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Tax Avoidance

Volume 803: debated on Wednesday 29 April 2020


Asked by

To ask Her Majesty’s Government what plans they have to make it a condition for any company in receipt of state support as a result of COVID-19 to agree to not participate in any artificial tax avoidance arrangements.

The Question was considered in a Virtual Proceeding via video call.

My Lords, the initiatives introduced by the Government to address the economic impact of Covid-19 are designed to support businesses that contribute to the UK economy. Since 2010, we have introduced over 100 new measures to tackle avoidance and evasion, securing and protecting over £200 billion that would otherwise have gone unpaid. The Government remain committed to continuing their strong track record on clamping down on those who seek to avoid or evade paying their fair share.

My Lords, I am grateful to the Minister for his response. The OBR is suggesting a 35% fall in GDP. As the Minister said, the Government obviously need as much tax revenue as they can get, but it needs to be fair. In the Times, there are reports of examples from Arcadia, The Range, and Starbucks, which is in line for rate relief alone of £28 million. Virgin Active, which is on a turnover of £168 million and paid virtually no tax, could gain £16 million in rate relief. There are similar examples of many other companies, but will the Minister confirm that it is wrong for companies making large profits in the UK not to pay their fair share of tax? Will the Government refuse to give such companies rate relief?

My Lords, all the support that we have offered has been aimed at keeping businesses going and securing employment, mostly through the furlough scheme. While I take on board the noble Lord’s concerns, I believe that the rapid action that we have taken, which has to be general by the definition of the time period that we have had to operate in, has helped to secure businesses’ long-term future, which is our priority.

My Lords, many other countries have set out strict requirements to prevent state support enabling not only tax avoidance but excessive executive pay and high dividend payments. Do the Government support a moratorium on dividend payments and share buybacks for companies that receive state support, and will they introduce specific rules to prevent tax-avoiding companies benefiting from government schemes?

I assure the noble Lord that all these things are continuously under review. As I mentioned briefly in the previous answer, we have introduced in days things that could often take years, so by definition we are keeping a very careful eye on them. To give the noble Lord some reassurance, with most of these loan schemes, businesses have to show that they are viable, and if they are going to continue to pay dividends the banks will take a view on that and decide whether it is appropriate. These are not automatic entitlements; they have to be justified.

My Lords, I declare my interest related to the Bank of England, as set out in the register. The Minister referred to the plethora of regulation and law that came in in the period after 2008-09, but he will recall that the bankers who were bailed out paid themselves excessive bonuses and therefore suffered in the court of public opinion. Will the Government go a little further and at least publish the list of companies that are benefiting from all kinds of taxpayer support on offer this time, so that we can see who is benefiting from it in a transparent manner? Where the Government give support to those companies, will they at least require an equity holding as collateral and preferably give only loans, not grants?

The noble Baroness makes very good points, and I will certainly take her ideas back to the Treasury. We also ought to acknowledge that a number of senior managers have announced pay cuts during this difficult time. Our overall macro concern at the moment is to protect businesses and employment and to make sure that we can bounce back as quickly as possible from this crisis, but I take on board her helpful comments.

My Lords, quite a number of companies will make extraordinary profits as a consequence of Covid-19. At this point in time it is hard to identify which they are, but we can see that it is happening with some traders and private equity players, and it may well be happening in the digital industry, which is becoming more and more dominant and, as others have said, pays almost no tax in the UK despite the size of its presence. Following our exit from lockdown and the pandemic, will the Government look at a windfall tax so that those who have sacrificed during the pandemic understand that the burden is being spread over everyone’s shoulders?

The noble Baroness makes a sound point. It is just too early to make those sorts of assessments. I want to pick up on the point about digital companies. We have introduced the digital services tax, which came into play on 1 April this year; it is a 2% tax on the revenues which search engines and social media platforms derive if they generate more than £2 billion over the next five years. We have made a start on this but, as the noble Baroness will probably know, these things need international collaboration. If there are excessive profits over the next few months, we will of course review things.

I am sure the Minister is aware that 80% of the population believes that registering a company abroad in a tax haven to avoid paying full UK tax is wrong. At a time of unprecedented social solidarity, would it not help to cement that solidarity if the Government made it clear that they will offer bailouts only to companies that do not follow this practice? After all, France, Poland and Denmark have done that. It would be sad if we stayed a long way behind those countries. If I may, I will send the Minister a list of five criteria drawn up by the fair tax alliance to help the Government to make fair decisions in this area.

I take on board the noble and right reverend Lord’s points, and I would be interested to see the five criteria that he mentioned. I reiterate that the thrust of our approach has been to support businesses that are active in this country with premises and people. In a way, our approach is quite similar to that of Poland, because we require that foreign businesses have a permanent establishment here. I reassure the noble and right reverend Lord that we have taken a huge amount of action over the past 10 years to clamp down on poor tax practice.

I support the Government’s broad, sector-wide approach to helping to preserve jobs as an emergency measure, but the companies based offshore that have avoided paying taxes in the UK have in many cases made windfall profits from those at home in isolation. Echoing the remarks of the noble Baroness, Lady Kramer, should we not look at ways of introducing windfall taxes so that these companies contribute fairly to the taxpayer’s support for other firms that have suffered Covid-related losses as a consequence?

I think that most of us share the noble Baroness’s views on abusive tax measures by companies. Apart from all the measures that we have introduced over the past seven or eight years, we announced that we will legislate this year in a Finance Bill for 2021 to strengthen HMRC’s existing anti-avoidance powers to make it more difficult for promoters, in this case, to sidestep their obligations. We will continue to bear down wherever we can.

One measure highlighted by the Minister was the new tax evasion offence for corporations and partnerships that do not act properly in their operations. Will the Minister consider expanding that offence to include enterprises that aggressively pursue individuals—mainly those who are potentially vulnerable or re-entering the workforce, such as NHS workers. Tax evasion is an act that morally subverts the law, especially for self-employed people who will have to pay extra tax at the end of this crisis.

I am sure that the noble Lord will contribute to the legislation when it comes through. I support his ideas. I assure noble Lords that we have closed the tax gap quite dramatically over the past 10 years. In 2005-06, it was £4.9 billion; in 2017-18, it was £1.8 billion. HMRC has won 90% of the avoidance cases that it has litigated on since 2018.

My Lords, I regret to say that the time allowed for this Question has elapsed. I apologise to noble Peers who were excluded; I think there were two or three of them.