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Tax Avoidance

Volume 778: debated on Wednesday 18 January 2017


Asked by

To ask Her Majesty’s Government what further steps they intend to take to stop aggressive tax avoidance schemes by individuals and companies.

My Lords, during this Parliament we have announced that we will legislate for over 30 measures to tackle avoidance, evasion and aggressive tax planning. This includes a package of changes that close down avenues for tax avoidance by multinationals. We have also announced a new penalty for the enablers of tax avoidance that targets all those in the supply chain of tax avoidance arrangements.

I very much welcome the Government’s legislation to make international companies more transparent, and in particular to reveal the real centre of their economic activity and any possible misalignment between that and where they declare their profits for tax purposes. However, given that multilateral action is now less likely as a result of the decision to leave the European Union, will the Government take the lead on this legislation and ensure that companies have to reveal these data as part of their accounts, beginning with the next financial year?

The noble and right reverend Lord is right that we have very much been at the leading edge in this area. Our principle is that we should tax companies on where their activities take place. The OECD base erosion and profit-shifting projects, which we have been very much leading on, avoid strategies that artificially shift profits to low-tax or no-tax jurisdictions where there is little economic activity. That seems vital. Transparency is also important, as the noble and right reverend Lord says, but obviously that is something we have to tackle by acting together internationally. Our international work on tax avoidance and evasion continues, quite apart from anything that is going on at EU level.

My Lords, the Government are not at the leading edge of collecting taxes. They are in the process, over a five-year period, of implementing agreed EC tax avoidance measures. The Government expected that that would raise a certain amount of money but at present the total is £2.6 billion below what they had anticipated. Are the Government aware of how this looks in Europe? Do we not really need to reassure Europe on these matters? Otherwise, the sense Europe has that we might go for low taxation and look to be an offshore tax haven will strengthen their negotiating stance across all Treasury matters in the forthcoming negotiations.

I really do not see things that way at all. Actually, the UK tax gap is one of the lowest in the world. We are investing in work on avoidance and evasion, with an extra £800 million for HMRC, while the work we have done to bring in accelerated payments has yielded £3 billion in extra tax since 2014. The noble Lord talks about tax havens. I think the Prime Minister made it quite clear yesterday that Britain wants a new partnership with the EU and is hoping that we will get a good deal. The point about tax havens was the need to change the economic model if that was not possible. I am hopeful that, with that new agenda she set out, we will get a very positive agreement in this area.

My Lords, does my noble friend understand the concern of many of those who have to advise on statute law? Does she understand that it is undesirable to give to the courts a power to strike down an arrangement which complies with the letter of the law on the grounds that it does not comply with the spirit of it? The trouble with that is that it produces unpredictability and therefore injustice. Better by far, if Parliament is unhappy with the interpretation of law, to amend the primary legislation.

I am always very interested to hear from my noble friend on such issues. This is a complex point which, as a new Treasury Minister, I look forward to talking to him about to understand the implications in this important area of evasion and avoidance. Since the coalition, there has been a lot of agreement on the need to move forward sensibly, whether by statute or the intervention of the courts.

My Lords, many of us have been very confused as to why the Government put so little effort into persuading the UK’s overseas territories and Crown dependencies to lift the secrecy that covers tax avoidance. Are we now finding that the answer, as the Chancellor expressed to the German Government, is that he sees a tax haven as a potential economic model, even if by default, for the UK economy—in contravention, I suggest, with long-held British values and the basis of our economy?

I think I have already made clear the context of the Chancellor’s remarks. We are seeking to get a good agreed deal, but clearly, you cannot forecast that. The CDOTs have now all signed up to the common reporting standard and started exchange of information in September last year. This is a result of the sort of international discussion and agreement that we need on these abuse issues, where I believe this country has led the way and, if I might say so, the coalition did some ground-breaking work.