Tax Avoidance and Evasion (Isle of Man)
Thank you for selecting this issue for debate, Mr Speaker. I thank the Minister and my hon. Friends for being in the Chamber tonight.
The past few years have seen a mountain of leaked documents: the Panama papers; the Falciani papers; the Luxembourg leaks; and those about the so-called Russian laundromat. Less than three weeks ago, I secured an Adjournment debate based on leaked documents about Azerbaijan and the money laundering activities of its ruling elite.
All those important leaks involved substantial disclosures that exposed money laundering, aggressive tax avoidance and possible tax evasion. They revealed how the proceeds of organised crime have been used, and how powerful global corporations and the super-rich use nefarious, unethical and sometimes criminal financial wheezes to hide their money and avoid their taxes.
Then, on Sunday night, we started to hear about further outrageous wrongdoings in the Paradise papers. The leaked papers reveal documents that passed through the global law firm Appleby, mostly operating out of our own Crown dependencies and overseas territories. They reveal a completely toxic mixture of every imaginable wrongdoing involving money—wrongdoing on an industrial scale, with household names, revered institutions, global corporations and international criminals implicated. I am afraid that that wrongdoing is not just ignored or condoned by the UK Government and our regulatory bodies, but only made possible by our rules and practices. We are not just complicit in what happens; we are central to its success.
Our country, our tax havens and our corporate structures have become the place of choice for every ne’er-do-well who wants to hide their wealth and avoid tax. If our Government are serious about guaranteeing a fairer society, and if they mean what they say about an economy that works for everyone, they really have to tackle tax avoidance and tax evasion, rather than just claiming progress by tinkering at the edges. They must start by clamping down on our own tax havens—the British overseas territories and Crown dependencies. This does not need another inquiry; it needs action now.
I pay tribute to all the journalists in 67 countries who worked through the International Consortium of Investigative Journalists to uncover these wicked practices and open them to public gaze and public scrutiny. In particular, I congratulate—
In particular, I congratulate the team at The Guardian and “Panorama” on their brilliant investigative work to make sense of the tens of millions of documents and files that the leaks contained. This is journalism at its best and I salute all the journalists.
I also want to salute the brave whistleblower who put him or herself at enormous risk by passing the papers to the media. Every time this happens, the accused attack the accusers—the whistleblowers—and try to undermine their credibility. In this case, Lord Ashcroft’s public relations agent told The Guardian that Lord Ashcroft would not comment because
“you are referring to stolen data.”
The whistleblower obtained the information in the public interest; they did not steal it for private gain. Unlike Lord Ashcroft, the whistleblower was driven not by selfish greed, but by public-spirited, selfless bravery. That should be commended, not defamed.
In the next few days, we will see more data about famous rich people, about greedy global corporations, and about advisers—lawyers, accountants, bankers and other clever people who give advice to rich people about how best to hide their money. All are guilty of immoral if not illegal behaviour. It must be completely obvious to us all that anybody who is found to have used artificial financial structures offshore simply to hide their wealth and to avoid tax should not be awarded with an honour from the Queen. Lewis Hamilton should not receive a knighthood. Anybody in the political system who has deliberately used offshore accounts in tax havens to hide their money and avoid paying their fair contribution, through the taxes they pay to the common purse for the common good, should not, in my view, hold public office.
Much attention in the past 48 hours has been focused on the royal family and the funds held by the Duchy of Lancaster, and today’s focus has been on funds held by the Duchy of Cornwall. The royal family command admiration, respect and love across all the world. I am in no doubt that the Queen was as appalled as the rest of us to discover that her money had been invested offshore in Bermuda and the Cayman Islands, and that some of her money was invested through the private equity firm Vision Capital in unethical companies such as BrightHouse. BrightHouse rips off poor people who have no other option than to rent essential household goods from it, meaning that they can end up paying £1,092 for a washing machine that retails at £358. Indeed BrightHouse has just been forced by the Financial Conduct Authority to pay back £14.8 million to nearly a quarter of a million customers.
This is the Queen’s money invested offshore in unethical businesses. If there had been proper transparency in the Duchy of Lancaster’s affairs, this would never have happened. If the Treasury had properly monitored the financial affairs of the Duchy, the Queen’s reputation would not have been tarnished. Will the Minister please explain why we cannot have transparency in the affairs of the Duchy of Lancaster? Why did the Treasury fail to monitor the Duchy properly, sanctioning investments in offshore jurisdictions? The fact that the Queen’s financial advisers saw nothing wrong with investing offshore in dodgy companies shows how deeply entrenched and acceptable the practices of hiding wealth offshore and avoiding tax have become. It is the establishment norm for the rich and powerful, yet it is plain wrong and we need to stop it.
I wish to focus on issues that have not yet received the public scrutiny and attention that they deserve. The Paradise papers contain details of a tax scam that operated out of the Isle of Man, facilitated by the law firm Appleby, with advice from one of the big four accountancy firms, EY—Ernst and Young. It is a lethal cocktail of accountants, lawyers and the super-rich. This is how the scam works. The super-rich buy private jets, which can cost anything up to £70 million. Lewis Hamilton spent £16.5 million on his. To avoid paying VAT on the purchase, the rich buy their private jets through companies they set up in tax havens. Lewis Hamilton used the British Virgin Islands and avoided VAT. Owners want to fly their planes in Europe, however, for which they need a certificate issued by a European jurisdiction to show that they have accounted for VAT and any other taxes.
At this point, in steps the Isle of Man, a jurisdiction that boasts the Queen as Lord of Mann. The advisers, EY and Appleby, create a company in the Isle of Man, controlled by the private jet owner Lewis Hamilton, which leases the jet from the BVI company controlled by Lewis Hamilton. The Isle of Man Government issue a VAT refund on the grounds that the jet is part of a leasing business, although the only customer is one Lewis Hamilton. The Isle of Man company then leases the jet to another offshore company in Guernsey, which is also controlled by Lewis Hamilton. This carousel of leasing companies, all controlled by Lewis Hamilton, exists simply to enable Lewis Hamilton to avoid a £3.3 million VAT bill, yet the plane has been leased only to Lewis Hamilton and he has never returned to the Isle of Man in his jet. Lewis Hamilton may wrap himself in the Union flag at Formula 1 races, but he should hold his head in shame at his contrived and deliberate refusal to pay the British taxes he should.
In the 10 years since the Isle of Man launched its aircraft registry, it has let hundreds of private jet owners off £790 million in VAT bills. It has never, ever turned down a request for a full VAT refund. Even if some of the VAT exemption was legitimate, in that the planes were used for some commercial rather than a personal purpose, a huge chunk of that money should have been paid to the Exchequer. Will the Minister tell us why Her Majesty’s Revenue and Customs has allowed this to happen? At best, the scheme is artificial and potentially unlawful; at worst, Lewis Hamilton deliberately lied about using his jet for commercial purposes. Either way, money that we urgently need for our hospitals and schools is not being collected while the rich jet-setters simply get richer.
The Isle of Man has 80,000 inhabitants, who enjoy the highest living standards in the UK. The Isle of Man Government have issued a statement saying that they
“have found no evidence of wrongdoing or reason to believe that our Customs and Excise has been involved in the mistaken refunding of VAT.”
In my view, that is simply not true. The details in the Paradise papers demonstrate clearly that they knowingly and purposefully bend the interpretation of the rules to help the super-rich to avoid VAT. The Isle of Man is a tax haven that thrives on secrecy and half-truths. Since 2007, the Isle of Man has had a zero corporate tax rate for all businesses—domestic companies and offshore ones—except for banks. That was why Apple had the Isle of Man on the list of tax havens when it held its beauty contest as it looked for a new country to house its money.
By the way, for Apple to piously declare that it is not paying less tax in Jersey than it was in Ireland as evidence of its good behaviour beggars belief. Of course it is not paying less tax, because it was not paying much tax in Ireland before. We want Apple to pay more tax—fair tax and proper tax—on the profits it makes from its business outside the USA.
Back to the Isle of Man, one might ask how this small country can afford to raise enough in taxes to run its public services without any contribution from corporation tax. The answer is simple: we subsidise it. It is our tax money that substitutes for the tax income that it could receive from charging businesses properly. It is our money that enables it to be a tax haven. Our Government do not just tolerate tax havens. They are using our taxes to enable the Isle of Man to operate as a tax haven. As with all these things, the Government refuse to be transparent, so let me try to unravel this.
Because we and the Isle of Man share a border, we also share what is called a common purse for VAT and other import duties. All VAT and import duties collected by the Isle of Man are passed to Her Majesty’s Revenue and Customs, and then the Exchequer gives the Isle of Man a sum on the basis of a formula that is supposed to reflect how much VAT has been generated from the economic activity that takes place there. In 2016, the then Chief Secretary to the Treasury renegotiated the formula and agreed a generous annual uplift of way above the level of inflation.
We give the Isle of Man more than £300 million a year, which is just under one third of its entire budget for public expenditure. That figure is set to rise to £340 million by 2019. This sum appears to have nothing to do with what is happening in the Isle of Man’s real economy, where employment is down and the population is declining. It has everything to do with what seems to be a deliberate policy intention of our Government to subsidise the Isle of Man and thus promote and support it as a tax haven. The Treasury has refused to publish the details of the formula on which our payment is based. I ask the Minister to release those details so that we can see how the sum is determined.
What this shows is that we are not innocent bystanders who simply put up with the utterly unacceptable activities in tax havens that have been exposed in the Paradise papers. We actively support and enable tax havens to function and exist. Without our subsidy, the Isle of Man could not afford to have a zero rate of corporation tax and could not function as a tax haven. The Isle of Man is well and truly a UK tax haven. Far from being at the head of the fight against tax avoidance and evasion, and money laundering, we are at the heart of the evil conspiracy involving advisers, the super-rich, global corporations and Governments. We are aiding and abetting the very few wealthiest and most powerful in our society to keep their wealth secret and avoid paying their fair share of tax.
The Minister will try to claim that his Government have achieved a lot to tackle avoidance and evasion. He might try to say how much better his Government have been than the previous Labour Government. I have never defended the record of the Labour Government in this area, but his Government’s record is also shameful. It is not what is done that really matters, but what is left undone.
I urge the Minister to tear down the shroud of secrecy and force all our tax havens to have public registers of beneficial ownership. This simple ask for better transparency about who owns what and where is utterly central to our desire to expose avoidance and hence stamp on it. I ask him to toughen up our regulatory bodies and to hound the Bonos, the Mrs Brown’s Boys and the Lewis Hamiltons of this world through the courts to make sure that they pay their proper dues. I ask the Minister to introduce legislation that will ensure that the advisers who dream up these tax avoidance wheezes are held to account for what they do, and held responsible and punished when schemes that they invent are found to be unlawful. Those three actions would go a long way to ensuring we have a responsible tax system that is fair to us all. I look forward to his response.
May I begin by congratulating the right hon. Member for Barking (Dame Margaret Hodge) on securing this important debate and on raising these important issues in her speech? She has, of course, been a determined campaigner over many years on these matters, especially as the Chair of the Public Accounts Committee. I am grateful for the opportunity to speak in this debate and to be given the chance to discuss the Government’s approach to tackling tax avoidance and evasion. I will respond to as many of the points that the right hon. Lady raised as I can.
The Government take all allegations of tax avoidance and evasion extremely seriously. If any new allegations come to light, we will treat them with similar seriousness. We have a strong track record of tackling tax avoidance and evasion. By implementing 75 measures since 2010, we have secured £160 billion in additional tax revenues. But more on that later; I will now respond to the points raised by the right hon. Lady.
The right hon. Lady has raised the allegations regarding aircraft importation into the Isle of Man, which were also covered in the BBC’s “Panorama” programme in the last two days. I should first note that the Isle of Man, like all Crown dependencies, is a separate jurisdiction with its own democratically elected Government, under which it is responsible for fiscal matters. However, under the Isle of Man Act 1979, it has agreed to follow VAT rules very similar to the United Kingdom’s.
While the Isle of Man must apply VAT rules similar to the UK’s, the administration of the tax, including tackling avoidance and evasion, is the responsibility of its tax authorities. However, when required, the UK Government are always happy to provide advice and technical assistance to help the Isle of Man counter evasion and avoidance. I welcome the announcement from the Isle of Man Government that they are conducting a review into their procedures on VAT and the importation of aircraft. I also welcome their invitation for Her Majesty’s Treasury to carry out an assessment of these procedures, and I can inform the House that Treasury officials have been in the Isle of Man today, engaged in that important process. That is a responsible and appropriate approach to addressing these allegations and correcting potential non-compliance.
The UK Government will continue to work with the Isle of Man to help it address these issues and take steps to put an end to any evasion or avoidance. Where there are any problems of tax avoidance and evasion, these should dealt with by us fixing these issues together and not by ending our co-operation with the Isle of Man.
Let me turn now to some of the specific points the right hon. Lady raised. She referred to the plethora of leaks there have been over the years, and she is quite right. She congratulated The Guardian, among others, on its part in ensuring the dissemination of the information that has come to light. However, there is an important point here, which is that HMRC is determined to follow up any information, from whichever quarter, to ensure we clamp down on tax evasion and non-compliance. Yet despite repeated requests over the last 10 days, The Guardian and the International Consortium of Investigative Journalists have refused to hand over that information. If the right hon. Lady is able to assist in that, as well as congratulating the individuals concerned, that would be of great assistance to the Government and to her endeavours.
Last night, the chairman of the Cayman Islands stock exchange said that journalists should be imprisoned. Does the Minister not agree that that was outrageous?
I was not actually aware of those comments, but I can say that, from the Government’s perspective, we are certainly not in the business of advocating the locking-up of any journalists.
The second point the right hon. Lady raised was that we were “tinkering at the edges”—I think that was the expression she used—in clamping down on avoidance. Nothing could be further from the facts of the matter. Since 2010, we have brought in £160 billion, as I said, and £2.8 billion of that was from clamping down on those who have sought to hide wealth in overseas jurisdictions. We have one of the lowest tax gaps in the world, and the lowest in our history. She will probably know that if we were to have today the level of tax gap that we saw under the previous Labour Government, we would be about £45 billion worse off as a consequence. That is important money that we need in our Exchequer for the purposes of employing doctors, nurses, teachers and members of the police force, and of keeping our hospitals and all those vital public services that are the hallmark of a civilised society.
The right hon. Lady referred to the Duchy of Lancaster and transparency. The Duchy does of course publish its accounts—it lays them before this House, in fact. There has been no suggestion that I am aware of that any of the Duchy’s activities or investments have been improper or illegal. Of course, the Queen voluntarily pays tax on all the earnings from the Duchy of Lancaster.
The right hon. Lady referred specifically to Brighthouse. She is correct in her assertions that it has been fined by the FCA for the kinds of activities that she mentioned. However, those investments were, I understand, primarily made in 2005 under the previous Labour Government rather than under this Government. I believe that the amount invested as at today’s date is something in the order of £3,000 in total.
The right hon. Lady asked why HMRC allowed the Isle of Man situation to happen in respect of VAT and aircraft. Let us see what the investigation yields rather than perhaps jumping to a series of conclusions currently based on—from what I have seen, at least—a couple of television programmes. However, there may well be something there, and we will get to the bottom of it in due course.
The right hon. Lady asked about the sharing agreement in place between the Isle of Man and the United Kingdom in respect of VAT. She is right that there are at the moment ongoing discussions on a new formula. She referred to an automatic uplift in the Isle of Man’s share under that formula—it is a 4.5% uplift—and suggested that it may be overly generous. It will not be in the long run; once all the surveys and research have been carried out, in the event that it is found to be more generous than it should have been, there will be a clawback mechanism within the arrangement. In terms of transparency, once the formula is concluded it will be available within the public domain. On her assertion that this is a one-way subsidy from the United Kingdom to the Isle of Man with regard to VAT, I should say that there have been years when quite the reverse has been the case and there has in fact been a transfer from the Isle of Man to the United Kingdom from which we, and indeed her constituents, have benefited.
The right hon. Lady made a clarion call for us to tackle avoidance schemes and those who enable them. I confess that the Finance Bill that went through this House very recently was not the most entertaining of Bills; it ran to about 775 pages and was highly technical. However, I point her to the provisions within it for ensuring that those who enable tax avoidance will now be subject to sanction and penalty.
I hope that I have covered the majority, at least, of the points that the right hon. Lady raised. I again recognise the sterling work on this issue that she has done over many years, and pay tribute to her for it. I conclude, Mr Speaker, by wishing you a very—
I give way to the hon. Gentleman—how could I refuse?
I am grateful to the right hon. Gentleman; I will now be kinder to him if he is in front of the Treasury Committee.
My right hon. Friend the Member for Barking (Dame Margaret Hodge) raised the long-standing issue of overseas territories and Crown dependencies being required to introduce a public register of beneficial ownership. Will the Minister address that point? Is there not an opportunity in the forthcoming Budget, as Oxfam has called for, to introduce public, country-by-country reporting for all multinational companies operating in the UK? Those are two practical measures on transparency that this Government could take leadership on.
The hon. Gentleman raises two important points, and I will certainly take to the bank his offer to go easy on me when I appear before the Select Committee. His first point was about whether we should create registers of overseas interests in the public domain. What matters is that we give HMRC the tools to do the job. I file a tax return every year, and I have a last will and testament. They are not in the public domain, but HMRC is entitled to look at my tax return and ask me questions about it. What matters is the information available to the relevant tax authorities, and that is why the common reporting standard that we have introduced —in fact, a year earlier than the OECD suggested was required—is so important. Information is transferred between more than 100 countries to make sure that HMRC has the tools to do the job.
Country-by-country reporting is another important issue. Our view is that it is best met on a multilateral basis, so that all countries get involved at the same time. We continue to work with our European partners and others through the OECD in that endeavour.
Finally, for a second time, which is even more delightful than the first, may I wish you, Mr Speaker, and everybody in the House—all the staff, and all who make this extraordinary and wonderful institution work so well—a very happy and productive recess?
Question put and agreed to.
Motion made, and Question proposed, That this House do now adjourn.—(Nigel Adams.)
Motion lapsed (Standing Order No. 9(3)).
Motion made, and Question proposed, That this House do now adjourn.—(Nigel Adams.)