small investments but who, through either
the venture capital trusts or through EIS funds, are able to put
some money in that direction which otherwise they would just invest
or spend, or do something different with but would not put it
into a small business.
Chairman: If I may say so, you have once again
not disappointed us by coming and getting us going at the beginning
of our inquiry into the Finance Bill and, as usual, we are extremely
grateful to you for doing just that. Thank you very much for coming
and thank you very much for your informative start to our proceedings.
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