My Lords, the UK plays a leading role on tax transparency internationally, but it is not possible to extend UK disclosure rules to other countries. Parliament has limited powers to legislate for territories outside the UK. The Government have other policies to assist developing countries more directly by, for example, building their capacity to establish and maintain effective tax systems of their own.
I thank the Minister for that response. David Cameron’s pledge to tackle tax avoidance as part of the UK presidency of the G8 needs to move from words to deeds. We cannot use the need for international action as an excuse for going at the pace of the slowest country. The UK should be a global leader, so will the Minister confirm that the Government will use their position at the G8 to make serious proposals that will make a substantial difference to the revenues of the poorest countries in the world?
My Lords, I think the Government are a global leader in this area. We are taking a lead at the G8, and have taken the lead in the OECD to get the international tax rules changed. However, the other component that we are also taking a lead in is helping poorer countries to develop their own tax collection abilities. For example, work that HMRC has done in Ethiopia resulted in a sevenfold rise in the amount of tax collected in that country in the nine years from 2002.
Can the Minister tell me why, on the Inland Revenue tax return that one has to complete, one is asked to specify if one belongs to any approved tax-avoidance scheme? Can he tell me how a tax-avoidance scheme gets to be an approved tax-avoidance scheme, and what exactly that means on your Inland Revenue tax return?
My Lords, there is something called DOTAS—the disclosure of tax avoidance schemes—which was introduced in, I think, 2004 and requires people who have come up with a tax wheeze to consult HMRC. If HMRC believes that it is a legal scheme, it gives it a number. That is the number you are supposed to put on your tax return if you subscribe to that scheme.
My Lords, will the Government agree that both transparency and, as the Minister has already said, capacity, are absolutely vital here? Will they ensure that everywhere the UK provides budget support to a developing country, one of the key elements of that budget support is building the capacity for the right laws, the enforcement, and the collection of taxes to be in place inside that country?
Yes. This is an area to which DfID is giving increasing priority. Last year we supported 48 programmes in 20 countries and spent £20 million in this area. Of course, the extent to which we can do it in any country depends on an assessment of that country’s capacity to take advice and act on it.
My Lords, I very much support the GAAR, the general anti-abuse rule, which the Government are bringing in to deal with abusive tax avoidance, but would the Minister agree that the version that the Government are looking at is very narrow, with the double reasonableness test? If it proves ineffective, would it not be wise to review that test sooner rather than later?
The road to the GAAR, as it were, was long and difficult. As the noble Baroness will know, it was resolutely opposed by the party opposite when it was in government. We are making a proportionate start, and hope that it will be successful in dealing with the most egregious tax avoidance schemes. The great thing about it is that it is a deterrent. It will definitely be kept under review, but it is a big step forward, and we should not underestimate that.
My Lords, the noble Lord mentioned tax avoidance in the context of the G8, which this country is hosting later this year. Are there any plans to involve HMRC in discussions on the Deauville process with regard to the Arab countries in transition that want or need to look again at their tax systems?
My Lords, I think there is a willingness on the part of HMRC and the Government more generally to work with any country that seeks to do that. As I say, we are already working with 20 countries. In recent months, DfID and HMRC have been looking together at how to put together a business case to allocate more resources to this area. The interesting thing about it is that this is a relatively new area. We have realised that we have expertise that can make a big difference to a whole raft of developing countries, and we are very keen now to capitalise on it.
Will my noble friend accept that when British companies are involved in tax avoidance schemes abroad, it invariably has a British dimension, and that, sadly, some tax avoidance schemes are plain fraudulent? Is it not therefore essential that HMRC should have much more and better quality staff? Frankly, at the moment, there is a gross inequality of arms.
I absolutely agree, which is why the Government have put nearly £1 billion of funding into this area and why we have reversed the cut of 10,000 compliance staff that was made under the last Government. There are now 2,500 additional people in that area. That is why the people we are recruiting for this are increasingly highly specialised.
My Lords, what consideration are the Government giving to persuading the G8 to require multinational corporations to produce country-by-country reporting of their tax payments so that not only can the tax authorities in developing countries be better informed about what these companies are paying but the people of those countries can be better informed, so that they can hold those companies and their own states better to account?
The Government support country-by-country reporting for the extractive industries, where some of the worst abuses are taking place. We are currently looking at broader proposals for country-by-country reporting. On the point about expanding the principle more widely, we want to make sure that we get the costs and benefits right.
My Lords, does the Minister agree with me that the important thing, as we have heard, is to get global companies to pay their fair share of taxes everywhere, including in Britain? One way in which to ensure that we get more from them would be to look again at the transfer pricing regime.
Absolutely. Because the transfer pricing regime is based on international rules, we have put more resources into the OECD process, which is moving forward reasonably quickly. An interim report was produced last month, and there is now a recognition that the rules have to be changed among the major European countries and the major countries in the G20. I sincerely hope that the rules will be changed.