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House of Commons Hansard
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28 June 2016
Volume 612

(Clauses 7 to 18, 41 to 44, 65 to 81, 129, 132 to 136 and 144 to 154, Schedules 2, 3, 11 to 14 and 18 to 22 and certain new Clauses and new Schedules)

[2nd Allocated Day]

Further considered in Committee

[Mrs Eleanor Laing in the Chair]

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Before I call the Minister to move Government amendment 114 and for the sake of clarity, I grant the Minister the Chair’s permission and the House’s sympathy in respect of his requirement to stand throughout the proceedings—or, indeed, to be in whatever position suits him so that he can spend several hours at the Dispatch Box with his current disability. He has the House’s sympathy, as I said, and he may do as he sees fit.

Clause 144

General anti-abuse rule: provisional counteractions

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I beg to move amendment 114, page 194, leave out lines 12 to 15 and insert—

“( ) notifies the person of the person’s rights of appeal with respect to the notified adjustments (when made) and contains a statement that if an appeal is made against the making of the adjustments—

(i) no steps may be taken in relation to the appeal unless and until the person is given a notice referred to in section 209F(2), and

(ii) the notified adjustments will be cancelled if HMRC fails to take at least one of the actions mentioned in section 209B(4) within the period specified in section 209B(2).”

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With this it will be convenient to discuss the following:

Clause stand part.

Government amendments 115 to 174, 178, 175 to 177 and 179.

Clause 145 stand part.

Government amendments 82 to 86.

Amendment 4, in clause 146, page 209, line 25, leave out from “penalty” to end and insert

“shall be 100% unless the GAAR Advisory Panel or an officer duly delegated by that panel considers that there are exceptional reasons for lessening that percentage.”

Government amendments 87 to 99.

Clauses 146 and 147 stand part.

Government amendments 100 to 110.

Government amendments 112, 111 and 113.

Schedule 18 stand part.

Government amendments 69 to 81.

Clauses 148 and 149 stand part.

Amendment 1, in schedule 19, page 516, line 21, at end insert—

‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.

(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”

Amendment 5, page 516, leave out line 39 and insert—

‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.

Amendment 6, page 517, line 1, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 7, page 517, line 5, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 8, page 517, leave out lines 11 to 15 and insert—

‘(5) At the end of that period, the director or directors of the head of the group—

(a) are personally jointly and severally liable to a further penalty of £25,000, and

(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”

Amendment 9, page 517, line 15, at end insert—

‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.

(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”

Amendment 10, page 518, leave out line 24 and insert—

‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.

Amendment 11, page 518, line 29, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 12, page 518, line 33, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 13, page 518, leave out lines 39 to 43 and insert—

‘(5) At the end of that period, the director or directors of the head of the group—

(a) are personally jointly and severally liable to a further penalty of £25,000, and

(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”

Amendment 14, page 518, line 43, at end insert—

‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.

(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”

Amendment 15, page 520, leave out line 12 and insert—

‘(2) The director or directors of the company are personally jointly and severally liable to a penalty of £25,000 if:”.

Amendment 16, page 520, line 17, leave out

“head of the group is”

and insert

“director or directors, held jointly and severally liable, of the head of the group are”.

Amendment 17, page 520, leave out lines 27 to 31 and insert—

‘(5) At the end of that period, the director or directors of the head of the group—

(a) are personally jointly and severally liable to a further penalty of £25,000, and

(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”

Amendment 18, page 520, line 31, at end insert—

‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.

(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”

Schedule 19 and clause 150 stand part.

Amendment 19, in schedule 20, page 534, line 23, at end insert

“, or P has introduced Q to a person R with whom P has a business relationship, where P knows or should know that R is likely to facilitate Q to carry out offshore tax evasion or non-compliance.”

Amendment 20, page 535, line 5, at end insert

“; and P will be deemed to have known if P wilfully or recklessly failed to make such enquiries that a reasonable and honest person would have made”.

Schedule 20, clause 151, schedule 21, clauses 152 and 153, schedule 22 and clause 154 stand part.

New clause 4—Report on the workings of the General Anti-Abuse Rule

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the workings of the General Anti-Abuse Rule.

(2) The report must include but need not be limited to—

(a) the number of meetings held by the General Anti-Abuse Rule Advisory Panel;

(b) the date by which the procedures of the Advisory Panel were published;

(c) the number of cases referred to the Advisory Panel and by whom;

(d) the number of cases on which a decision has been made by the Advisory Panel;

(e) the number of outstanding cases on which a decision has not been made by the Advisory Panel, and the dates on which those cases were first referred to the Advisory Panel.”

New clause 5—Report on the number of deliberate tax defaulters

The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report containing the number of deliberate tax defaulters whose details have been published, and an estimate of the number of taxpayers who have been deterred from deliberately defaulting as a result of the provisions contained in section 94 of FA 2009 as amended by this Act.”

New clause 6—Report on the asset-based penalty for offshore inaccuracies and failures

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the asset-based penalty for offshore inaccuracies and failures.

(2) The report must include but need not be limited to—

(a) how much tax revenue has been recouped due to this measure;

(b) the amount of monies paid in asset-based penalties; and

(c) the number of persons upon whom asset-based penalties have been levied.”

New clause 7—Report on the impact of the criminal offences relating to offshore income, assets and activities

‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the criminal offences relating to offshore income, assets and activities.

(2) The report must include but need not be limited to—

(a) the number of persons who have been charged with offences under each of sections 106B, 106C and 106D of TMA 1970;

(b) the number of persons who have been convicted of any such offence;

(c) the average fine imposed; and

(d) the number of people upon whom a custodial sentence has been imposed for any such offence.”

New clause 8—Whistleblowing in relation to tax evasion

The Chancellor of the Exchequer shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector in relation to the disclosure of suspected tax evasion, and report to Parliament within six months of the passing of this Act.”

New clause 9—Estimated impact of extending the scope of the Register of People with Significant Control Regulations 2016

The Chancellor of the Exchequer must, within 12 months of this Act coming into force, publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the requirement placed on UK-incorporated companies by the Register of People with Significant Control Regulations 2016 to publish a register of people with significant control to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.”

This new clause would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information about people who have significant control over them to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.

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I begin by expressing my gratitude for your dispensation, Mrs Laing. I will, of course, take interventions, and I hope it will not disconcert Members if I remain standing at the Dispatch Box while doing so. There is a great deal to cover and a large number of amendments have been tabled by Opposition Members, many of which I shall have to cover briefly. I shall try to provide as much information as I can as quickly as I can and respond to points raised in the course of the debate.

Clauses 144 to 146 make administrative changes to the general anti-abuse rule—the GAAR procedure—and introduce a new penalty for those who enter into abusive tax arrangements. Clause 144 allows Her Majesty’s Revenue and Customs to make a provisional GAAR counteraction where it believes additional tax is due but the assessment time limits are due to expire. Clause 145 is an administrative change to strengthen the GAAR’s procedural efficiency. The GAAR procedure currently requires each user of the same type of marketed tax avoidance arrangements to be referred separately to the GAAR advisory panel. This is an inefficient use of HMRC’s and the advisory panel’s resources, so clause 145 corrects this. Clause 146 introduces a new penalty of 60% for taxpayers who enter into abusive tax arrangements that are counteracted under the GAAR.

The Government have tabled 84 amendments to clauses 144 to 146, making minor changes to ensure that the legislation works as intended, but let me respond now to new clause 4 and amendment 4, which relate to the GAAR clauses I have just outlined. New clause 4 asks the Government to conduct a review of the GAAR in a year’s time. The GAAR advisory panel is already required to publish anonymised reports of the cases it considers. It is difficult to see how this new clause could provide a better insight into GAAR cases than this.

Amendment 4 proposes that a penalty of 100% is introduced for the GAAR. While under HMRC’s existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, it is right for the GAAR penalty to sit just below this. Under the new measure, tax avoiders can be charged penalties under the existing penalty rules and the GAAR penalty up to a maximum of 100%. As such, the amendment does little more than what we are already suggesting, and I therefore urge the House to reject it.

Clause 147 and schedule 18 introduce the new serial avoidance regime and a new threshold condition for the existing POTAS—promoters of tax avoidance schemes— regime introduced by clause 148. The new serial avoidance regime will tackle those tax avoiders who use multiple tax avoidance schemes. It will work by putting avoiders on notice when HMRC defeats a scheme they have used. If they use further schemes and HMRC defeats them, they will face serious and escalating sanctions, including a penalty starting at 20% of tax understated and reaching 60% for a third scheme defeat while under notice. Clause 148 introduces a new threshold condition for the promoters of tax avoidance schemes regime so that promoters who have promoted three schemes that have been defeated by HMRC over an eight-year period risk entering the POTAS regime.

The Government have tabled 27 amendments to clause 148 and schedule 18. The amendments to schedule 18 provide for those who try to avoid tax through companies they own or partnerships to be brought within the scope of the new regime. Amendments to clause 148 provide for POTAS to cover circumstances where tax avoidance is promoted through associated persons. The remaining amendments make minor changes to ensure the schemes work as intended.

Clause 149 introduces a new requirement for large businesses to publish their tax strategies, ensuring greater transparency about their tax approach to HMRC, shareholders and the public. Transparency promotes good tax compliance while providing a fairer, more stable and competitive environment in which to do business. The strategy published by businesses must cover the areas specified in legislation, be updated annually and remain accessible. A penalty may be chargeable if a strategy is not published or if the information contained does not meet the requirements of the legislation.

The Government are also committed to tackling cases of aggressive tax planning. Schedule 19 introduces a new special measures process which will apply sanctions to large businesses that persistently undertake aggressive tax planning or refuse to work with HMRC in a collaborative and transparent way. Taken together, clause 149 and schedule 19 will help to reduce the appetite for aggressive tax planning and improve large business tax compliance.

On the amendments tabled by the Opposition, amendments 5 to 18 would collectively introduce a requirement for directors of a business to be personally, jointly and severally liable for a penalty of £25,000 should the business fail to comply with the legislation, rising to a monthly charge of £25,000 after the initial 12 months have passed. Amendments 9, 14 and 18 also propose that the said named directors should not be reimbursed in any way and would impose further penalties.

These amendments are disproportionate and go against the principle of encouraging behavioural change across businesses. Boards take a collective responsibility for any decisions made on behalf of their businesses and their tax strategy is no exception. Ultimately, this Government believe any penalty is a business responsibility, not one to be pursued across a group of directors. In summary, these amendments would result in less clarity around any sanctions, not more, and I urge the House to reject them.

The amendment to clause 149, tabled by the right hon. Member for Don Valley (Caroline Flint), seeks to require large multinational enterprises to publish a country-by-country report on their activities within their published tax strategy. As I have set out, this Government fully share her aims of increasing transparency and clamping down on avoidance and evasion wherever it occurs. Indeed, this Government have led the way in calling at an international level for public country-by-country reports. However, I do not believe that her amendment would help to achieve the objectives that we all share. It is technically flawed, and hence would not achieve the stated transparency or pro-business objectives that we all espouse.

The right hon. Lady has said that multinational businesses such as Google would be forced to publish headline information about where they do business, the money that they make and the tax that they pay, but that is not the case. According to Government legal advice, the amendment would, in practice, place such a requirement only on UK-headquartered multinationals. Foreign-headquartered multinationals such as Google would not be caught at all, and that undermines the transparency objective of the amendment.

The amendment also risks putting UK multinationals at a competitive disadvantage by imposing a reporting requirement that does not apply to foreign competitors operating in the same market. For example, a company headquartered in the UK, whether on the mainland or in Northern Ireland, would have to file public reports, but a company headquartered in the Republic of Ireland—or, indeed, pretty well anywhere else—would not. That, I think, contradicts the level playing field objective whose importance the right hon. Lady has emphasised. At a time of increased uncertainty, we should be particularly cautious about disadvantaging UK-based businesses and imposing on them a further commitment that does not apply to their foreign competitors.

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I am grateful to the Minister for giving way, especially as he is in pain. He said earlier that the amendment was “technically flawed”, but that is not the advice that my right hon. Friend has received. It seems to me that, in reality, the Government are more driven by their ideas about tax competition. Will the Minister confirm that that is the case? If it is, I suggest to him that transparency is more important for the British people in particular, and that if any global company chooses to leave the UK simply because of demands for transparency and demands that it pay fair tax, which will be a rare occurrence, it may well be that it is not the sort of company that we want to be headquartered here.

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There are some issues of timing, but I must emphasise that the only companies that would fall within the scope of the amendment would be UK-headquartered companies. The Googles of this world would be unaffected. We believe that all this should be done on a multilateral basis, and—although my timing may be slightly unfortunate—I should point out that considerable progress has been made at European Union level. Indeed, the relevant commissioner has said that we are on the cusp of a deal and that he hopes that it will be concluded during the course of the Slovakian presidency, in the second half of this year. The UK has been leading the way in that debate, and, indeed, we have been calling for the Commission to toughen up its rules.

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I will just finish what I am saying before I give way. I am being bombarded by distinguished right hon. Members.

We know that the debate on corporation tax tends to focus on companies’ sales, but corporation tax is not based on sales; it is based on activity. If a company takes part in a lot of activity in the UK but makes a lot of sales in another jurisdiction, it is likely to pay a lot of tax in the UK, but not a lot of tax in other jurisdictions where there is little or no activity but a great many sales. If the UK is the only jurisdiction that is putting out this information, or requiring its companies to put it out, there will be many examples of UK companies that are acting completely properly in foreign jurisdictions and not paying a lot of tax in those jurisdictions, but are vulnerable to criticism. It would be very much easier for all businesses to be able to point to an Italian, German, French or Swedish company that is in the same position, with a lot of activity in its own jurisdiction and a lot of sales in another jurisdiction, and is paying its tax where the activity is, not where the sales are. If the UK is acting unilaterally, I worry about unfair reputational criticism of our companies. As the right hon. Member for Barking (Dame Margaret Hodge) knows very well, reputational damage to a business can damage its commercial interests,.

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Surely the problem is that so much of what we are finding out about companies—about where they do their business, where their profits are, and where they pay their taxes—is emerging through leaks. Massive reputational damage is being done to those companies. The amendment gives us a chance to put things on a much better footing by providing not all the information about companies, but the baseline headlines about where they do business, where they trade and where their profits are. Surely that is something on which we can lead.

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I think that the principle and the destination are pretty clear. We are moving in the direction of companies’ publishing this information, and I believe that the UK should be leading the way in working out a multilateral deal in which a number of countries impose essentially the same requirements. That, I think, would help to improve transparency and would provide a level playing field.

I do not think that the UK should be the last mover in this respect by any means. The United States seems to be some way away from moving in this direction, and I do not think that we should wait for the United States; I think we should be there before it. We should be able to deliver, especially given that such good progress is being made at European Union level. We remain members of the European Union, and there is appetite for this in other EU states. I have no doubt that, if no progress has been made in a year or two, the right hon. Member for Don Valley will come back and ask, “Why has this not happened?”, and in that event her case would be strengthened. However, I think that until we have given the deal a fair wind, it would be premature to act unilaterally.

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The Minister has a perfectly justified and extremely good reputation for being sympathetic in driving this agenda forward. He will recall our discussions, both in opposition and back in 2010, about precisely the point that is addressed in the amendment. We all agree that companies should pay tax where their profits are earned.

The Minister knows as well as I do that some of the poorest people in the world live on top of some of the richest real estate, and that extraction taxes should be paid where those profits are earned. May I ask him to respond fully to the point that is being made by the right hon. Member for Don Valley (Caroline Flint)? If he thinks that her amendment is defective in some way, will he commit the Government to looking at those defects and considering whether they can frame a clause that would address the first part of what she said, with which I understood him to say he agreed?

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The Finance Bill is not the ideal way in which to address this issue fully. I make no criticism whatsoever of the right hon. Member for Don Valley, who has shown much ingenuity in managing to ensure that her amendment is in order, but this is essentially an issue for company law.

We are keen to implement public country-by-country reporting, and we want to do it on a multilateral basis. As I have said, if there was a lack of progress the Government would obviously want to return to the issue, given the concerns that I think are felt by Members in all parts of the House. However, I think that we are in a position to aim for what I am sure we all agree would be the best result: achieving our aims on a multilateral basis.

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Will the Minister give way?

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I will certainly give way to the Chairman of the Public Accounts Committee.

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It is clear that the Minister has some sympathy with the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint) and most of the Public Accounts Committee, along with many other Members in many parties. Rather than requiring my right hon. Friend to come back to the House, will he therefore commit the Government to looking at this matter unilaterally if multilateral agreement is not achieved? Or will he go even further today and agree to a sunrise clause to add to the proposals that my right hon. Friend and I, and others, have put forward, so that this can come into action if the multilateral agreement that he is hoping for does not come to fruition?

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We are in quite a fast-moving area, and the progress that has been made in recent months has been considerable. Just at the beginning of this year, it looked unlikely that a deal would be possible, but now it looks as though the EU is heading in that direction. As I have said, the EU Commissioner has said that something is likely to happen by the end of this year. I must add the slight caveat that we will have a new Prime Minister by then, but it is certainly my view that if we have not made progress by this time next year on reaching a multilateral agreement, we will need to look carefully at the issue once again. I do not want to make a full commitment on this because—I am standing here desperately with the Dispatch Box as a source of support—I might no longer be in this position by then. I make that caveat, but I believe that there is every chance of an agreement. I would be disappointed if we did not make progress, but in the event of that happening—I hope it is unlikely—we would need to look at this again. I suspect that there is agreement between us here that it would be better for us to get a multilateral agreement than for us to go off alone.

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I think I have heard the Minister say that there will not be a multilateral agreement that includes the United States. So is it the Government’s position that we do not want to act unilaterally for the UK, but we will act unilaterally within the EU—even if we are not in it—even though the EU itself contains only 20% of the world’s multi- nationals? Is he saying that this does not need to be multilateral, and that it just needs to be EU-lateral?

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I do not think that this has to be universal, but there would be disadvantages for the UK if we were the only country to do it. There is a sense that UK companies would be criticised for failing to pay very much tax in jurisdictions where they did not have a lot of activities but had a lot of sales. This comes back to the point about educating the public about how corporation tax works. I think it would be an awful lot easier if there were just a few examples of other countries doing this. I do not think it needs to involve every other country, but if, for example, Germany, France and Italy had the same type of system, every time a UK company was criticised we could say, “What about that French company? What about that Italian company? The same principles apply to them.”

We do not have to move at the pace of the slowest, but if we adopt an isolated position on this, there would be a reputational risk for UK businesses. We do not need to run that risk, particularly as good progress is being made, and I urge the House not to accept this amendment. Instead, I hope that we will be able to implement a measure over the next few months.

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I suppose it depends which multinationals are in which segment of competition, but is the Minister saying that as long as, say, two or three other countries were to do this, the UK would join in?

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I do not want to put a precise number on this. There is a threshold, and it depends on which countries those might be, but if I thought that three or four significant economies were going in the same direction, the case for doing this would be much stronger. Or, to put the reverse argument, if I were standing here next year and two or three other countries had gone down this route, the concerns that I am expressing from the Dispatch Box today would clearly carry less weight than I think they do today.

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Perhaps I can help the Minister. On behalf of the Public Accounts Committee, I sent an open letter to the chairs of European finance and public accounts committees or their equivalents. The Minister might have picked up the fact that, to date, the letter has been signed by the chairs of parliamentary finance committees in Germany, Hungary, Finland, Norway and Slovakia, as well as by senior MPs in the Netherlands, the Czech Republic and Bulgaria. We also know that the French Finance Minister, Michel Sapin, is doing some interesting work in this area, as are many others. Does that help to push the Minister in the right direction and enable him to make us more of an offer today?

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Well, it supports my optimism that we are on the cusp of a multilateral deal, and that will enable us to work out the legislation in the most comprehensive and effective way. As I have said, our preference would be to do this through company law rather than through a Finance Bill, but the hon. Lady’s intervention supports what I was saying earlier about the comments of the relevant EU Commissioner at the last ECOFIN meeting in Luxembourg, which I attended 11 days ago. He was optimistic that we would reach agreement by the end of this calendar year. If that is the case, it is hugely encouraging, and the point that the hon. Lady has just made supports that proposition.

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I hope that the Minister will be willing to channel the leadership and enthusiasm that the UK showed in relation to the diverted profits tax, when we chose to go out alone and not wait for international agreements on base erosion and profit shifting. We introduced a whole new tax, with compliance burdens and penalties, and I suspect that that was a far bigger deal than requiring companies simply to disclose what they are already disclosing but in a slightly different format. I think that that was the right way to go.

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My hon. Friend is right to mention the fact that we went ahead with the diverted profits tax, although doing so was clearly consistent with the direction of the base erosion and profit shifting process. That tax also brought in significant revenue to the UK, which has been very helpful.

If we want to achieve greater transparency, as I believe we all do, it is right that we focus on driving forward international efforts on public country-by-country reporting. In order to get full information on foreign multinational entities’ global activities, multilateral agreement will be required to enable countries to introduce comprehensive rules with the widest possible scope. This will allow for a comprehensive multilateral approach that applies consistently across UK and foreign multinational entities. We must get this right so that, when it is introduced into UK law, it is effective and enforceable. We will continue to support and drive this multilateral change forward following the result of the referendum, and I share the determination of the Members supporting this amendment not to move at the pace of the slowest.

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rose

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I will give way one more time, but I am conscious that I am taking up a lot of time in what is quite a short debate.

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The Minister is being extremely generous in giving way. I am sure we all agree with him that this should be done multilaterally—there is nothing between us on that—and I am sure that it will be helpful to his aim of being able to demonstrate strong support for this across the House of Commons when he is dealing with his international partners. I should like to make a suggestion, and I hope that it will be helpful. Would he consider asking his officials to draft a clause for public discussion that is not defective and that he could put to his colleagues multilaterally as a measure that they might wish to include in their parliamentary legislation?

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I am grateful to my right hon. Friend for that suggestion. Let me take it away, because there are a number of ways in which this could be done, and we would want to consider it. I believe that this debate will be helpful to our parliamentary and governmental colleagues in other jurisdictions in that it demonstrates our cross-party determination to make progress on this matter. We are committed to acting swiftly to implement international agreements, as we have done with the OECD BEPS recommendations on country-by-country reporting. We are committed to improving the transparency of multinational tax affairs, but we support an effective multilateral approach. At this time of increased uncertainty, a domestic measure of the sort being discussed today would, I fear, disadvantage UK business for the reason that I outlined. I look forward to hearing the contribution of the right hon. Member for Don Valley, but I hope she is satisfied with the assurances that I have provided today.

Clause 150 and schedule 20 create new civil penalties for those who have deliberately assisted taxpayers to evade UK inheritance tax, capital gains tax or income tax via offshore means. The bill introduces a financial penalty of up to 100% of the tax evaded and public naming in the most serious cases.

I want briefly to respond to Opposition amendments 19 and 20. The intentions of amendment 19 seem twofold. The first would ensure that it is considered enabling to act as an introducer. Schedule 20 already covers acting as an introducer, so that part of the amendment is unnecessary. The second aim is to set a test to check whether it objectively appears that the adviser should have known that the advice was likely to enable offshore tax evasion and is therefore an enabler. The test would introduce a great deal of uncertainty, meaning that it would be unclear how much due diligence should be completed.

Similarly, amendment 20 proposes a test that would ask whether the adviser wilfully or recklessly failed to make inquiries that a reasonable and honest person would have made. The courts generally recognise that knowledge includes so-called “blind-eye” knowledge—where a person has a firm suspicion about specific facts and deliberately decides not to find out more about them—meaning that an enabler cannot bury their head in the sand. If they have good reason to think that they are assisting evasion, failing to make proper inquiries will not help them and they will be penalised under the schedule as it currently stands. Given the restrictions and uncertainty that amendments 19 and 20 would introduce, I urge hon. Members to reject them.

Clauses 151 to 153 and schedules 21 and 22 strengthen the civil sanctions levied on offshore tax evaders. Clause 151 will increase the minimum penalties for deliberate offshore tax evasion to 30% of the tax due. The current minimum penalty is 20% and the maximum penalty will remain up to 300% of the tax due. The clause will require offshore evaders who are seeking to minimise or reduce their penalty to provide more information about their evasion and enabling activities in co-operation with HMRC.

Clause 152 removes the protection from being publicly named for deliberate offshore tax evasion unless an offshore evader comes forward to HMRC voluntarily and makes a full disclosure. In addition, clause 152 allows HMRC to name the individual who controls a company or entity that has participated in offshore tax evasion.

Clause 153 introduces a new asset-based penalty that will apply to the most serious cases of deliberate offshore tax evasion, where the tax loss exceeds £25,000, and will levy a penalty of up to 10% of the value of the asset connected to the evasion. Such assets could include physical property, intellectual property, shares and bank accounts. The asset-based penalty will be levied in addition to any other tax-geared penalties and interest due. Taken together, the measures will provide HMRC with a greater understanding of tax evasion while significantly increasing the penalties on tax evaders and those who help them.

New clauses 5 and 6 concern the reporting of a number of offshore tax evaders who have been named by HMRC and the number of asset-based penalties levied within a year of the passing of this Bill. The asset-based penalties are expected to apply from the 2016-17 tax year and the strengthened naming provisions are expected to apply from the 2017-18 tax year, with the first details published under this clause expected to be in 2019-20. As such, there would be no time for the activities covered by the amendments to have happened by the deadlines set for the Government to report on them.

The Government are taking action to increase penalties on offshore tax evaders and those who enable them. However, there remains a persistent minority of taxpayers who continue to evade UK tax in that way. To tackle the minority, clause 154 introduces a new criminal offence for those persistent offshore tax evaders. Crucially, the offence does not require the prosecutor to prove that the taxpayer intended to evade their UK tax responsibilities offshore, increasing our ability to prosecute offshore tax evaders. A successful conviction under the offence can result in a fine or a prison sentence of up to six months. Those who continue to break the rules should face tougher sanctions and the new offence will help to ensure that they do.

New clause 7 makes a requirement to publish a report on the impact of the new criminal offence within a year of the Bill being passed. The new criminal offence is expected to come into effect from the 2017-18 tax year at the earliest, which is beyond the one-year deadline set out in the new clause, making it redundant. In addition, HMRC already publishes information on tax crime.

New clause 8, tabled by the SNP, proposes a review of arrangements to facilitate whistleblowing about suspected tax evasion in the banking and financial services industry. HMRC values the extensive information provided each year by the public. During the 2015-16 financial year, HMRC received over 125,000 pieces of information from the public. HMRC’s actions are subject to independent scrutiny and regular inspection from the Office of Surveillance Commissioners. I am satisfied that that gives me good assurance that its work in this area is well managed and highly effective. We therefore do not believe a review is necessary and urge Members to reject the new clause.

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Will the Minister give way?

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I will certainly give way. I was about to turn to new clause 9.

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I want to make two points about the response to whistleblowing. First, as I read the clause, it would lead to a review of whistleblowing in the banking and financial services sector. During my period as the Chair of the Public Accounts Committee, we did a lot of work on the whistleblowing from Falciani on the Swiss bank accounts and on the PwC leaks in Luxembourg. What was so interesting was that the only action that the two financial institutions took was to try to pursue the whistleblowers through the courts—trying to get them indicted and jailed. That is unacceptable.

Secondly, the internal HMRC lawyer who gave us the evidence that demonstrated that a sweetheart deal had been entered into with Goldman Sachs could not, in the end, return to his job. Everything of his was rifled through from his wife’s computer to his telephone and everything else. That is not good enough. I urge the Minister to think again and to instigate a review.

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I note what the right hon. Lady says, but I will not let her comments about sweetheart deals pass. We have discussed the matter before, and I point her in the direction of Sir Andrew Park’s review of those settlements and his conclusion that there were no sweetheart deals. This is an issue that she and I have discussed before and no doubt will discuss again, and I fear that we will not reach agreement. I note her points, but I am not persuaded by the case for new clause 8.

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Will the Minister give way?

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I am conscious that this is a relatively short debate and that I have already taken up a large proportion of it. I am not quite done, but I will take a short intervention.

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My point is about the NHS, where whistleblowers have suffered exactly the same kind of detriment, but the Government are now trying to change their attitude. I do not understand why we would not want to support whistleblowers within the industry when we have had one scandal after another for the past decade.

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My point would be about the sheer scale of the information provided to HMRC. I quoted the 125,000 pieces of information from the public, but by no means are all of those whistleblowers. HMRC certainly does receive a substantial amount of information from whistleblowers, which is helpful. As for how that works and its contribution to HMRC’s activities, I am not aware of worries that that is not working or that the existing provisions with regards to whistleblowers are ineffective. Of course these matters are always kept under review. If I thought that there was a strong case for returning to this issue, I would certainly be interested in doing so, but I am not hearing that at present.

The right hon. Member for Barking (Dame Margaret Hodge) has been waiting very patiently for me to turn to new clause 9, which would require the Government to estimate the impact on the tax gap of expanding our forthcoming register of persons with significant control to companies in the Crown dependencies and overseas territories. I do not believe that the clause would be effective in achieving its aims. It would cast the net too narrowly by focusing on companies with significant levels of trading activity in the UK. As the Prime Minister announced at the recent anti-corruption summit last month, the Crown dependencies and overseas territories have agreed to hold beneficial ownership information on all companies incorporated in their jurisdictions. Importantly, they will share that information with Her Majesty’s Revenue and Customs and UK law enforcement agencies, which means that our authorities will be able to see exactly who owns and controls companies incorporated there.

Although I understand the aims of the new clause, it would be less effective than the steps that we have already taken to improve transparency and tackle tax evasion. I do have some sympathy with the argument that, no doubt, we will hear from the right hon. Lady, but I am not persuaded by it, and I hope that she will not press her new clause to a vote.

I will not take up any more time of the Committee. I have tried to cover as much ground as I can and to anticipate the arguments that we will hear for the rest of this debate. I hope that the Government clauses, schedules and amendments can stand part of the Bill.

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I will try to be relatively brief, but, as the Minister has said, there is an awful lot to get through. I know that many Members wish to speak—indeed, today we have a profligacy of right hon. Members with us, particularly on the Opposition Benches, which is very good—so, perforce, I will have to be brief on various issues.

Labour does not oppose clause 144. On clause 145, which is to do with the general anti-abuse rule, I would like some assurance from the Minister that there are enough staff to deal with this work. I realise that the Government have gone into reverse gear on this, which I welcome, and the number of full-time equivalents has gone up from 57,000 to 60,000 this calendar year. That is a good step, but HMRC was significantly underperforming because it was very understaffed, and clause 145 proposes an additional amount of work for staff to do, so I should like some reassurance on that.

Clause 146 proposes penalties for the general anti-abuse rule. The Chartered Institute of Taxation, which has been extremely helpful to all Members, especially those on the Opposition Front Bench, is concerned that someone might be punished in a rather draconian manner for an innocent error of judgment. However, when my excellent researcher, Imogen Watson, looked at the case to which CIOT referred, she found that it was one to do with customs and excise rather than corporation tax and income tax. Perhaps the Minister can provide some clarification on that.

Amendment 4 on clause 146, which is tabled by me and my hon. and right hon. Friends, deals with raising the penalty from 60% to 100%. I heard what the Minister said about that, but I am concerned that the penalties would not be sufficient to change behaviour and encourage socially acceptable law compliant behaviour, which is what we all want to see.

Clause 147 deals with serial tax avoidance. The Chartered Institute of Taxation has expressed concern, and I understand its point, that this clause might introduce what would be a double penalty for an individual. Generally, we try to avoid double penalties for wrongdoing. Perhaps the Minister could have another think about the clause, or clarify for the Committee today that the CIOT has misunderstood things and there is no such double penalty being introduced. Could the Minister give us an indication—I know that these things are difficult—of how many non-taxpayers will mend their ways as a result of this measure and become taxpayers? Again, there is an issue of funding for HMRC.

Clause 148, which relates to the promoters of tax avoidance schemes, is supported by the Labour Front-Bench team. Although we support clause 149, which deals with special measures and so on, we have put forward amendments 5 to 18 on it—the Minister referred to them earlier. Those amendments deal with increasing the penalty to £25,000 from £7,500 and for holding a director or directors “jointly and severally liable”. Rather strangely, the Minister said that the Government were in the business of “encouraging behavioural change”. Well, so are we. Having higher penalties could encourage behavioural change, by which I mean somebody not indulging in bad behaviour, and filing their reports and so on. That is why we came up with the idea of joint and several liability rather than leaving it to one person. That means that all directors would be aware of what was going on. Furthermore, if the penalties were levied, they would not be reimbursable, as is too often the case. Too often, companies simply reimburse their staff when the staff have engaged in non-criminal wrongdoing. That is not an incentive for them to avoid wrongdoing in future—quite the reverse if anything.

With clause 149 comes amendment 1. I will be brief on that amendment, because my right hon. Friend the Member for Don Valley (Caroline Flint) will no doubt be speaking to it. It is an excellent amendment, which is fully supported by the Labour Front-Bench team. I will say a couple of things very briefly in response to what the Minister said on it. He said that the amendment is technically flawed. That may be the case, but this is the first of almost 200 amendments. If the Government supported it, they could have corrected any technical flaws they saw in it. I also think that they are being a bit timid here, because I do not see how the provisions under amendment 1 will lead to disadvantage to UK headquartered companies or to reputational damage—quite the reverse. Whether the Minister likes it or not, the reputation of Google was adversely affected in the United Kingdom because its tax deal with the UK authorities was not transparent and because people thought that Google was getting away with it. If there had been more transparency, Google’s reputation might not have been adversely affected.

Similarly, provisions in amendment 1 could lead not to reputational damage for UK headquartered companies, but reputational enhancement. I have to say to the Minister—I cannot resist it because he is such a good Minister—that, in our society, talking the talk is seen as hot air, but Gauking the Gauke is seen as being polite and helpful. May I urge him to walk the walk and support amendment 1? If it needs tidying up, he should do it and sort out the technicalities.

Let me talk now about clause 150 and schedule 20—I know that I am going at a bit of a gallop, but there are others who wish to speak. I heard what the Minister said about amendments 19 and 20, which are putative amendments to schedule 20. I defer to his superior knowledge, as this is a very technical area, and I am not an accountant. I think that I understood him to say that what was proposed in amendment 19 was already covered in schedule 20. In relation to amendment 20, he referred to “blind-eye knowledge”, which is a new one on me. I, like him, am a lawyer, and it seems that schedule 20 is introducing civil penalties and not criminal ones, so I accept what he says and will not be pursuing amendments 19 and 20.

Labour supports clause 151, which is to do with penalties in connection with offshore matters and offshore transfers. Clause 152 relates to offshore tax errors and publishing details of deliberate tax defaulters. Helpfully, the explanatory notes say that the clause will amend the Finance Act 2009 to allow HMRC

“the power to publish the details of an individual who controls a body corporate or a partnership”—

when it has been—

“charged a penalty for a deliberate failure to notify HMRC of a tax charge or deliberate inaccuracy in a return, and”—

when that individual—

“would have obtained a tax advantage”—

from it—

“had it not been corrected.”

This must involve an offshore matter or transfer.

That would mean HMRC publishing details of naughty taxpayers or naughty non-taxpayers. In that connection, may I urge the Government again to think about when HMRC, which is under the supervision if not the direct control of the Government and where the Government have a great say on overarching policy matters, to reconsider the question of taxpayer confidentiality? When deals are being done with large companies, as opposed to individuals, those deals could, as part of HMRC’s bargaining, include a waiver of confidentiality on the deal. So, for example, in the notorious Google tax deal, the Chancellor of the Exchequer—understandably —repeatedly said, “I can’t tell you how we got to the deal. That is confidential.” Yes, that was true, but unfortunately that was because HMRC, with the Chancellor of the Exchequer, failed to insert in that agreement with Google a waiver of confidentiality from the taxpayer. If the taxpayer waives their confidentiality, the Government can publish it all. That should be in such settlements, and should have been in the appalling settlement with Vodafone that was done for billions of pounds—I think under a Labour Government, shamefully.

New clause 4, tabled by me and my hon. Friends, relates to clause 152 and requires a report on the workings of the general anti-abuse rule. I am sorry that the Government are apparently not going to accept it. In connection with that, I understand what the Government have said about new clauses 5, 6 and 7 and about the timeframes in them being meaningless because the reports would have to be done before the measures on which they were reporting had been implemented. I quite understand that. I did not understand the Minister to say that about new clause 4, but, if he did, he could perhaps clarify when summing up that it is a deadline issue. If it is not a deadline issue, as it was with new clauses 5, 6 and 7, perhaps he could confirm that the Government will support new clause 4, as they should.

Clause 153 is quite interesting for those of us on the Opposition Benches who like to try to think widely on tax measures, because it is a small step towards a wealth tax. That might not be the Government’s intention, and I am not saying that it is Labour’s proposal on taxes. We are looking at things very broadly, but asset-based penalties for offshore inaccuracies and failures are introduced by clause 153 and schedule 22. In that connection, I want to raise an issue that was raised with me by the Law Society of England and Wales. I declare an interest in that I am a member in good standing of that organisation—as is the Minister, I suspect. The Minister might have a ready reply for the issue the society raised: as we are talking about asset-based penalties, how does one value the asset? What is the mechanism for its valuation and what happens for those assets that fluctuate in value?

Labour supports clause 154, on offences relating to offshore income, assets and activities. I think that the Minister has already responded on the question of new clause 7, which, in a sense, would be coupled with the clause. He pointed out that the deadlines would not marry up, with the report being done before measures came into effect, and I quite understand that. I apologise to the Committee for not spotting it.

That brings me on to new clause 9, tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge), which is supported by those on the Labour Front Bench. I will let my right hon. Friend explain its necessity and desirability to the House if she catches the eye of the Chair.

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In the light of our debate this morning, an appropriate opening remark would be to point out that I believe that in the next hour we are debating the most important part of this year’s Finance Bill. Many amendments have been spoken about already this morning, and I am sure that Members will forgive me if I try to make my remarks brief and to focus only on three matters: the appropriate changes discussed in amendment 1, tabled by the right hon. Member for Don Valley (Caroline Flint) and others; new clause 8, tabled by me; and new clause 9, tabled by the right hon. Member for Barking (Dame Margaret Hodge). Let me say at the outset that the Scottish National party supports both that amendment and that new clause.

I will be brief, because I want to allow more time for the right hon. Ladies to present their case as fully as they can. Let me say something in general about why we are concerned. We all know that there is huge concern among the public about the extent of tax evasion and hidden wealth. It was a growing concern before the release of the Panama papers, and I remember discussing it in this House in the first week in February. It has been fuelled by concerns as people become more aware of the hiding of money in tax havens by individuals, corporations and trusts.

Let us put this debate into a broader context. According to Jason Hickel of the London School of Economics, tax havens hide one sixth of the world’s total private wealth. He has estimated that at about $20 trillion. Whether that is very accurate or not, all observers would agree that the total amount of money involved is absolutely staggering in scale. Indeed, the Panama papers from Mossack Fonseca are just the tip of the iceberg as regards what we face in the world today.

Many issues need addressing. Neither this debate nor the proposed amendment and new clauses address them all, but they are a start. I have been very disappointed by some of the Minister’s reasoning, particularly that on amendment 1. It struck me that he started to redefine on at least three occasions what he meant by multinational. First, he seemed, in my view, to be speaking as though it was almost global in nature, then it became EU-specific, then it became about just a few countries. It struck me that it is not amendment 1 that has not been thought through thoroughly, but the Government’s response to it. If the right hon. Member for Don Valley proposes to press it to a vote, the SNP will certainly follow her into the Lobby.

We know that many different groups are involved. The amendments specifically refer to corporations, but more than corporations are involved. If we had tabled our own amendment, we might have chosen slightly broader amendments to encompass trusts, for example. Being reasonable, we must put ourselves in a position where we make the first step. Sometimes somebody needs to make the first step.

When the Minister was talking, he reminded me of the days when I used to trod through the library at Stirling University, taking students and showing them back copies of Hansard. We could look at back copies of Hansard from the 18th and 19th centuries, and the subject that arose more than any other in debates in the House was slavery. One of the arguments continually used against doing something to make slavery illegal was that it would not create a level playing field.

Somebody has to be first. This is not just about finance and technical considerations, but about fundamental ethical considerations. Those ethical considerations are why we hope that these matters will be pressed to a vote and we will support the right hon. Ladies in that.

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The hon. Gentleman is right that somebody has to go first. I have one thought for him, and I would be interested in his view. His country relies quite heavily on the oil industry. Is he absolutely certain that it is right to impose something on Shell or BP that the Italian Government will not impose on Eni and the French Government will not impose on Total?

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I thank the hon. Gentleman for being interested in my view. Although I understand the point that is being made as well as that being made by the Minister, I think that in these matters, for all large corporations that operate nationally, taking the first step puts them at a reputational advantage because they are seen to lead the way even though there might be occasions on which doing that appears to put them at some short-term commercial disadvantage. So this is not as simple as saying that anyone is necessarily incurring a commercial disadvantage. For those reasons, we would welcome these new clauses, and we are aware that they would also apply to important sectors of the Scottish economy.

I shall briefly say something about the Scottish National party’s new clause on whistleblowing. I am particularly grateful to the right hon. Member for Barking for asking the Minister why he would not support that new clause. Indeed, as she spoke, I thought that, rather than our pressing the new clause to a vote here, it might be best to engage in cross-party discussions on how best to construct a thorough way forward. I agree wholeheartedly with the right hon. Lady, because when we look at the number of cases that have involved taking whistleblowers to court, one wonders where the balance of the scales of justice lie.

I recognise that changes have been made to the requirements on whistleblowing, some of which come into effect this September in the banking sector, but the requirements oblige companies to do things such as appoint their own whistleblowers champions and report the amount of whistleblowing to their boards. Those things require a culture of willingness in companies. If the will is not there, the current processes will have next to no effect. We are not saying that we know precisely how to secure effective whistleblowing. That is why it would be useful to have some cross-party discussions, in which I am sure the right hon. Lady would be happy to engage. In that spirit, although we believe in the new clause, we will not press it to a vote and look forward to supporting the votes led by the right hon. Ladies.

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I rise to support amendment 1, in my name and those of my hon. Friends the Members for Hackney South and Shoreditch (Meg Hillier) and for Houghton and Sunderland South (Bridget Phillipson) and the hon. Members for Amber Valley (Nigel Mills), for Southport (John Pugh) and for Edinburgh North and Leith (Deidre Brock). I am grateful for the support of six other members of the Public Accounts Committee who signed this amendment: my hon. Friends the Members for Islwyn (Chris Evans) and for Bristol South (Karin Smyth) and the hon. Members for Berwick-upon-Tweed (Mrs Trevelyan), for South Norfolk (Mr Bacon), for Peterborough (Mr Jackson) and for Warrington South (David Mowat). In total, 77 right hon. and hon. Members have signed the amendment, and it is a pleasure to follow the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin).

Apart from the Labour party’s support, for which I am extremely grateful—particularly that of my hon. Friend the Member for Wolverhampton South West (Rob Marris), who has been fantastic in his liaison and advice—Scottish National party, Liberal Democrat, Ulster Unionist party, Social Democratic and Labour party, Plaid Cymru, Green party and UK Independence party Members, alongside a number of Conservative Members, and the independent hon. Member for North Down (Lady Hermon) support amendment 1. There is truly cross-party support, and I am therefore grateful to all those right hon. and hon. Members.

Amendment 1 also has the welcome support of the business-led Fair Tax Mark and the Tax Justice Network and that of development charities such as Christian Aid, the Catholic Agency for Overseas Development, Oxfam, Action Aid, the One Campaign and Save the Children.

It is understandable, given the momentous events of recent days that are creating ripples that reach all corners of our nations and across parties, if Members are a little distracted from the business that we are debating today, so let me be clear about what is at stake. If amendment 1 is agreed to, the Government’s requirement that companies publish their group tax strategy on their websites will include, for large multinational enterprises with bases in the UK, the headline details required on their revenues and taxes paid, in accordance with the OECD requirements for country-by-country reporting. In lay terms, this is Parliament’s Google moment.

I should like to clarify something: the amendment would require companies to publish everything that the Government already require them to report to HMRC. Yes, I agree with the Minister that it would not achieve worldwide reporting for any multinational enterprise, but it would catch not only those parts of a multinational enterprise that are in the UK but those that are over a certain size and have a turnover of more than £600 million.

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I hope to be helpful, but the right hon. Lady said that companies would have to publish their tax information on their websites. What if a company does not have a website? Could that give the company a loophole, or would there be a way around that if a company did not have a website?

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I hope that the companies that we are talking about would be big enough to have a website; if not, we might get an opportunity to discuss that later. My goodness, in terms of their reputation, if they do not have a website, they are on a hiding to nothing.

The Minister tried to suggest that the amendment would relate only to UK companies, but it is in line with HMRC guidance that already affects the reporting strategies that the whole House has supported and includes multinational enterprises over a certain turnover. In that sense, we are working with the grain of how the Government have proceeded in these important areas.

There is widespread concern in the House, across all parties, that multinationals operate by different rules from the majority of hard-working, tax-paying businesses, large and small, in the UK. The greatest weapon of multinational enterprises is that their tax arrangements are shrouded in secrecy. The problem is that, in today’s world, as leaks emerge and information comes out, it is death by 1,000 cuts, whereas the amendment is about getting businesses and their reputations back on track. Not only would this be good for business, but it would ensure that those businesses that are playing fair have a chance to set out their claim and what they are doing in a very public way.

Governments across the world face a particular problem with multinationals. The common factor is that revenues are shifted to countries with poor governance, poor monitoring and low or no corporate tax rates. Why in 2010 did Bermuda have total reported corporate profits that were the equivalent of 1,643% of its actual GDP? Could that be because that country has a zero rate of corporation tax? Is there not something odd about a company—let us say, Google—that has huge numbers of sale staff in one country, but all the revenues reportedly received in another? It would surprise no one to find that the revenues are recorded in a country that has a corporate tax rate of 12.5%, as opposed to the UK’s 20%.

The House can take a stand against this entirely lawful but—I think we would all agree—unethical manipulation of different countries’ tax rules. As the OECD has rightly pointed out in its work on base erosion and profit shifting, the impact is to create unfair competition. Multinational enterprises that transfer profits to low-tax dominions gain a competitive advantage over, say, a UK rival, which pays 20% tax on its profits. We can seek to level that playing field today.

The whole House supported the Chancellor’s legislation to require financial reporting to HMRC from UK-based multinationals with revenues in excess of approximately £600 million and UK units of such companies where the parent company is based in a country that does not yet agree to country-by-country reporting. That reporting, in accordance with the guidelines that I have mentioned, would include showing for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued, and their total employment, capital, retained earnings and tangible assets. They would be required to identify each entity within the group doing business in a tax jurisdiction and to provide an indication of business activities within a selection of broad areas in which each entity engages. That information must already be provided to HMRC. We are saying, “Let’s go public.” I want the HMRC to be armed with all the necessary information to secure fair tax contributions from these companies, based on their UK activity, but we need more than the HMRC to have a confidential look; we all deserve to see the bigger picture, and by publishing, we will see that.

Publishing is one way to persuade some of these companies to restore their corporate reputations. Was it because of the extraordinary focus on Google that Facebook announced a welcome change to the recording of its profits in the UK? I believe so. If a company is reporting profits in tax havens where they have only a PO box and a name plate but no apparent staff or activity, do we not want to know that? Let us follow our convictions; let us do what we know to be right. Let us shine a light on the activities of these large multinationals which—let us be honest—run rings around revenue and customs authorities around the world. Let us not flinch, play for time, and hope that some international agreement will eventually be reached by the EU or the OECD.

I remind Members that so often during the referendum on the UK’s EU membership, we heard a lot from both sides about our Parliament’s sovereignty and our power to make laws and to tackle issues big and small. Well, this is the test. Is Britain still a leader or are we followers? This amendment is a pro-business measure. If we adopted it, Parliament would be saying that every business big and small must play by the same set of rules. The tide of opinion is changing in the business world. I am delighted that this week I have received support from SSE for the principle of public country-by-country reporting. I am delighted when major firms such as the cosmetics company Lush, which operates in 49 countries, sign up to the Fair Tax Mark and pledge never to use tax havens. I welcome the fact that since 2014, a quarter of the FTSE 100 companies have published information about their tax arrangements, with long-standing British firms such as Barclays foremost among them.

I commend the Minister for the steps that have been taken in the past six years to improve the level of transparency and for the clampdown on the secretive tax deals that have thwarted fair taxation for so long. In our hearts, do we not all know what the Googles of this world will be hoping? They will hope that we sidestep this issue and duck the opportunity for Britain to set a standard, to lead and to demand more openness. This House knows what those who want fair taxes from large and small businesses alike will want. Every right hon. and hon. Member knows what their constituents would say about these firms shifting their profits to low-tax and no-tax dominions. Let us spare a thought, importantly, for the developing countries, which reportedly lose as much in lost tax revenues as they receive in aid each year. That cannot be right.

Finally, in February, the Chancellor told an international meeting of Finance Ministers:

“I think we should be moving to more public country-by-country reporting. This is something which the UK will seek to promote internationally.”

I hear what the Minister says, but there comes a point when we have to show leadership. Much of our tax rules and other rules affecting companies are not applied worldwide. They are British home-grown rules that seek to provide fairness as well as competition.

I welcome the EU’s activities in this area, although I am not sure where we will fit in. We might have to accept whatever the EU says if we are part of the single market. That is a debate for another day. Unfortunately, the present state of the EU’s negotiations does not tackle the problems of those developing countries that lose out. As I understand it, some of the European discussions have not included the publishing of information on the activities of EU-based companies in developing countries. That does not go as far as what we require from companies reporting to our own tax authority, which we are asking to be put in the public domain.

The change that I am calling for would be part of the Minister’s and the Chancellor’s legacy—a chance to lead where other countries are sure to follow. Let us ensure that the age of secrecy is gone. Let us force the multinationals into the light. I humbly request a Division on this amendment, and I urge the Minister and Conservative Members to join right hon. and hon. Members from nine parties in the Lobby with me today to make a historic change. In years to come, we will ask ourselves why we did not do this earlier. Today is the day. Let us stand up for fairness. Today is a day for lions, not lambs. Let us see the British Parliament roar. I urge the Committee to support this amendment.

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It is a pleasure to follow the right hon. Member for Don Valley (Caroline Flint) and to support her amendment. I shall not repeat the arguments that she made so eloquently, but I shall make a few separate points.

Those of us who regard the UK as a great place to do business, and who want to attract international investment here and encourage our businesses to expand overseas and to export, recognise that we need a business climate that inspires confidence, where firms feel that they can compete fairly and that we have a respected financial system, tax system and market in which those operating here are seen to be behaving properly. Over the past few years we have found out from a series of leaks that large multinational companies have been misbehaving. Those companies are hauled through the press and parliamentary Committees, such as the Public Accounts Committee, on which I serve. That is not the right way to boost our business climate.

We need to move on from that and show the people of the UK and people around the world that companies that are based here and operate here follow the rules, and those that do not follow the rules will be caught and dealt with, and will be strongly encouraged, if not forced, to change their behaviour. That is the way to move the debate forward. Running and hiding and waiting for others to do that will not help. It is we who have taken the lead, taken action publicly against those companies and made them change their behaviour. For us to resile from that and say, “We’ve done our bit. Let someone else go first” will not work.

We are one of the main global financial centres. Companies come here to list on our stock market that were not founded here and are not headquartered or based here. We need to set an example and say, “If you want to come and be based here, you need to follow the highest standards. We want you to behave ethically.” I have no problem with UK-based companies trading in low-tax jurisdictions. If they are trading there commercially, if they have assets there, if they have employees there, that is their right, but they should publish a report so we can see that what they are reporting is commensurate with their activities there, and that they are not simply hiding profit there that was not earned there. I welcome the increased transparency that the amendment would provide.

I do not believe the bleak competition warnings. It is not as though every small company would be required to provide such a report. The requirement would apply only to companies with turnover of more than €750 million. I would not like to guess what that is in sterling. I am sure it will gradually go up as the economy strengthens, now that we have left the EU. I would be surprised if many companies of that size have major trading activities in developed countries without having a subsidiary there that is making the sales. If those companies do have such a subsidiary, they will have to file statutory accounts in those territories. I suspect that in most regimes those will be public, so people will know the turnover of those big corporations in those regimes, and they will know what tax is due. Companies filing for UK tax have to provide a segmental analysis that shows where they are operating in the world and breaks down turnover and profit. We are not creating a new set of disclosures that do not already exist; we are trying to enhance the ones that we have and make them work.

I checked some major multinational accounts this morning and found one segment that said, “UK, US and international”. That is of no use to us. The idea of segmental reporting in financial accounts was to provide some disclosure so that we knew who was operating where, how much they were making and what they were doing. I do not believe that for the vast majority of very large companies that are trading ethically and not trying to avoid tax the requirement will be a great hardship. Yes, it may put a little more in the public domain, but it will put that into one document where people can read and understand it, see it transparently and clearly, and get a full picture of what the company is doing.

Everyone will understand that there is no reason why a company based in the UK that happens to make a few sales in France but has no people or assets there should pay French corporation tax. Similarly, there is no reason why a French company selling into the UK would pay UK corporation tax. We can make that clear. What we want to know about is those companies that have a large turnover and very few assets and employees in a very low-tax jurisdiction, so that we can work out whether they are acting legally.

Perhaps they are—perhaps some guy sitting in Guernsey on his own happened to invent a great product and has been receiving royalties. That is fair enough. He is entitled to do that. If he is based in Guernsey, that is rightly his income. I suspect that there are not many such cases, compared with the scale of business activity in those overseas jurisdictions. At least when such activity is transparent the businesses concerned will be able to explain it and defend themselves, or we will all know that those companies are misbehaving and we will be able to choose whether to buy from them or not. The amendment would help us to achieve that. As with all Back-Bench amendments, it is not perfect. The report should be provided in a company’s financial statement so that there is some assurance from the audit process that the data provided are accurate. I urge the Government to bring forward a Bill which would do that, so that the information would be provided in the right place.

It is not perfect for the reporting requirement to be in a tax policy statement that applies only to the UK and without any audit requirement. It may not provide assurance that all the disclosures are absolutely right and that no territories have been omitted or data combined in a way that we cannot understand. I suspect that there will be penalties for failing to publish the whole statement, but no scrutiny of what is published. Perhaps if the same information is provided to HMRC, there will be greater transparency. HMRC may notice that what is in the public domain is not quite the same as the information submitted to it. We could therefore make the proposal better.

It would probably be better if we tackled this issue EU-wide. I am perhaps the only person in the Chamber who welcomes the fact that we shall be making these laws ourselves, rather than having the EU make them for us—tax was always meant to be a member state competency—but if we want to wait a short period to have these things done in a consistent format across the whole of Europe, I would not mind if publication were in 2018 rather than 2017. However, we could at least have a clause that says that we will do these things from 2018 unless the EU has done something that applies here before then, in which case we could repeal that clause.

However, that is not where we are. We have a choice between passing amendment 1 today or waiting and hoping that somewhere else will take the lead on something that we have been leading on. Our Government have rightly introduced a whole new tax to try to stop corporates abusing the global tax regime. I am not sure that a few disclosures are quite as displacing as a whole new tax was, so I am not sure why we are being a little more cautious in this situation.

However, the right way forward is for us to be united on this issue and for the Government to say, “On reflection, we will bring forward a clause on Report,” so that we can tackle this issue in the right way and not in a slightly forced way. That would be the best way forward, and I hope the Minister will agree when he responds to the debate. We could then show that we are all behind the policy I think the Government have. If we cannot do that, I will support amendment 1.

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I am grateful for the support that amendment 1, tabled by my right hon. Friend the Member for Don Valley (Caroline Flint), has received from MPs on both sides of the Chamber and a range of charities and voluntary organisations. The way in which she prepared for the debate was excellent, and I wish I had done as well, but I was a little distracted by other issues.

New clause 9, tabled by me and other hon. Members, would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information to companies incorporated in the Crown dependencies and overseas territories that have significant levels of trading activity in the UK. The purpose of the new clause is to take forward the Prime Minister’s commitment to have publicly available registers of beneficial ownership for all the Crown dependencies and overseas territories.

As others have said, it is difficult to estimate the amount held in tax havens. Some estimates have put the private financial wealth held in them at between £21 billion and £32 billion, and that money is untaxed or very lightly taxed. The French economist Zucman estimated that $7.6 trillion was held offshore last year, which is the equivalent of the US budget for two years. The OECD has estimated that tax havens may cost developing countries the equivalent of three times the global aid budget. We are talking big, big, big sums.

We saw from the Panama papers how much of the money that is held offshore is held in UK tax havens. Of the 214,000 corporate entities that were exposed in the Panama papers, more than half were registered in the British Virgin Islands. I draw Members’ attention to another interesting bit of data, which shows the role of tax havens and overseas territories. A World Bank review that looked at 213 corruption cases over 30 years, from 1980 to 2010, found that 70% of those cases involved anonymous shell entities. The UK Crown dependencies and overseas territories were second behind the US on the list of those providing the shell entities that enabled that corruption and money laundering to take place.

I welcome the action the Government have taken and the leadership they have shown on the international stage, and we could just stay where we are, but the purpose of the new clause is to urge them to go further. All these issues are being revealed, and will continue to be revealed, through leaks—we have had the Falciani leaks and the Luxembourg leaks, and we have now had the Panama leaks. I am waiting for the next set of leaks; I bet they are out there—I bet a whole bunch of journalists are working on them now—but is that the way we want to learn about how corrupt individuals and greedy corporations are hiding their money, aggressively avoiding and evading tax? Would it not be better if we did everything within our power and within our authority to open up these issues so that we could see whether people were paying their fair share of tax, based on their profits, wealth or earnings, depending on whether they were an individual or a corporation?

The Minister knows that people are really angry about this issue. It is not something that has been invented by Opposition Members. I receive huge swathes of emails and letters every time I raise the issue of tax evasion and tax avoidance. If he takes the action we are suggesting and closes down the tax havens, that will be not just popular but right. That may damage the interests of a few wealthy individuals or corporations, which I think the Minister holds in awe, but it will be in the interests of the many, many people and small companies here in the UK who loyally pay their tax without any question.

I want to take the Minister through the pledges the Prime Minister has made. I was delighted in 2013 when he pledged at Loch Erne:

“Every one of the Crown Dependencies and Overseas Territories are going to have an action plan on beneficial ownership.”

In 2013 he also told them that it was time to rip aside the “cloak of secrecy” by creating a public register of beneficial ownership. In 2014 he wrote to the overseas territories urging them to consider having public registers of beneficial ownership, saying that

“beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion.”

In 2015—this is the fourth example—he went to the Caribbean and again made clear his determination that overseas territories should open up. He said:

“I say to them all today, including those in this region, if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

We all agree with that, and we urge the Government to take action. They should stop talking and start acting. They should not always hide behind international co-operation. There is stuff that we can do now and that we should proceed with urgently.

If we are to know how much tax we lose from individuals hiding their money in anonymous accounts in the overseas territories and Crown dependencies—it could well be laundered money—and how much money global companies are hiding in tax havens as part of their aggressive tax avoidance strategies, we need every country to have a register of beneficial ownership, as set out in my right hon. Friend’s amendment, and those registers have to be public. That is especially important for developing countries.

As the Minister knows, we have the power to act. I fear that the reason the Government are not using their power is that they are happy to allow this massive tax avoidance and evasion to continue. I hope the Minister will reassure me in his reply that that is not the case, but that is what it feels like.

The Government have used the powers they currently have in other areas. We could therefore use an Order in Council to instruct all the overseas territories and Crown dependencies that are under our control to issue public registers of beneficial ownership. It is easy. The Conservative Government did it in the past when they used such Orders to ensure that capital punishment was abolished in overseas territories and Crown dependencies. A previous Labour Government used absolutely the same powers to ensure that discrimination against gay men was made illegal in overseas territories and Crown dependencies. If both the main political parties have used those powers in the past, why are the Government so reluctant to use them for something that is so popularly demanded and would be so important, and where they themselves agree that transparency has to be the way forward?

Some of the overseas territories are co-operating with the Government’s endeavours. However, newspaper reports tell us that the Cayman Islands and the British Virgin Islands are ignoring requests to meet officials to discuss evasion and avoidance. I understand that the Prime Minister has not met a single overseas territory since he first made the commitment to take action on opening up these tax havens in August 2013. I also understand that the Minister asked the overseas territories with financial centres to have plans for registers of beneficial ownership by 2014, but he was ignored, and he is still doing nothing.

I have here a table prepared by Transparency International that shows the current commitments on beneficial ownership by overseas territories and Crown dependencies. As the Minister knows, it shows that Turks and Caicos has done nothing, the BVI has done nothing, and the Cayman Islands is half co-operating, while Bermuda and others are refusing to have a public central register. The only country in our control that is having a public central register is ourselves. I congratulate the Minister on that—we are setting an example—but let us use our powers to go further.

What we hear and read from the two most important overseas territories—the British Virgin Islands and the Cayman Islands—is a matter of great concern. The British Virgin Islands did not come to the anti-corruption summit; it is against the proposal. Its Premier and Minister of Finance, Orlando Smith, has said:

“The moment we begin housing vast amounts of highly sensitive, private business information and then providing access to that information to a wide array of actors, the risk of a breach goes up immeasurably.

If legitimate businesses fear that their international transactions will be exposed to the world, or, worse yet, accessed by criminals or terrorists”—

I am not sure how that will happen—

“and used as a weapon of extortion or intimidation—then the gears of international finance will start to grind.”

Talking about terrorists and criminals is purely an excuse. The British Virgin Islands simply does not want to open up the books. It does not want us to know what are the beneficial ownerships of companies that have registered there or individuals who hold their money there.

After the Prime Minister said that he had made such wonderful progress in ensuring registers of beneficial ownership that would help us to find out who owned what, where, Premier McLaughlin of the Cayman Islands said:

“This is what we wanted, this is what we have been pushing for three years, for a disaggregated system which leaves the beneficial ownership information intact with the service providers.”

He got away with what he wanted. He was not forced by us to reveal the data that we so desperately need to find out what is hidden there. He went on to say:

“People don’t do business with us because we are nice”.

That is simply not good enough.

I urge the Minister to take this little new clause really seriously. I will request a Division on it. I urge him to do what he says he wants to do and open up to public account the tax havens that we, the United Kingdom, control.

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I rise to speak briefly to amendment 1. I congratulate my right hon. Friend the Member for Don Valley (Caroline Flint), many members of the Public Accounts Committee, and Members across the House who have signed this simple but important amendment, which, as others have highlighted, would require a clear public register of company activity. I pay particular tribute to the hon. Member for Amber Valley (Nigel Mills), whose expertise on this issue in the Public Accounts Committee has been particularly useful. As he rightly said, this information is mostly public, but one would need to have his qualifications, and there are not many with those, in order to track it down internationally. We on the Public Accounts Committee want a register where it is readily available to the “citizen auditor”. We want to put powers in the hands of the citizen to enable them easily to see where the taxes paid by companies are put.

The Minister spoke of the amendment being defective, but I do not believe that it is. It covers the same large-turnover companies that are covered by other Government reporting requirements. If it is defective, however, I again challenge him to bring back an improved version on Report. He has access to Government lawyers to do this. My right hon. Friend, though a very able woman, perhaps does not have at her fingertips the same expertise in legislative drafting. The power is in the hands of the Government on this issue.

I want to highlight another aspect of our work that I mentioned to the Minister. It is not UK parliamentarians alone who support this measure. In May, I went out to the OECD on behalf of the Public Accounts Committee to lobby and speak to parliamentarians of other nations around the world. We had a very useful and important discussion about the need for greater disclosure for the public benefit, with our citizens pushing our Governments to act decisively. As I said, I subsequently wrote an open letter that I sent to European partners, urging Governments to support the measure that is summarised in the amendment. The letter was signed by the chairs of parliamentary finance committees in Germany, Hungary, Finland, Norway and Slovakia, as well as senior MPs in the Netherlands, the Czech Republic and Bulgaria. Rather than detain the Committee, I draw Members’ attention to the Public Accounts Committee website, which has full details of the letter and information about how we went about it.

My right hon. Friend’s amendment is a really important first step. I appreciate that the Minister is willing to look at a multinational agreement. Unfortunately, however, much to my disappointment and the huge disappointment of my constituency and borough, which had the second-largest vote in the country to remain, we voted to leave the EU last Thursday, and Britain is going it alone, so why not do this now?

New clause 9, tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge), follows the same principle. It also follows a theme pursued by the Public Accounts Committee, when she chaired it and currently, on registering the extent of beneficial ownership in tax havens. I do not need to add a great deal to what she amply amplified. She and I, other hon. Members, and, I think, the Minister agree that transparency—sunlight—on activities affects behaviour. Public trust on tax is at an all-time low. We do not have a level playing field. As she says, the Government have the power to act on this very swiftly. The Prime Minister has supported it and the Minister has supported it, so why not act now?

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I thank all right hon. and hon. Members for their contributions in this very good debate. Most of them focused on amendment 1 and new clause 9, as I will, but the hon. Member for Wolverhampton South West (Rob Marris) raised a number of points that I will quickly run through before turning to the main issues.

On new clause 4, which relates to the review of the GAAR, this is not a deadline issue. I was not making that point, as the hon. Gentleman rightly observed. I would argue that a review of the GAAR is unnecessary. The principal purpose of the GAAR is to deter taxpayers from entering into abusive tax avoidance in the first place. As I have made clear throughout this process, measuring the number of times that the GAAR has been invoked is not a reliable indicator of its success. I made that point when I brought in the legislation relating to the GAAR, and that remains the case.

On clause 153 and schedule 22 and asset-based penalties, the hon. Gentleman asked how we value the asset. The Valuation Office Agency, which is obviously experienced in that area, will value the asset for HMRC. The date of valuation will be the date of sale. For assets not disposed of, the value will be the market value on the last day of the tax year. That is the standard approach.

On the number of people affected by clause 147, the measures are aimed at a small but persistent minority of taxpayers who remain undeterred by the Government’s continued strategy to bear down on tax evasion and tax avoidance. We expect that the total number of taxpayers affected by the measures will be a small proportion of the total avoidance population; I do not wish to indicate anything other than that. This is a principled approach and it is right that that shrinking minority is properly dealt with.

The hon. Gentleman also raised a concern about a double penalty. I hope I can reassure him that the offset provision will apply to ensure that there will be no double penalty apart from the new GAAR penalty, whereby the combined total is capped, in most cases, at 100%.

We could have a longer debate, as we have done in the past, on the wider, familiar issue of HMRC resources. At the summer Budget, the Government provided HMRC with an extra £800 million to fund additional work to tackle evasion and non-compliance by 2020-21. That will enable HMRC to recover a cumulative £7.2 billion in tax over the next five years by tackling evasion and non-compliance. I also point out, as I tend to do in these circumstances, that HMRC’s yield is at record levels and that the tax gap is at record low levels. Although I do not think that the best measure is the number of staff working in a particular area, it is the case that the number in enforcement and compliance has consistently gone up. I accept that that is not the case across HMRC as a whole, although, as the hon. Gentleman has pointed out, the number is increasing at the moment, including in enforcement and compliance.

To return to the issue of penalties and whether they are sufficient, the GAAR penalty has been set at a rate high enough to act as a clear deterrent while being proportionate to the behaviour concerned. As I have said, under the existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, and it is appropriate for the GAAR penalty to be below that range.

Let me respond to the intervention by the right hon. Member for Barking (Dame Margaret Hodge) about whistleblowing. In October 2015 the Financial Conduct Authority published a package of rules designed to encourage a culture in banks whereby individuals feel able to raise concerns. Those rules require a senior manager to be appointed a whistleblowing champion, internal arrangements to handle all types of disclosure, and a requirement to inform the FCA if an employment tribunal with a whistleblower is lost.

Given that I have responded to one point raised by the right hon. Lady, I will now address some of her other points about new clause 9, which seeks to provide more information about the tax gap numbers. My argument is the practical point of whether it is likely that HMRC could estimate or measure the impact of such a specific measure on the tax gap, particularly given that the basis is hypothetical, since the register of persons with significant control is not yet operational. That is, therefore, a challenge, but I accept that the new clause also enables us to have a wider debate about the Crown dependencies and overseas territories. That is an important issue and I want to focus more on it.

We have made extraordinary progress in the past six years with regard to Crown dependencies and overseas territories and, indeed, more widely. When I first took over this role some six years ago, the big campaigning issue for many outside organisations was automatic exchange of information. My predecessor, the right hon. Member for East Ham (Stephen Timms), is held in very high regard by Members on both sides of the House. He was a dedicated Financial Secretary and tax Minister who energetically pursued that agenda, but I can remember him saying in 2010, “That’s very much what we want to do, but we think it’s a long way away.”

The progress that has been made over the past six years, for various reasons, is considerable. The automatic exchange of information, which was once seen as a laudable objective but not something we were going to reach any time soon, has now been reached. It applies to Crown dependencies and overseas territories, which were all early signatories to the common reporting standard, and that is now coming into force. It is fair to say that the UK Government encouraged them to do that, and that is an example of how working in partnership with the Crown dependencies and overseas territories can result in quicker and more effective implementation, whereas imposing legislation reduces that co-operation and can ultimately harm our ability to tackle and deter corruption, tax avoidance and tax evasion. The approach we have taken over the past six years has been successful in making substantial progress, which people of good will on all sides did not think would be possible. The common reporting standard is a good example of that.

Although I accept that Crown dependencies and overseas territories have not signed up to public registers of beneficial ownership, we have to put the issue in context. The UK is pretty much the only jurisdiction that has done that. Of course we should expect Crown dependencies and overseas territories to meet international standards. As a Government, we continue to press the case for ever higher international standards, but failing to have a public register of beneficial ownership is not a breach of international standards. We would like the international standards to be such, but they are not at present. We have to consider the issue in that context.

I do not want to rerun everything I said earlier about amendment 1. I believe that we all share the same objectives and that the question is about how we get to where we want to be. I want to make it absolutely clear that, although there are some technical concerns and flaws in the legislation, the fundamental point is that there is a limit to the extent that we can require a foreign multinational entity to disclose information on its global activities under UK law. That is why we believe that the best way forward is through international efforts on public country-by-country reporting. Even if those flaws can be addressed, we still face that problem.

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In his earlier contribution, the Financial Secretary suggested that UK-headquartered companies would be disadvantaged, but my amendment is completely based on the information already required by HMRC, as laid down by this House with cross-party support. That includes multinational enterprises that are not necessarily UK headquartered but have a turnover of more than £600 million a year. Of course, the amendment does not catch everybody, but it is within the existing remit and range in the statute book. That is why I find it difficult to understand why there is a technical problem with my amendment. All we are saying is, “Make it public.”

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The issue is that foreign multinational entities would not be caught by the amendment. That is the advice I have received. It means that the public will get information only on the taxes paid and profits made by a multinational entity headquartered in the United Kingdom and not on those paid and made by foreign multinational entities such as Google. That is the clear advice I have received on the right hon. Lady’s amendment.

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I feel I have to pursue this point. Amendment 1 would insert two new subparagraphs in schedule 19. The first would mean that a

“group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.”

The qualifying group referred to is based on what the Government have already legislated for. The second subparagraph is very clear:

“In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”

That qualifying group, then, includes UK-headquartered companies but also companies from elsewhere whose turnover is more than £600 million a year, as I have said. It would affect not just UK companies but those companies with activity here that are headquartered elsewhere. I urge the Minister to ask civil servants whether they have got that advice right.

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I assure the right hon. Lady that I have asked civil servants about this particular issue—she will not be entirely surprised to learn that there have been fairly extensive conversations with civil servants about it. We believe that the amendment as drafted would not apply to foreign multinational entities. The challenge is that the information is, essentially, held in the UK and relating to UK-headquartered companies, so only UK-headquartered companies are well placed to provide it. She has highlighted one of the problems with a unilateral approach.

I have a huge amount of sympathy with the right hon. Lady’s argument, as she knows. We have discussed this before. I am pleased that the United Kingdom is leading the way in making progress on this at a number of international forums. I urge the House to consider that we do not need to go it alone at this point. We can work with other countries, given the progress that is being made, quite often at the UK’s instigation.

Another important point was touched on by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) as well as the right hon. Lady, namely developing countries. I have a lot of sympathy with that point. It is worth noting that 39 countries, including the United Kingdom and developing countries such as Nigeria and Senegal, have signed the OECD mechanism for country-by-country reporting. That means that the information produced by companies and provided to tax authorities—not published, but already produced and provided to authorities—is shared with every one of the 39 signatories. I want to encourage other developing countries to sign that agreement, so that they have access to the information. The right hon. Lady made the point earlier that the EU proposals could go further on ensuring more information. I agree. That is the UK position and we have been arguing that case at EU level.

I never want to miss the opportunity to highlight what we do as a country to help developing countries’ tax authorities build up their tax capacity. That work does not get the coverage it deserves. The previous Labour Government also did such work, but we have built on that. The Department for International Development and HMRC do considerable work on helping developing countries ensure that they have the information they need and the capacity to do something with it.

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May I make this offer on amendment 1? My right hon. Friend the Member for Don Valley (Caroline Flint) and I are quite happy to meet the Minister and Treasury officials to iron out any technical deficiencies there may be. I make that offer today so that we can do so before Report. Secondly, I urge the Minister to think a little more broadly, in terms of the world that we live in now after the Brexit vote. If the United Kingdom, having left the European Union, chose to make it a condition of trading in the UK for multinational enterprises not headquartered here that they disclose that information, we could do so.

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I am not sure about the practicality of that. I will also make the point that we remain members of the European Union. There does not seem to be any likelihood of our leaving the EU within two years. Given the progress currently being made on public country-by-country reporting, I hope that the process will conclude while our membership continues.

As I have said, there are some technical issues that could be ironed out in amendment 1, but the fundamental issue of not being able to access information from foreign multinational entities that are not headquartered in the UK would remain a problem. Even with the best will in the world—and the best lawyers and parliamentary counsel—we will not be able to solve that problem.

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Will the Minister meet us?

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I am always happy to discuss this issue with the hon. Gentleman, but that underlying problem still exists.

In the light of all that, I will say that, yes, we want to make progress on public country-by-country reporting, but that needs to be on a multilateral basis. Amendment 1, despite some considerable ingenuity to get it in order to be debated today, does not do what is needed. I therefore urge hon. Members not to support it, in the knowledge that this Government want to make progress on this matter and expect to make considerable progress over the next few months.

Amendment 114 agreed to.

Clause 144, as amended, ordered to stand part of the Bill.

Clause 145

General anti-abuse rule: binding of tax arrangements to lead arrangements

Amendments made: 115, page 198, line 8, leave out “Condition 1 or 2” and insert—

“the condition in sub-paragraph (2)”.

Amendment 116, page 198, line 9, leave out “Condition 1” and insert “The condition”.

Amendment 117, page 198, line 10, at end insert—

“but no notice under paragraph 12 of Schedule 43 or paragraph 9 of Schedule 43B has yet been given in respect of the matter.”

Amendment 118, page 198, leave out lines 11 and 12.

Amendment 119, page 198, line 20, leave out from first “notice” to end of line 21 and insert—

“(a “pooling notice”) which places R’s arrangements in a pool with the lead arrangements.”

Amendment 120, page 198, line 21, at end insert—

“( ) There is one pool for any lead arrangements, so all tax arrangements placed in a pool with the lead arrangements (as well as the lead arrangements themselves) are in one and the same pool.

( )Tax arrangements which have been placed in a pool do not cease to be in the pool except where that is expressly provided for by this Schedule (regardless of whether or not the lead arrangements or any other tax arrangements remain in the pool).”

Amendment 121, page 198, line 22, leave out “notice of binding” and insert “pooling notice”.

Amendment 122, page 198, line 23, leave out

“(which has not been withdrawn)”.

Amendment 123, page 198, line 25, leave out from “43” to end of line 26.

Amendment 124, page 198, line 26, at end insert—

“Notice of proposal to bind arrangements to counteracted arrangements

1A (1) This paragraph applies where a counteraction notice has been given to a person in relation to any tax arrangements (the “counteracted arrangements”) which are in a pool created under paragraph 1.

(2) If a designated HMRC officer considers—

(a) that a tax advantage has arisen to another person (“R”) from tax arrangements that are abusive,

(b) that those tax arrangements (“R’s arrangements”) are equivalent to the counteracted arrangements, and

(c) that the advantage ought to be counteracted under section 209,

the officer may give R a notice (a “notice of binding”) in relation to R’s arrangements.

(3) The officer may not give R a notice of binding if R has been given in respect of R’s arrangements a notice under—

(a) paragraph 1, or

(b) paragraph 3 of Schedule 43.

(4) In this paragraph “counteraction notice” means a notice such as is mentioned in sub-paragraph (2) of paragraph 12 of Schedule 43 or sub-paragraph (3) of paragraph 9 of Schedule 43B (notice of final decision to counteract).

1B”.

Amendment 125, page 198, line 27, after “a” insert “pooling notice or”.

Amendment 126, page 198, line 30, after “A” insert “pooling notice or”.

Amendment 127, page 198, line 34, after “arrangements” insert

“or the counteracted arrangements (as the case may be)”.

Amendment 128, page 199, line 1, after “A” insert “pooling notice or”.

Amendment 129, page 199, leave out lines 4 to 10.

Amendment 130, page 199, line 12, after “a” insert “pooling notice or”.

Amendment 131, page 199, line 16, after “6” insert

“and Schedule 43B (generic referral of tax arrangements)”.

Amendment 132, page 199, line 17, leave out “of binding” and insert

“in question (and accordingly the tax arrangements in question are no longer in the pool)”.

Amendment 133, page 199, line 23, leave out “notice under paragraph 1” and insert “pooling notice or notice of binding”.

Amendment 134, page 199, line 26, leave out

“notice under paragraph 1”

and insert—

“pooling notice or notice of binding”.

Amendment 135, page 199, line 34, at end insert—

“( ) Where a person takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the person had not taken the relevant corrective action if the person fails to enter into the written agreement.”

Amendment 136, page 200, line 6, at end insert—

“Corrective action by lead taxpayer

2A If the person mentioned in paragraph 1(1) takes the relevant corrective action (as defined in paragraph 4A of Schedule 43) before the end of the period of 75 days beginning with the day on which the notice mentioned in paragraph 1(1) was given to that person, the lead arrangements are treated as ceasing to be in the pool.”

Amendment 137, page 200, line 9, leave out “notice of binding” and insert “pooling notice”.

Amendment 138, page 200, line 10, leave out from first “arrangements” to “and” in line 11.

Amendment 139, page 200, line 13, leave out from “about” to “is” in line 14 and insert

“another set of tax arrangements in the pool (“the referred arrangements”)”.

Amendment 140, page 200, line 16, leave out “bound” and insert “pooled”.

Amendment 141, page 200, line 17, at end insert—

“( ) No more than one pooled arrangements opinion notice may be given to a person in respect of the same tax arrangements.”

Amendment 142, page 200, line 19, leave out

“by virtue of Condition 2 in paragraph 1”.

Amendment 143, page 200, line 21, leave out “notice of binding” and insert “pooling notice”.

Amendment 144, page 200, line 22, leave out “bound” and insert “pooled”.

Amendment 145, page 200, line 25, leave out “lead” and insert “referred”.

Amendment 146, page 200, line 29, at end insert—

“( ) In relation to a person who is given a notice of binding “bound arrangements opinion notice” means a written notice which—

(a) sets out a report prepared by HMRC of any opinion of the GAAR Advisory Panel about the counteracted arrangements (see paragraph 1A(1)),

(b) explains the person’s right to make representations falling within sub-paragraph (2), and

(c) sets out the period in which those representations may be made.”

Amendment 147, page 200, line 30, after “given” and insert

“a pooled arrangements opinion notice or”.

Amendment 148, page 200, leave out lines 35 to 38.

Amendment 149, page 200, line 40, leave out “the lead arrangements” and insert

“(i) the referred arrangements (in the case of a pooled arrangements opinion notice), or

(ii) the counteracted arrangements (in the case of a bound arrangements opinion notice).”

Amendment 150, page 201, line 3, leave out from beginning to “paragraph” in line 4 and insert

“any tax arrangements have been placed in a pool by a notice given to a person under”.

Amendment 151, page 201, line 7, leave out “the lead arrangements” and insert

“any other arrangements in the pool (the “referred arrangements”)”.

Amendment 152, page 201, line 10, leave out “lead” and insert “referred”.

Amendment 153, page 201, line 17, leave out

“by virtue of Condition 2 in paragraph 1”

and insert “under paragraph 1A”.

Amendment 154, page 201, line 22, leave out “lead” and insert “counteracted”.

Amendment 155, page 202, line 25, leave out from “applies” to end of line 38 and insert

“if—

(a) pooling notices given under paragraph 1 of Schedule 43A have placed one or more sets of tax arrangements in a pool with the lead arrangements,

(b) the lead arrangements (see paragraph 1(1) of Schedule 43A) have ceased to be in the pool, and

(c) no referral under paragraph 5 or 6 of Schedule 43 has been made in respect of any arrangements in the pool.

(2) A designated HMRC officer may determine that, in respect of each of the tax arrangements that are in the pool, there is to be given (to the person to whom the pooling notice in question was given) a written notice of a proposal to make a generic referral to the GAAR Advisory Panel in respect of the arrangements in the pool.

(3) Only one determination under sub-paragraph (2) may be made in relation to any one pool.

(3A) The persons to whom those notices are given are “the notified taxpayers”.”

Amendment 156, page 203, leave out lines 1 to 4.

Amendment 157, page 203, line 6, leave out “representations, and” and insert “a proposal.”.

Amendment 158, page 203, leave out lines 7 to 16.

Amendment 159, page 203, line 18, leave out from “given” to end of line 20 and insert

“to propose to HMRC that it—

(a) should give T a notice under paragraph 3 of Schedule 43 in respect of the arrangements to which the notice under paragraph 1 relates, and

(b) should not proceed with the proposal to make a generic referral to the GAAR Advisory Panel in respect of those arrangements.”

Amendment 160, page 203, leave out lines 21 to 25.

Amendment 161, page 203, line 26, leave out

“representations are made in accordance with sub-paragraph (2)”

and insert

“a proposal is made in accordance with sub-paragraph (1)”.

Amendment 162, page 203, line 27, leave out “them” and insert “it”.

Amendment 163,  page 203, line 28, leave out from beginning to end of line 22 on page 204.

Amendment 164,  page 204, line 26, leave out “given a notice” and insert “made a proposal”,

Amendment 165, page 204, line 31, leave out “gives a notice” and insert “makes a proposal”.

Amendment 166, page 204, line 32, after “must” insert

“, after the end of that 30 day period,”.

Amendment 167, page 204, leave out lines 34 and 35 and insert

“( ) give a notice under paragraph 3 of Schedule 43 in respect of one set of tax arrangements in the relevant pool, or”.

Amendment 168, page 204, leave out lines 37 and 38 and insert

“tax arrangements in the relevant pool”.

Amendment 169, page 205, line 18, after “which” insert “the designated officer considers”.

Amendment 170, page 207, line 35, at end insert—

“( ) In section 210 (consequential relieving adjustments), in subsection (1)(b), after “Schedule 43,” insert “paragraph 5 or 6 of Schedule 43A or paragraph 9 of Schedule 43B,”.”

Amendment 171, page 207, line 40, after “1” insert “or 1A”.

Amendment 172, page 207, line 41, leave out “lead” and insert

“referred or (as the case may be) counteracted”.

Amendment 173, page 208, line 7, leave out “1(4)” and insert “1A(2)”.

Amendment 174, page 208, line 8, at end insert—

““pooling notice” has the meaning given by paragraph 1(4) of Schedule 43A;”.

Amendment 178, page 208, line 24, at end insert—

“(10A) Section 10 of the National Insurance Contributions Act 2014 (GAAR to apply to national insurance contributions) is amended in accordance with subsections (10B) to (10E).

(10B) In subsection (4), at the end insert “, paragraph 5 or 6 of Schedule 43A to that Act (pooling of tax arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referral of arrangements: notice of final decision)”.

(10C) After subsection (6) insert—

“(6A) Where, by virtue of this section, a case falls within paragraph 4A of Schedule 43 to the Finance Act 2013 (referrals of single schemes: relevant corrective action) or paragraph 2 of Schedule 43A to that Act (pooled schemes: relevant corrective action)—

(a) the person (“P”) mentioned in sub-paragraph (1) of that paragraph takes the “relevant corrective action” for the purposes of that paragraph if (and only if)—

(i) in a case in which the tax advantage in question can be counteracted by making a payment to HMRC, P makes that payment and notifies HMRC that P has done so, or

(ii) in any case, P takes all necessary action to enter into an agreement in writing with HMRC for the purpose of relinquishing the tax advantage, and

(b) accordingly, sub-paragraphs (2) to (8) of that paragraph do not apply.”

(10D) In subsection (11)—

(a) for “and HMRC” substitute “, “HMRC” and “tax advantage””;

(b) after “2013” insert “(as modified by this section)”.

(10E) After subsection (11) insert—

“(12) See section 10A for further modifications of Part 5 of the Finance Act 2013.”

(10F) After section 10 of the National Insurance Contributions Act 2014 insert—

10A Application of GAAR in relation to penalties

(1) For the purposes of this section a penalty under section 212A of the Finance Act 2013 is a “relevant NICs-related penalty” so far as the penalty relates to a tax advantage in respect of relevant contributions.

(2) A relevant NICs-related penalty may be recovered as if it were an amount of relevant contributions which is due and payable.

(3) Section 117A of the Social Security Administration Act 1992 or (as the case may be) section 111A of the Social Security Administration (Northern Ireland) Act 1992 (issues arising in proceedings: contributions etc) has effect in relation to proceedings before a court for recovery of a relevant NICs-related penalty as if the assessment of the penalty were a NICs decision as to whether the person is liable for the penalty.

(4) Accordingly, paragraph 5(4)(b) of Schedule 43C to the Finance Act 2013 (assessment of penalty to be enforced as if it were an assessment to tax) does not apply in relation to a relevant NICs-related penalty.

(5) In the application of Schedule 43C to the Finance Act 2013 in relation to a relevant NICs-related penalty, paragraph 9(5) has effect as if the reference to an appeal against an assessment to the tax concerned were to an appeal against a NICs decision.

(6) In paragraph 8 of that Schedule (aggregate penalties), references to a “relevant penalty provision” include—

(a) any provision mentioned in sub-paragraph (5) of that paragraph, as applied in relation to any class of national insurance contributions by regulations (whenever made);

(b) section 98A of the Taxes Management Act 1970, as applied in relation to any class of national insurance contributions by regulations (whenever made);

(c) any provision in regulations made by the Treasury under which a penalty can be imposed in respect of any class of national insurance contributions.

(7) The Treasury may by regulations—

(a) disapply, or modify the effect of, subsection (6)(a) or (b);

(b) modify paragraph 8 of Schedule 43C to the Finance Act 2013 as it has effect in relation to a relevant penalty provision by virtue of subsection (6)(b) or (c).

(8) Section 175(3) to (5) of SSCBA 1992 (various supplementary powers) applies to a power to make regulations conferred by subsection (7).

(9) Regulations under subsection (7) must be made by statutory instrument.

(10) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.

(11) In this section “NICs decision” means a decision under section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671).

(12) In this section “relevant contributions” means the following contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992—

(a) Class 1 contributions;

(b) Class 1A contributions;

(c) Class 1B contributions;

(d) Class 2 contributions which must be paid but in relation to which section 11A of the Act in question (application of certain provisions of the Income Tax Acts in relation to Class 2 contributions under section 11(2) of that Act) does not apply.””

Amendment 175, page 208, line 28, leave out from “notice” to “in” in line 30 and insert

“has been given under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements)”.

Amendment 176, page 208, line 34, leave out from “Panel” to end of line 36 and insert

“about the other arrangements (see subsection (8)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013.”

Amendment 177, page 209, line 2, leave out from “(4)(d)” to end of line 6 and insert

“other arrangements” means—

(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);

(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”

Amendment 179, page 209, line 6, at end insert—

“(13A) In section 220 of FA 2014 (content of notice given while a tax enquiry is in progress)—

(a) in subsection (4)(c), after “219(4)(c)” insert “, (d) or (e)”;

(b) in subsection (5)(c), after “219(4)(c)” insert “, (d) or (e)”;

(c) in subsection (7), for the words from “under” to the end substitute “under—

(a) paragraph 12 of Schedule 43 to FA 2013,

(b) paragraph 5 or 6 of Schedule 43A to that Act, or

(c) paragraph 9 of Schedule 43B to that Act,

as the case may be.”

(13B) Section 287 of FA 2014 (Code of Practice on Taxation for Banks) is amended in accordance with subsections (13C) to (13E).

(13C) In subsection (4), after “(5)” insert “or (5A)”.

(13D) In subsection (5)(b), after “Schedule” insert “or paragraph 5 or 6 of Schedule 43A to that Act”.

(13E) After subsection (5) insert—

“(5A) This subsection applies to any conduct—

(a) in relation to which there has been given—

(i) an opinion notice under paragraph 7(4)(b) of Schedule 43B to FA 2013 (GAAR advisory panel: opinion that such conduct unreasonable) stating the joint opinion of all the members of a sub-panel arranged under that paragraph, or

(ii) one or more such notices stating the opinions of at least two members of such a sub-panel, and

(b) in relation to which there has been given a notice under paragraph 9 of that Schedule (HMRC final decision on tax advantage) stating that a tax advantage is to be counteracted.

(5B) For the purposes of subsection (5), any opinions of members of the GAAR advisory panel which must be considered before a notice is given under paragraph 5 or 6 of Schedule 43A to FA 2013 (opinions about the lead arrangements) are taken to relate to the conduct to which the notice relates.”

(13F) In Schedule 32 to FA 2014 (accelerated payments and partnerships), paragraph 3 is amended in accordance with subsections (13G) and (13H).

(13G) In sub-paragraph (5), after paragraph (c) insert—

(d) the relevant partner in question has been given a notice under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel about the other arrangements (see sub-paragraph (7)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013;

(e) the relevant partner in question has been given a notice under paragraph 9(2) of Schedule 43B to FA 2013 (GAAR: generic referral of arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel which considered the generic referral in respect of those arrangements was as set out in paragraph 7(4)(b) of that Schedule.”

(13H) After sub-paragraph (6) insert—

“(7) “Other arrangements” means—

(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);

(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”

(13I) In Schedule 34 to FA 2014 (promoters of tax avoidance schemes: threshold conditions), in paragraph 7—

(a) in paragraph (a), at the end insert “(referrals of single schemes) or are in a pool in respect of which a referral has been made to that Panel under Schedule 43B to that Act (generic referrals),”;

(b) in paragraph (b)—

(i) for “in relation to the arrangements” substitute “in respect of the referral”;

(ii) after “11(3)(b)” insert “or (as the case may be) 7(4)(b)”;

(c) in paragraph (c)(i) omit “paragraph 10 of”.”—(Mr Gauke.)

Clause 145, as amended, ordered to stand part of the Bill.

Clause 146

General Anti-Abuse Rule: Penalty

Amendments made: 82, page 209, line 14, after “person” insert “(P)”.

Amendment 83, page 209, leave out lines 15 and 16.

Amendment 84, page 209, line 17, leave out “the person” and insert “(P)”.

Amendment 85, page 209, line 21, leave out “the” and insert “particular”.

Amendment 86, page 209, line 22, at end insert—

“(ba) a tax document has been given to HMRC on the basis that the tax advantage arises to P from those arrangements,

(bb) that document was given to HMRC—

(i) by P, or

(ii) by another person in circumstances where P knew, or ought to have known, that the other person gave the document on the basis mentioned in paragraph (ba), and”

Amendment 87, page 209, line 33, at end insert—

‘( ) In this section the reference to giving a tax document to HMRC is to be interpreted in accordance with paragraph 11(g) and (h) of Schedule 43C.”

Amendment 88, page 210, line 16, at end insert—

‘( ) For the purposes of this paragraph consequential adjustments under section 210 are regarded as part of the counteraction in question.

( ) If the counteraction affects the person’s liability to two or more taxes, the taxes concerned are to be considered together for the purpose of determining the value of the counteracted advantage.”

Amendment 89, page 214, line 33, after “tax” insert

“(including any amount chargeable as if it were corporation tax or treated as corporation tax)”

Amendment 90, page 214, line 34, at end insert

“and (v) diverted profits tax;”.

Amendment 91, page 215, line 34, after “given” insert “a pooling notice or”.

Amendment 92, page 215, line 34, leave out “paragraph 1 of”.

Amendment 93, page 215, line 41, at beginning insert

“in the case of a pooling notice,”.

Amendment 94, page 215, line 47, leave out from beginning to “with” in line 48 and insert

“in the case of a notice of binding,”.

Amendment 95, page 215, line 49, leave out “of binding”.

Amendment 96, page 216, line 6, leave out “binding” and insert

“pooling or binding (as the case may be)”.

Amendment 97, page 216, line 43, at end insert—

(ja) an appeal under section 103 of FA 2016 (apprenticeship levy: appeal against an assessment), or”.

Amendment 98, page 216, line 45, leave out “(j)” and insert “(ja)”.

Amendment 99, page 217, line 23, at end insert—

‘( ) Where the taxpayer takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the taxpayer had not taken the relevant corrective action if the taxpayer fails to enter into the written agreement.”—(Mr Gauke.)

Clause 146, as amended, ordered to stand part of the Bill.

Clause 147 ordered to stand part of the Bill.

Schedule 18

Serial Tax Avoidance

Amendments made: 100, page 480, line 19, at end insert “, associated persons and partnerships”

Amendment 101, page 480, line 32, at end insert—

‘( ) A warning notice given by virtue of paragraph 46C must also explain the effect of paragraph 46E (information in certain cases involving partnerships).”

Amendment 102, page 484, line 10, after “decision)” insert—

“, paragraph 5 or 6 of Schedule 43A to that Act (pooled arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referrals: notice of final decision)”.

Amendment 103, page 484, leave out lines 23 and 24 and insert—

“the necessary corrective action for the purposes of section 208 of FA 2014 has been taken”.

Amendment 104, page 484, line 28, at end insert—

“(1A) In sub-paragraph (1) the reference to giving a follower notice to P includes a reference to giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner (as defined in paragraph 2(5) of Schedule 31 to FA 2014).”

Amendment 105, page 484, line 35, leave out from “advantage”” to end of line 36 and insert—

“has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act).”

Amendment 106, page 484, line 42, at end insert—

“(6) For the purposes of this paragraph a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph (a) or (b) of paragraph 2(2) of Schedule 31 to FA 2014.”

Amendment 107, page 485, line 8, after “election” insert—

“, or a partnership return is made,”

Amendment 108, page 490, line 22, at end insert—

“( ) If the person mentioned in sub-paragraph (1) is a person carrying on a trade or business in partnership, the information which may be published also includes—

(a) any trading name of the partnership, and

(b) information about other members of the partnership of the kind described in sub-paragraph (4)(a) or (b).”

Amendment 109, page 494, line 31, at end insert—

“( ) In this paragraph “relevant failure”, in relation to a relevant defeat, is to be interpreted in accordance with sub-paragraphs (2) to (7) of paragraph 43.”

Amendment 110, page 504, line 43, at end insert—

“Associated persons treated as incurring relevant defeats

46A (1) Sub-paragraph (2) applies if a person (“P”) incurs a relevant defeat in relation to any arrangements (otherwise than by virtue of this paragraph).

(2) Any person (“S”) who is associated with P at the relevant time is also treated for the purposes of paragraphs 2 (duty to give warning notice) and 3(2) (warning period) as having incurred that relevant defeat in relation to those arrangements (but see sub-paragraph (3)).

For the meaning of “associated” see paragraph 46B.

(3) Sub-paragraph (2) does not apply if P and S are members of the same group of companies (as defined in paragraph 46(9)).

(4) In relation to a warning notice given to S by virtue of sub-paragraph (2), paragraph 2(4)(c) (certain information to be included in warning notice) is to be read as referring only to paragraphs 3, 17 and 18.

(5) A warning notice which is given to a person by virtue of sub-paragraph (2) is treated for the purposes of paragraphs 19(1) (duty to give relief restriction notice) and 30 (penalty) as not having been given to that person.

(6) In sub-paragraph (2) “the relevant time” means the time when P is given a warning notice in respect of the relevant defeat.

Meaning of “associated”

46B (1) For the purposes of paragraph 46A two persons are associated with one another if—

(a) one of them is a body corporate which is controlled by the other, or

(b) they are bodies corporate under common control.

(2) Two bodies corporate are under common control if both are controlled—

(a) by one person,

(b) by two or more, but fewer than six, individuals, or

(c) by any number of individuals carrying on business in partnership.

(3) For the purposes of this section a body corporate (“H”) is taken to control another body corporate (“B”) if—

(a) H is empowered by statute to control B’s activities, or

(b) H is B’s holding company within the meaning of section 1159 of and Schedule 6 to the Companies Act 2006.

(4) For the purposes of this section an individual or individuals are taken to control a body corporate (“B”) if the individual or individuals, were they a body corporate, would be B’s holding company within the meaning of those provisions.

Partners treated as incurring relevant defeats

46C (1) Where paragraph 46D applies in relation to a partnership return, each relevant partner is treated for the purposes of this Part of this Act as having incurred the relevant defeat mentioned in paragraph 46D(1)(b), (2) or (3)(b) (as the case may be).

(2) In this paragraph “relevant partner” means any person who was a partner in the partnership at any time during the relevant reporting period (but see sub-paragraph (3)).

(3) The “relevant partners” do not include—

(a) the person mentioned in sub-paragraph (1)(b), (2) or (3)(b) (as the case may be) of paragraph 46D, or

(b) any other person who would, apart from this paragraph, incur a relevant defeat in connection with the subject matter of the partnership return mentioned in sub-paragraph (1).

(4) In this paragraph the “relevant reporting period” means the period in respect of which the partnership return mentioned in sub-paragraph (1), (2) or (3) of paragraph 46D was required.

Partnership returns to which this paragraph applies

46D (1) This paragraph applies in relation to a partnership return if—

(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and

(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition A (final counteraction of tax advantage under general anti-abuse rule).

(2) Where a person has incurred a relevant defeat by virtue of sub-paragraph (1A) of paragraph 13 (Condition B: case involving partnership follower notice) this paragraph applies in relation to the partnership return mentioned in that sub-paragraph.

(3) This paragraph applies in relation to a partnership return if—

(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and

(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition C (return, claim or election made in reliance on DOTAS arrangements).

(4) The references in this paragraph to a relevant defeat do not include a relevant defeat incurred by virtue of paragraph 46A(2).

Partnerships: information

46E (1) If paragraph 46D applies in relation to a partnership return, the appropriate partner must give HMRC a written notice (a “partnership information notice”) in respect of each sub-period in the information period.

(2) The “information period” is the period of 5 years beginning with the day after the day of the relevant defeat mentioned in paragraph 46D.

(3) If, in the case of a partnership, a new information period (relating to another partnership return) begins during an existing information period, those periods are treated for the purposes of this paragraph as a single period (which includes all times that would otherwise fall within either period).

(4) An information period under this paragraph ends if the partnership ceases.

(5) A partnership information notice must be given not later than the 30th day after the end of the sub-period to which it relates.

(6) A partnership information notice must state—

(a) whether or not any relevant partnership return which was, or was required to be, delivered in the sub-period has been made on the basis that a relevant tax advantage arises, and

(b) whether or not there has been a failure to deliver a relevant partnership return in the sub-period.

(7) In this paragraph—

(a) “relevant partnership return” means a partnership return in respect of the partnership’s trade, profession or business;

(b) “relevant tax advantage” means a tax advantage which particular DOTAS arrangements enable, or might be expected to enable, a person who is or has been a partner in the partnership to obtain.

(8) If a partnership information notice states that a relevant partnership return has been made on the basis mentioned in sub-paragraph (6)(a) the notice must—

(a) explain (on the assumptions made for the purposes of the return) how the DOTAS arrangements enable the tax advantage concerned to be obtained, and

(b) describe any variation in the amounts required to be stated in the return under section 12AB(1) of TMA 1970 which results from those arrangements.

(9) HMRC may require the appropriate partner to give HMRC a notice (a “supplementary information notice”) setting out further information in relation to a partnership information notice.

In relation to a partnership information notice “further information” means information which would have been required to be set out in the notice by virtue of sub-paragraph (6)(a) or (8) had there not been a failure to deliver a relevant partnership return.

(10) A requirement under sub-paragraph (9) must be made by a written notice and the notice must state the period within which the notice must be complied with.

(11) If a person fails to comply with a requirement of (or imposed under) this paragraph, HMRC may by written notice extend the information period concerned to the end of the period of 5 years beginning with—

(a) the day by which the partnership information notice or supplementary information notice was required to be given to HMRC or, as the case requires,

(b) the day on which the person gave the defective notice to HMRC,

or, if earlier, the time when the information period would have expired but for the extension.

(12) For the purposes of this paragraph—

(a) the first sub-period in an information period begins with the first day of the information period and ends with a day specified by HMRC,

(b) the remainder of the information period is divided into further sub-periods each of which begins immediately after the end of the preceding sub-period and is twelve months long or (if that would be shorter) ends at the end of the information period.

(13) In this paragraph “the appropriate partner” means the partner in the partnership who is for the time being nominated by HMRC for the purposes of this paragraph.

Partnerships: special provision about taxpayer emendations

46F (1) Sub-paragraph (2) applies if a partnership return is amended at any time under section 12ABA of TMA 1970 (amendment of partnership return by representative partner etc) on a basis that—

(a) results in an increase or decrease in, or

(b) otherwise affects the calculation of,

any amount stated under subsection (1)(b) of section 12AB of that Act (partnership statement) as a partner’s share of any income, loss, consideration, tax or credit for any period.

(2) For the purposes of paragraph 14 (Condition C: counteraction of DOTAS arrangements), the partner is treated as having at that time amended—

(a) the partner’s return under section 8 or 8A of TMA 1970, or

(b) the partner’s company tax return,

so as to give effect to the amendments of the partnership return.

(3) Sub-paragraph (4) applies if a partnership return is amended at any time by HMRC as a result of a disclosure made by the representative partner or that person’s successor on a basis that—

(a) results in an increase or decrease in, or

(b) otherwise affects the calculation of,

any amount stated under subsection (1)(b) of section 12AB (partnership statement) as the share of a particular partner (P) of any income, loss, consideration, tax or credit for any period.

(4) If the conditions in sub-paragraph (5) are met, P is treated for the purposes of paragraph 14 as having at that time amended—

(a) P’s return under section 8 or 8A of TMA 1970, or

(b) P’s company tax return,

so as to give effect to the amendments of the partnership return.

(5) The conditions are that the disclosure—

(a) is a full and explicit disclosure of an inaccuracy in the partnership return, and

(b) was made at a time when neither the person making the disclosure nor P had reason to believe that HMRC was about to begin enquiries into the partnership return.

Supplementary provision relating to partnerships

46G (1) In paragraphs 46C to 46F and this paragraph—

“partnership” is to be interpreted in accordance with section 12AA of TMA 1970 (and includes a limited liability partnership);

“the representative partner”, in relation to a partnership return, means the person who was required by a notice served under or for the purposes of section 12AA(2) or (3) of TMA 1970 to deliver the return;

“successor”, in relation to a person who is the representative partner in the case of a partnership return, has the same meaning as in TMA 1970 (see section 118(1) of that Act).

(2) For the purposes of this Part of this Act a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member after the change.”

Amendment 112, page 507, leave out lines 15 to 20.

Amendment 111, page 507, line 38, at end insert—

““partnership follower notice” has the meaning given by paragraph 2(2) of Schedule 31 to FA 2014;

“partnership return” means a return under section 12AA of TMA 1970;”

Amendment 113, page 508, line 13, at end insert—

‘( ) For the purposes of this Schedule a partnership return is regarded as made on the basis that a particular tax advantage arises to a person from particular arrangements if—

(a) it is made on the basis that an increase or reduction in one or more of the amounts mentioned in section 12AB(1) of TMA 1970 (amounts in the partnership statement in a partnership return) results from those arrangements, and

(b) that increase or reduction results in that tax advantage for the person.”—(Mr Gauke.)

Schedule 18, as amended, agreed to.

Clause 148

Promoters of tax avoidance schemes

Amendments made: 69, page 219, line 15, at end insert—

‘(1A) An authorised officer must make the determination set out in subsection (1B) if the officer becomes aware at any time (“the relevant Part 2B time”) that—

(a) a person meets a condition in subsection (6), (7) or (8), and

(b) at the relevant Part 2B time another person (“P”), who is carrying on a business as a promoter, meets that condition by virtue of Part 2B of Schedule 34A (meeting the section 237A conditions: bodies corporate and partnerships).

(1B) The authorised officer must determine whether or not—

(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and

(b) P’s meeting of the condition as mentioned in subsection (1A)(b),

should be regarded as significant in view of the purposes of this Part.”

Amendment 70, page 219, line 16, leave out “Subsection (1) does” and insert “Subsections (1) and (1A) do”.

Amendment 71, page 219, leave out lines 21 to 25.

Amendment 72, page 219, line 25, at end insert—

‘(3A) Subsection (1A) does not apply if, at the relevant Part 2B time, an authorised officer is under a duty to make a determination under section 237(5) in relation to P.

(3B) But in a case where subsection (1) does not apply because of subsection (3), or subsection (1A) does not apply because of subsection (3A), subsection (5) of section 237 has effect as if—

(a) the references in paragraph (a) of that subsection to “subsection (1)”, and “subsection (1)(a)” included subsection (1) of this section, and

(b) in paragraph (b) of that subsection the reference to “subsection (1A)(a)” included a reference to subsection (1A)(a) of this section and the reference to subsection (1A)(b) included a reference to subsection (1A)(b) of this section.”

Amendment 73, page 219, line 28, at end insert—

‘( ) If the authorised officer determines under subsection (1B) that—

(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and

(b) P’s meeting of the condition as mentioned in subsection (1A)(b),

should be regarded as significant in view of the purposes of this Part, the officer must give P a conduct notice, unless subsection (5) applies.”

Amendment 74, page 225, line 7, at end insert—

( ) Part 2A contains provision about when a relevant defeat is treated as occurring in relation to a person;

( ) Part 2B contains provision about when a person is treated as meeting a condition in subsection (6), (7) or (8) of section 237A;”

Amendment 75, page 226, line 9, leave out from “person” to end of line 11 and insert

“is carrying on a business as a promoter and—the person is or has been a promoter in relation to the arrangements, or that would be the case if the condition in sub-paragraph (2) were met.”

(i) the person is or has been a promoter in relation to the arrangements, or

(ii) that would be the case if the condition in sub-paragraph (2) were met.”

Amendment 76, page 228, line 26, after first “to” insert

“, paragraph 5(2) or 6(2) of Schedule 43A to or paragraph 9(2) of Schedule 43B to”.

Amendment 77, page 230, line 9, at end insert—

Part 2A

Relevant defeats: associated persons

Attribution of relevant defeats

16A (1) Sub-paragraph (2) applies if—

(a) there is (or has been) a person (“Q”),

(b) arrangements (“the defeated arrangements”) have been entered into,

(c) an event occurs such that either—

(i) there is a relevant defeat in relation to Q and the defeated arrangements, or

(ii) the condition in sub-paragraph (i) would be met if Q had not ceased to exist,

(d) at the time of that event a person (“P”) is carrying on a business as a promoter (or is carrying on what would be such a business under the condition in paragraph 3(2)), and

(e) Condition 1 or 2 is met in relation to Q and P.

(2) The event is treated for all purposes of this Part of this Act as a relevant defeat in relation to P and the defeated arrangements (whether or not it is also a relevant defeat in relation to Q, and regardless of whether or not P existed at any time when those arrangements were promoted arrangements in relation to Q).

(3) Condition 1 is that—

(a) P is not an individual,

(b) at a time when the defeated arrangements were promoted arrangements in relation to Q—

(i) P was a relevant body controlled by Q, or

(ii) Q was a relevant body controlled by P, and

(c) at the time of the event mentioned in sub-paragraph (1)(c)—

(i) Q is a relevant body controlled by P,

(ii) P is a relevant body controlled by Q, or

(iii) P and Q are relevant bodies controlled by a third person.

(4) Condition 2 is that—

(a) P and Q are relevant bodies,

(b) at a time when the defeated arrangements were promoted arrangements in relation to Q, a third person (“C”) controlled Q, and

(c) C controls P at the time of the event mentioned in sub-paragraph (1)(c).

(5) For the purposes of sub-paragraphs (3)(b) and (4)(b), the question whether arrangements are promoted arrangements in relation to Q at any time is to be determined on the assumption that the reference to “design” in paragraph (b) of section 235(3) (definition of “promoter” in relation to relevant arrangements) is omitted.

Deemed defeat notices

16B (1) This paragraph applies if—

(a) an authorised officer becomes aware at any time (“the relevant time”) that a relevant defeat has occurred in relation to a person (“P”) who is carrying on a business as a promoter,

(b) there have occurred, more than 3 years before the relevant time—

(i) one third party defeat, or

(ii) two third party defeats, and

(c) conditions A1 and B1 (in a case within paragraph (b)(i)), or conditions A2 and B2 (in a case within paragraph (b)(ii)), are met.

(2) Where this paragraph applies by virtue of sub-paragraph (1)(b)(i), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the time of the third party defeat, given P a single defeat notice under section 241A(2) in respect of it.

(3) Where this paragraph applies by virtue of sub-paragraph (1)(b)(ii), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the second of the two third party defeats, given P a double defeat notice under section 241A(3) in respect of the two third party defeats.

(4) Section 241A(8) has no effect in relation to a notice treated as given as mentioned in subsection (2) or (3).

(5) Condition A1 is that—

(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of the third party defeat,

(b) at the time of the third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a defeat notice in respect of the third party defeat, had the officer been aware that it was a relevant defeat in relation to P, and

(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of the third party defeat have never been met (ignoring this paragraph).

(6) Condition A2 is that—

(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of each, or both, of the third party defeats,

(b) at the time of the second third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a double defeat notice in respect of the third party defeats, had the officer been aware that either of the third party defeats was a relevant defeat in relation to P, and

(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of those third party defeats (or either of them) have never been met (ignoring this paragraph).

(7) Condition B1 is that, had an authorised officer given P a defeat notice in respect of the third party defeat at the time of that relevant defeat, that defeat notice would still have effect at the relevant time (see sub-paragraph (1)).

(8) Condition B2 is that, had an authorised officer given P a defeat notice in respect of the two third party defeats at the time of the second of those relevant defeats, that defeat notice would still have effect at the relevant time.

(9) In this paragraph “third party defeat” means a relevant defeat which has occurred in relation to a person other than P.

Meaning of “relevant body” and “control”

16C (1) In this Part of this Schedule “relevant body” means—

(a) a body corporate, or

(b) a partnership.

(2) For the purposes of this Part of this Schedule a person controls a body corporate if the person has power to secure that the affairs of the body corporate are conducted in accordance with the person’s wishes—

(a) by means of the holding of shares or the possession of voting power in relation to the body corporate or any other relevant body,

(b) as a result of any powers conferred by the articles of association or other document regulating the body corporate or any other relevant body, or

(c) by means of controlling a partnership.

(3) For the purposes of this Part of this Schedule a person controls a partnership if the person is a controlling member or the managing partner of the partnership.

(4) In this paragraph “controlling member” has the same meaning as in Schedule 36 (partnerships).

(5) In this section “managing partner”, in relation to a partnership, means the member of the partnership who directs, or is on a day-to-day level in control of, the management of the business of the partnership.

Part 2B

Meeting section 237A conditions: bodies corporate and partnerships

Treating persons under another’s control as meeting section 237A condition

16D (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—

(a) that condition was met by a person (“C”) at a time when—

(i) C was carrying on a business as a promoter, or

(ii) RB was carrying on a business as a promoter and C controlled RB, and

(b) RB is controlled by C at the relevant Part 2B time.

(2) Sub-paragraph (1) does not apply if C is an individual.

(3) For the purposes of determining whether the requirements of sub-paragraph (1) are met by reason of meeting the requirement in sub-paragraph (1)(a)(i), it does not matter whether RB existed at the time when C met the section 237A condition.

Treating persons in control of others as meeting section 237A condition

16E (1) A person other than an individual is treated as meeting a section 237A condition at the relevant Part 2B time if—

(a) a relevant body (“A”) met the condition at a time when A was controlled by the person, and

(b) at the time mentioned in paragraph (a) A, or another relevant body (“B”) which was also at that time controlled by the person, carried on a business as a promoter.

(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether A or B (or neither) exists at the relevant Part 2B time.

Treating persons controlled by the same person as meeting section 237A condition

16F (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—

(a) another relevant body met that condition at a time (“time T”) when it was controlled by a person (“C”),

(b) at time T, there was a relevant body controlled by C which carried on a business as a promoter, and

(c) RB is controlled by C at the relevant Part 2B time.

(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether—

(a) RB existed at time T, or

(b) any relevant body (other than RB) by reason of which the requirements of sub-paragraph (1) are met exists at the relevant Part 2B time.

Interpretation

16G (1) In this Part of this Schedule—

“control” has the same meaning as in Part 2A of this Schedule;

“relevant body” has the same meaning as in Part 2A of this Schedule;

“relevant Part 2B time” means the time referred to in section 237A(1A);

“section 237A condition” means any of the conditions in section 237A(6), (7) and (8).

(2) For the purposes of paragraphs 16D(1)(a), 16E(1)(a) and 16F(1)(a), the condition in section 237A(6) (occurrence of 3 relevant defeats in the 3 years ending with the relevant time) is taken to have been met by a person at any time if at least 3 relevant defeats have occurred in relation to the person in the period of 3 years ending with that time.”

Amendment 78, page 234, line 27, at end insert—

‘(9A) Schedule 36 (promoters of tax avoidance schemes: partnerships) is amended in accordance with subsections (9B) to (9G).

(9B) In Part 2, before paragraph 5 insert—

“Defeat notices

4A A defeat notice that is given to a partnership must state that it is a partnership defeat notice.”.

(9C) In paragraph 7(1)(b) after “a” insert “defeat notice,”.

(9D) In paragraph 7(2) after “the” insert “defeat notice,”.

(9E) After paragraph 7 insert—

“Persons leaving partnership: defeat notices

7A (1) Sub-paragraphs (2) and (3) apply where—

(a) a person (“P”) who was a controlling member of a partnership at the time when a defeat notice (“the original notice”) was given to the partnership has ceased to be a member of the partnership,

(b) the defeat notice had effect in relation to the partnership at the time of that cessation, and

(c) P is carrying on a business as a promoter.

(2) An authorised officer may give P a defeat notice.

(3) If P is carrying on a business as a promoter in partnership with one or more other persons and is a controlling member of that partnership (“the new partnership”), an authorised officer may give a defeat notice to the new partnership.

(4) A defeat notice given under sub-paragraph (3) ceases to have effect if P ceases to be a member of the new partnership.

(5) A notice under sub-paragraph (2) or (3) may not be given after the original notice has ceased to have effect.

(6) A defeat notice given under sub-paragraph (2) or (3) is given in respect of the relevant defeat or relevant defeats to which the original notice relates.”

(9F) In paragraph 10—

(a) in sub-paragraph (1)(b) for “conduct notice or a” substitute “, defeat notice, conduct notice or”;

(b) in sub-paragraph (3), after “partner—” insert—

“(za) a defeat notice (if the original notice is a defeat notice);”.

(c) in sub-paragraph (4), after “(“the new partnership”)—” insert—

“(za) a defeat notice (if the original notice is a defeat notice);”

(d) after sub-paragraph (5) insert—

“(5A) A notice under sub-paragraph (3)(za) or (4)(za) may not be given after the end of the look-forward period of the original notice.”

(9G) After paragraph 11 insert—

11A The look-forward period for a notice under paragraph 7A(2) or (3) or 10(3)(za) or (4)(za)—

(a) begins on the day after the day on which the notice is given, and

(b) continues to the end of the look-forward period for the original notice (as defined in paragraph 7A(1)(a) or 10(2), as the case may be).”

Amendment 79, page 234, line 27, at end insert—

‘(9A) Part 2 of Schedule 2 to the National Insurance Contributions Act 2015 (application of Part 5 of FA 2014 to national insurance contributions) is amended in accordance with subsections (9B) and (9C).

(9B) After paragraph 30 insert—

“Threshold conditions

30A (1) In paragraph 5 of Schedule 34 (non-compliance with Part 7 of FA 2004), in sub-paragraph (4)—

(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that P is to be deemed not to have failed to comply with the provision concerned as P had a reasonable excuse for not doing the thing required to be done, and

(b) the reference in paragraph (c) to a determination is to be read accordingly.

(2) In this paragraph “corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.

Relevant defeats

30B (1) Schedule 34A (promoters of tax avoidance schemes: defeated arrangements) has effect with the following modifications.

(2) References to an assessment (or an assessment to tax) include a NICs decision relating to a person’s liability for relevant contributions.

(3) References to adjustments include a payment in respect of a liability to pay relevant contributions (and the definition of “adjustments” in paragraph 17 accordingly has effect as if such payments were included in it).

(4) In paragraph 9(3) the reference to an enquiry into a return includes a relevant contributions dispute (as defined in paragraph 6 of this Schedule).

(5) In paragraph 21(3)—

(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that the person is to be deemed not to have failed to comply with the provision concerned as the person had a reasonable excuse for not doing the thing required to be done, and

(b) the reference in paragraph (c) to a determination is to be read accordingly.

“Corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.”

(9C) In paragraph 31 (interpretation)—

(a) before paragraph (a) insert—

(za) “NICs decision” means a decision under section 8 of SSC(TF)A 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671);”

(b) in paragraph (b), for “are to sections of” substitute “or Schedules are to sections of, or Schedules to”.”

Amendment 80, page 234, line 39, after “person” insert “or an associated person”.

Amendment 81, page 235, line 2, at end insert—

‘(12A) For the purposes of subsection (11) a person (“Q”) is an “associated person” in relation to another person (“P”) at any time when any of the following conditions is met—

(a) P is a relevant body which is controlled by Q;

(b) Q is a relevant body, P is not an individual and Q is controlled by P;

(c) P and Q are relevant bodies and a third person controls P and Q.

(12B) In subsection (12A) “relevant body” and “control” are to be interpreted in accordance with paragraph 16C of Schedule 34A to FA 2014.”—(Mr Gauke.)

Clause 148, as amended, ordered to stand part of the Bill.

Clause 149 ordered to stand part of the Bill.

Schedule 19

Large businesses: tax strategies and sanctions

Amendment proposed: 1, page 516, line 21, at end insert—

‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.

(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”—(Caroline Flint.)

Question put, That the amendment be made.

Division 25

28 June 2016

The Committee divided:

Ayes: 273
Noes: 295

Question accordingly negatived.

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More than two hours having elapsed since the commencement of proceedings, the proceedings were interrupted (Programme Order, 11 April).

The Chair put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83D).

Schedule 19 ordered to stand part of the Bill.

Clause 150 ordered to stand part of the Bill.

Schedule 20 ordered to stand part of the Bill.

Clause 151 ordered to stand part of the Bill.

Schedule 21 ordered to stand part of the Bill.

Clauses 152 and 153 ordered to stand part of the Bill.

Schedule 22 ordered to stand part of the Bill.

Clause 154 ordered to stand part of the Bill.

New Clause 9

Estimated impact of extending the scope of the Register of People with Significant Control Regulations 2016

“The Chancellor of the Exchequer must, within 12 months of this Act coming into force, publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the requirement placed on UK-incorporated companies by the Register of People with Significant Control Regulations 2016 to publish a register of people with significant control to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.”—(Dame Margaret Hodge.)

This new clause would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information about people who have significant control over them to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.

Brought up.

Question put, That the clause be added to the Bill.

Division 26

28 June 2016

The Committee divided:

Ayes: 268
Noes: 305

Question accordingly negatived.

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Clause 41

Charge for financial year 2017

Question proposed, That the clause stand part of the Bill.

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With this it will be convenient to take the following:

Clauses 42 to 44 stand part.

Clauses 65 to 71 stand part.

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The Bill introduces measures on small business investment that will simplify the tax system and ensure that allowances are fair and not open to abuse.

Clause 41 charges corporation tax for the financial year beginning 1 April 2017. Corporation tax is an annual tax approved by Parliament each year. This is an essential provision that enables us to collect tax. The key reform announced in the Budget to support business investment and back Britain’s economy is set out in clause 42, which cuts the rate of corporation tax to 17% with effect from 1 April 2020. I expect that our debate will focus on this provision, so I will start here, before commenting more briefly on the other clauses.

I will begin by setting out our broader strategy on corporation tax. The Government have been clear that taxes should be low but must be paid, and since 2010 we have made progress towards those goals. The main rate of corporation tax was 28% in 2010. By 2020, we will have cut the UK main rate by more than a third to make the UK more competitive and to support growth and investment. It will be one of the biggest boosts British business has ever seen. Further corporation tax cuts will increase the returns companies receive on their investments, and by 2020 corporation tax cuts delivered since 2010 will be saving businesses almost £15 billion a year. This will ensure that the UK has by far the lowest rate of corporation tax in the G20 and make Britain even more attractive to inward investors.

At the same time, we have taken significant measures to clamp down on tax avoidance and aggressive tax planning. The Government successfully helped initiate the G20-OECD base erosion and profits shifting project and worked internationally, including with G20 and OECD partners, to bring this to a successful conclusion in October 2015. We spent the earlier part of today’s debate considering some of the measures introduced in the Bill to address avoidance and evasion, but the Bill also takes further steps elsewhere. Key measures include tackling hybrid mismatch arrangements, introducing a restriction on the tax deductibility of corporate interest and expense, extending the UK’s withholding tax rights over royalties and ensuring non-resident property developers pay tax in the UK on profits they make in this country.

Low corporation rates enable businesses to increase investment, take on new staff, increase wages or reduce prices. This is borne out in receipts data: onshore corporation tax receipts have risen by almost 20% since 2010, despite lowering corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. This modelling suggests that the cuts could increase long-run GDP by more than 1%—almost £24 billion in today’s prices. The corporation tax cuts and other reforms we introduced have completely changed perceptions of the UK tax regime. The UK is now regularly cited in surveys as one of the most competitive regimes in the world.

As the Chancellor has said, in the last six years, the Government and the British people have worked hard to rebuild the British economy. We have worked systematically through a plan that means that today Britain has the strongest major advanced economy in the world. Cutting corporation tax rates has been a central part of the Government’s economic strategy, and that strategy is working.

The UK has been one of the fastest-growing economies in the G7, and the OECD forecasts the UK to be the fastest-growing G7 economy in 2016. There are 2.3 million more people in employment since 2010, and business investment is now 30% higher than it was in 2010. Tax competition is dynamic. In the last few decades, we have seen countries across the world cut their corporation tax rates. We cannot afford to stand still while others rush ahead. The UK needs to be as competitive as possible. A new 17% rate of corporation tax sends out the message loud and clear around the world that the British economy is fundamentally strong and highly competitive and that Britain is open for business. For those reasons, I urge the Committee to support the clauses, and to speak in anticipation of what we are about to hear, I hope the Committee will reject amendment 21, tabled by the hon. Member for Wolverhampton South West (Rob Marris), which would cancel the corporation tax cuts.

Let me move on to the other measures in this group. Clause 43 abolishes vaccine research relief from 1 April 2017. This relief is available only to large companies and is claimed fewer than 10 times a year, with a value below £5 million. The Government believe that direct spending programmes such as the recently announced £1 billion Ross fund offer a more effective and flexible approach to supporting the development of medicines and vaccines, and will have a far greater impact.

Clause 44 makes a small change to ensure that the introduction of the research and development expenditure credit does not have the unwanted effect of reducing the amount of relief available to certain small businesses. The expenditure credit replaced the old large company R and D tax credit scheme in 2016, following a period of three years in which both were available simultaneously. We recognise that R and D tax relief plays a vital role in supporting productive investment in the UK. These two changes will ensure that R and D tax support remains effective in meeting this objective.

Clause 65 extends the current time limit for claiming enhanced capital allowances in enterprise zones to eight years from the date on which the enterprise zones are announced. Businesses operating in the 46 enterprise zones across the UK can opt either for a rebate on business rates or enhanced capital allowance covering 100% of investment. Extending the time limit for claiming enhanced capital allowances to eight years will allow all zones to enjoy it for the same duration. I am sure that hon. Members of all parties will welcome this.

Clause 66 will strengthen the existing capital allowance anti-avoidance revisions to ensure that artificial and contrived arrangements cannot be used to gain excessive capital allowances. Capital allowances allow businesses to write off amounts that they spend on plant and machinery against their taxable profits. This reflects the depreciation in the value of the assets over time. When the business disposes of the asset, the legislation is designed to subtract this disposal value so that the allowances are reduced to reflect the net cost of the asset to the business. HMRC has received several disclosures of tax-avoidance schemes where the disposal value has been manipulated to an artificially low level. This leads to excessive capital allowances being received; the tax result does not reflect commercial reality and so constitutes an avoidance of tax. Clause 66 prevents this and ensures that business pays the correct amount of tax.

Clause 67 will ensure that trading income received in non-monetary form is fully brought into account in calculating taxable profits, income tax and for corporation tax purposes. HMRC consider that existing law and practice already requires that trading and property income received in non-monetary form is brought into account in calculating taxable profits. This is an equitable position arising from a long-held principle established in case law. However, this legal principle has been challenged in some instances. Clause 67 will insert a rule to provide that the value of the money’s worth is to be brought into account for the purposes of calculating the profits of the trade. This will have no effect on the vast majority of trades and will put beyond doubt that such income is taxable in full.

Clause 68 repeals the renewals allowance legislation. This allowance provided a tax relief for spending by a business on the replacement and alteration of trade tools. The relief is no longer available to businesses, and relief was repealed from the effective date on 1 April 2016 for companies and on 5 April 2016 for sole traders. The clause removes a relief that predated capital allowances. The number of traders using the relief was small, and there has been some evidence of abuse. Alternative means of tax relief for spending by businesses is available through the capital allowances regime and there is new relief for residential landlords for costs incurred in replacing domestic items such as furniture and appliances.

Clauses 69 and 70 make changes to the wear-and-tear allowance that currently allows landlords fully furnishing properties to claim a 10% tax deduction of their net rental income when calculating the taxable profits each year. The allowance can be claimed regardless of the actual costs incurred on replacements and can be claimed even when a landlord has not actually made any replacements. The changes made by clauses 69 and 70 will replace this with a new allowance, permitting all landlords to deduct the actual costs they incur on replacing domestic items such as furniture and appliances. In conclusion, this change will create a fairer system for landlords and for tenants where the genuine costs of replacement can be reclaimed against income tax.

Clause 71 makes changes to incorporate the revisions to the OECD transfer pricing guidelines secured as part of the joint OECD /G20 base erosion and profit-shifting project into UK domestic law. The beneficial revisions to the OECD guidelines ensure that they are refocused on appropriately rewarding real economic activity within a multinational enterprise. This is in line with the key principle that profits should be recognised where economic activity takes place. In addition, the revisions provide tax authorities with a new tool better to investigate the pricing of unique intangibles where there is no independent information with which to ascertain their value, ensuring that tax bases cannot be eroded through the mispriced transfer of the significant assets. Clause 71 will also widen the scope of materially updating the OECD guidelines, which can be incorporated within UK law by way of a Treasury order. Together, these changes will further support the work undertaken by HMRC to tackle aggressive transfer pricing positions taken by some multinational enterprise groups and ensure that these are swiftly incorporated into UK legislation.

As I have outlined, these clauses take a number of important steps to make our business tax environment one that better supports enterprise and growth, and targets reliefs where they are effective in advance of this Government’s plans for a successful economy. They implement OECD guidelines that the UK has championed on transfer pricing, and take other steps to clamp down on avoidance. They withdraw outdated and little-used allowances in favour of broader reliefs and spending programmes on vaccines. They support Britain’s enterprise zones, set up by the Government to boost growth and employment in key areas of opportunity. By bringing down the headline rate of corporation tax to 17%—the lowest in the G20—we are making it clearer than ever that Britain is open for business. These clauses should therefore stand part of the Bill.

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The Labour party supports all these grouped clauses except clause 42. I will not press amendment 21 to a Division because it has not been selected, but I will be inviting all Members, particularly those in the Opposition, to vote against clause 42 on corporation tax.

Clause 41 is effectively a technical change. I appreciate that it is on corporation tax and it goes with clause 42, but I think it need not detain the House now. On the abolition of vaccine research relief, paragraph 15 of the explanatory notes on clause 43 helpfully says:

“The low level of take-up of the relief suggests it does not have a significant impact on a company’s research decisions. The government believes that direct spending programmes like the recently announced Ross Fund offer a more effective and flexible approach to the production of medicines and vaccines.”

The Ross Fund is £1 billion and was announced by the Chancellor of the Exchequer in November 2015.

I appreciate this is not directly the Minister’s departmental responsibility, but if we are looking at things such as the Ross Fund, where the Government are directly funding rather than encouraging research through fiscal levers, I would like him to indicate whether that Ross Fund money will count as part of the 0.7% of GDP commitment for overseas aid. I again salute the Government for reaching that 0.7% target. The Labour Government of whom I was a Back Bencher for many years moved significantly towards that target, but it was the coalition Government who reached it, and it is this Government who have maintained that in spite of some pressure on occasions from what might be called their natural supporters, who have reservations about that 0.7%. I do salute the Government for reaching that, and they have the complete support of Opposition Members on maintaining that commitment, but there are always potential difficulties in how one measures what goes into that 0.7%. Whether this would come under the Department for International Development or the Department of Health in terms of vaccine research and the Ross Fund I know not, but I hope the Minister will, as a Treasury Minister, be able to give some indication as to whether this kind of thing counts towards the 0.7%, because were it to do so, some of us would raise an eyebrow, and I think one ought to know.

It also appears that the Government have decided that direct spending programmes are more effective and flexible for research than funding through fiscal measures. For us socialists, it is a welcome conversion on the part of the Government that they agree that they have a role in direct funding, but in terms of clause 43 and the abolition of vaccine research relief, this must form part of a wider canvas. I found it a bit shocking when the National Audit Office said a few months ago that there were about 1,200 tax reliefs. From memory, it found about six different sorts of measures that are often commonly called tax reliefs, and that only about 300 of them were being monitored by the Government as to their efficacy or otherwise.

It appears that the Government have monitored the efficacy of vaccine research relief and decided that it is not very efficacious. As I understand it, fewer than 10 companies were claiming the relief. I can understand that if that is the case the Government might wish to remove it, although of course in terms of pharmaceutical research, they could be 10 extremely large companies. The Government monitored that, however, and I salute them for doing so and for coming up with some results from their monitoring.

Clause 44 updates aspects of the cap on research and development aid. Broadly, we on the Opposition Benches—Labour, certainly—support this, because it was a Labour Government who introduced R and D relief for small and medium-sized companies in the Finance Act 2000, and the large companies scheme was introduced in the Finance Act 2002—I believe I sat on the Committee of that Bill as well, Sir Roger. At that time there was cross-party consensus, as there was when we were in opposition in 2013 regarding the introduction of R and D expenditure credits and their gradual replacement of the large companies scheme; we supported those measures in 2013. However, R and D tax credits have in very round terms led to £1 billion a year being claimed between the tax years of 2000-01 and 2013-14. That sounds very good and I have all kinds of figures here—helpfully supplied by the indefatigable researcher Imogen Watson, with whom the Minister will be familiar by now. I will not detain the House by reading them all out, but 33,800 different companies were claiming under the SME scheme and 7,800 were claiming under the large companies scheme.

Those figures are impressive: an average claim of £1 billion sounds impressive. However, since 2008 productivity has of course stalled in this country. One reason why successive Governments have given R and D tax reliefs of various different orders of magnitude and types is to encourage R and D, which will lead to newer products, goods and services and also to more efficient ways of doing things. Unfortunately, that has not been reflected in the productivity situation in the UK for many years, and I urge the Minister to reflect on that. In terms of the previous clause, he looked at the efficacy of the vaccine relief and decided to go in-house rather than carry on with the relief. I am not saying that the Government should take R and D in-house—I do not want to be misunderstood on that—but they should be looking at the efficacy, or otherwise, of it.

Clause 65 extends the capital allowances to designated assisted areas within enterprise zones for up to eight years. Of course the Labour party supports that. It is designed to encourage the purchase of energy-saving technologies. Again, I have a long list of qualifying technologies, which I will not read out.

I do want to ask a technical question, however, which I hope the Minister, with his usual omniscience, will be able to reply to. Pipework insulation is a qualifying technology, as are things such as high-speed hand air dryers and solar thermal systems, but I do not see on the list—it may be a lacuna on the list, or my fault—other forms of insulation other than pipework insulation. This is all part of the programme, which broadly has cross-party support from, I think, all parties in this House, that the UK should cut its CO2 emissions and greenhouse gas emissions, and one way to do that is by using fiscal levers. It would appear on the face of it that it would be good to have on that list insulation generally, in contradistinction to just pipework insulation. If it is not on the list, no doubt the Minister can explain why in his reply.

The second point that I want to make on the extension of capital allowances, the eight-year period and so on was raised by my hon. Friend the Member for Leeds West (Rachel Reeves) in a written question on 26 April this year to which the Minister helpfully replied on 5 May 2016 when he said:

“The government has carefully considered the case for exempting plant and machinery from business rates. However, there would also be fundamental operational challenges to delivering an exemption on account of the way in which the plant and machinery is embedded in the premises concerned”.

I ask the Minister to look at that again. It is a long time since I practised property law—I do not know whether the Minister ever did; that may have been a good few years ago as well—but there used to be things called fixtures and fittings, and indeed I believe that they still exist. They are often set out in commercial, rather than residential, leases. I am not sure why the issue of the embedded plant and machinery to which the Minister referred in his written answer is so difficult. I may be missing something, but I should have thought that if commercial lawyers can do it for fixtures and fittings in commercial leases, HMRC could do it for plant and machinery, embedded or otherwise, and that it would be worth the Government’s looking again at the issue raised by my hon. Friend.

Clause 66 is entitled “Capital allowances: anti-avoidance relating to disposals”. I wonder whether the Minister might be able to supply figures showing how much has been lost to the Exchequer through such avoidance schemes, but of course we support a clampdown on them.

Clause 67, entitled “Trade and property business profits: money’s worth”, confirms that trading income received in non-monetary forms is fully accountable in calculations of taxable trading profits for income tax and corporation tax purposes. The fact that trading income received in non-monetary forms is assessable for those purposes would seem fairly obvious to many of us. Indeed, paragraph 12 of the explanatory notes on clause 67 refers to a 1948 decision to that effect, made by what was then the judicial Committee of the House of Lords; it would be called the Supreme Court now. I hope that the Minister will be able to tell us what has happened in the intervening 68 years to require that fact to be included in legislation, given that, presumably, there was formerly reliance on the case law precedent cited in the explanatory notes.

Furthermore—this is just a curiosity of mine, in which I hope the Minister will, with his usual patience, indulge me—if trading income received in non-monetary forms is to be thus assessable, what about the barter economy? Some people trade through barter. It is not simply an agreement between neighbours; there are trading arrangements which have traditionally been considered not to be susceptible to income tax and the like. Might it be an unintended consequence of clause 67 that such arrangements would in future be assessable?

Labour broadly supports clause 68, entitled “Replacement and alteration of tools”. However, I want to raise an issue that was raised with us by the Association of Taxation Technicians, to whom we are grateful. The clause would repeal legislation providing tax relief for expenditure incurred by a business on replacement or alteration of trade tools. We are talking about an important, although small, corner of the economy, and the proposed repeal could cause small businesses book-keeping problems. The association helpfully provided an example, and, if you will indulge me, Mr Howarth, I will read it out. It is not very long.

“One of our members has given an example of the use of the provision by a carpenter”—

one of the association’s clients—

“who has to replace a saw almost every week. Treating expenditure on saws as if it was on consumables (in the same way as screws, nails and glue) makes perfect sense. If the provision is repealed”—

which, of course, is what clause 68 would do—

“each of the saws will have to be capitalised and then written off for capital allowance purposes. Such repeal would make no difference at all to the trader’s actual tax position. It would simply complicate record keeping, add administrative burden and increase the risk of computational error.”

I wonder whether the Minister would have a look at that again and establish whether some kind of de minimis threshold could be introduced for businesses of that kind. Let me give an example of my own; I do not know whether it would be caught. A hairdresser who needed to replace his or her scissors every month might then have to account for that in capital terms, which would involve an awful lot of paperwork for a small business.

Clause 69 is coupled with clause 70: they are twins. In a sense, clause 69 introduces an alternative version of what clause 70 removes, namely the way in which those in the property business can claim tax relief for wear and tear. The amount was, across the board, 10%. I understand that the arrangement was fairly rough and ready and no records had to be produced, and there was a thought that some landlords were abusing it. Clause 70 gets rid of that regime, and clause 69 introduces a new regime specifying actual expenditure. It sounds fairer that someone cannot claim 10% across the board if they have not spent the money, and that they have to demonstrate what they have spent. Clause 70 gets rid of the 10% allowance, and clause 69 requires records to be produced to prove that money has been spent. The difficulty is that we are talking about small businesses, and the dilemma for any Government is the trade-off between accurate, fair accounting and taxation, and something that is a bit rough and ready but much less onerous for small businesses.

The Chartered Institute of Taxation, to which I continue to be grateful, has expressed its concern that there is no definition in statute of what constitutes a dwelling house. That is a bit worrying. I tried on two occasions to meet representatives of the Residential Landlords Association to discuss this matter, but unfortunately they had to cancel on both occasions so I am none the wiser. If the Minister could say a little more about the Government’s thinking on the rough and ready 10% rule versus the accuracy required by clause 69, and about the definition of a dwelling house, that would be helpful.

Clause 71 deals with transfer pricing applications, but I will not say a great deal on that matter because we ventilated those issues, albeit from a somewhat different angle, when we discussed amendment 1 earlier. However, there is a quote on transfer pricing that I quite like from the Tax Justice Network. In quoting Lee Sheppard, it stated:

“Transfer pricing is the leading edge of what is wrong with international taxation…The purpose of the OECD model treaty was to make life comfortable for American, British, German, and French multinationals by ensuring that the taxation of their operations by host countries is limited by separate company accounting and the permanent establishment concept. Treaties accomplish this task very well—so well, in fact, that many multinationals pay tax nowhere”—

but those treaties are

“clumsy tools that affluent developed countries have used among themselves, to their collective detriment, and seek to impose on developing countries.”

I have quite a lot of sympathy with that. We read of large companies such as Apple appearing to pay almost no tax anywhere, although we can never be sure about that because of the lack of transparency. I can understand the practice of transfer pricing and I can understand multinationals acting within the law in shifting stuff—legitimately if not ethically—to the lowest tax jurisdiction, but paying no tax at all seems a bit bizarre. The UK Government should continue to take the laudable steps that they have been taking over the past 16 years, including the past six years, to clamp down on that activity.

Clause 42 deals with corporation tax. The official Opposition—and, I hope, all MPs—will be voting against clause 42 stand part, because it would lower corporation tax. The Institute for Fiscal Studies is a fountain of considerable wisdom. It is not always right, of course—no one is—but it is worth listening to. It has calculated that the Government’s cuts to corporation tax have cost £10.8 billion a year. The Minister has said, and I do not doubt him, that overall receipts are up, despite the rates being lower. However, that is not the only yardstick. We also have to look at how much higher the receipts would have been, had the rate not been slashed to the lowest in the G7 and the joint lowest in the G20.

Of course my party wants a competitive tax rate, but we also want a fair tax system. My understanding is that in 1999-2000, corporation tax as a percentage of total HMRC receipts was 11.67%. By 2015-16, that percentage had crashed to 8.31%—a huge drop. The Minister has referred to the efforts of this Government and the Government that immediately preceded them to rebuild the British economy, which he referred to as being fundamentally strong. It will not surprise him that I beg to differ. However, there are definitely good points.

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While there may have been a drop from 11.7% of total receipts to 8.3%, will the hon. Gentleman accept that other new forms of taxation, such as climate change levies and other climate taxes, have been imposed on businesses and have increased total tax revenues? The cake is bigger, so the slice of corporation tax is smaller, but the total amount is larger.

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The hon. Gentleman is quite right about the climate change levy. Changes in this Finance Bill effectively make the climate change levy just another tax, because it will no longer be used by the Government as a lever to change behaviour, which is why Labour dislikes the proposal. Business tax has probably gone up a bit overall, but what has happened in the economy, which the Minister described as fundamentally strong, is that employment is up by almost 2.5 million, and we salute that as a considerable achievement.

However, it has been bought on a sea of debt, on the drip, on the never-never. The national debt has gone up 60% in six years. We still have a huge annual deficit. Pay has stagnated for six years, and public sector pay will remain stagnant for another two or three years. Overall capital investment is markedly down. We have the biggest trade deficit in our history. Productivity is completely stalled. It is welcome that 2 million more people have jobs, which is good and the best route out of poverty, but almost every other economic indicator is poor and the Government propose to cut corporation tax.

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My hon. Friend mentioned borrowing. Given the economic situation over the last few days, it seems that the Chancellor might have to borrow more money to add to the national debt, and he is now talking about increasing taxes and cutting public services as well.

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I will not go too far down that route, but this Chancellor—in this sense and this sense only—has been saved by the Brexit vote. He was never going to meet his forecasts for getting the deficit down in the lifetime of this Parliament. He also completely failed when he forecast in the previous Parliament that the deficit would be down to zero by 2015. He then forecast that it would be down to zero by 2020. That was never going to happen. We predicted that and I am sad that it was the case.

Now, with the Brexit vote, as my hon. Friend the Member for Coventry South (Mr Cunningham) says, the forecast will be nowhere near right, but no doubt the Chancellor will then use the vote as an excuse. The Brexit vote has revealed some of the underlying problems in the British economy that just about every serious economist has been pointing out for the last five years. Cutting corporation tax in this circumstance is a bad idea, and I urge all hon. and right hon. Members to vote against clause 42.

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It is a pleasure to follow the hon. Member for Wolverhampton South West (Rob Marris). I want to say a few words about clause 42, because although I clearly welcome the planned reduction in corporation tax by 2020, following the welcome vote last week, it may now need to be part of the picture of how we change our business tax regime over that period. Unlike earlier, there are now a few more of us present who thought the vote was welcome.

For us to capitalise on the opportunities of leaving the European Union, we will have to make our country even more attractive to outside investment to stimulate growth, a key part of which is our corporation tax system. As the Minister is planning ahead that far and as we now have the special group in the Cabinet Office under the Chancellor of the Duchy of Lancaster, I urge careful thought about what our tax system should look like by the time we leave the European Union, what signals we are giving and how we can further improve it and make it more attractive. Perhaps we could look at an even lower rate to send out a signal that we are positive about business activity and that we want more investment and will reward it further.

Perhaps we could look again at how we do capital allowances, especially for infrastructure investment and manufacturing items, for example. Perhaps we could re-examine how we give tax relief for the building of new factories. This country is not actually that generous and does not give tax relief for any industrial building, which is not a clever way of encouraging manufacturing. In fact, we are one of the least attractive tax regimes for various infrastructure investment activity because of our lack of relief for structures. Perhaps now that we have the need and the time to review that, we should ask whether it is clever to structure our tax system in a way that is not as attractive as possible for industrial building and infrastructure activity, especially as we will need a lot of investment as we go forward.

Given that we are now leaving the EU, there are some other areas on which we can capitalise. We have had to make various changes to our tax codes, especially to our corporation tax code, to comply with EU law, some of which take away some anti-avoidance rules that we would have quite liked to keep. Perhaps now would be a good time to think: should we bring those back as part of our tax system to stop assets being moved offshore at a discount without the tax being paid? Certain examples of that were exaggerated in the campaign. None the less, there are some perfectly sensible and reasonable anti-avoidance rules that we could now bring back.

We had to introduce some compliance obligations in our system to try to make ourselves compliant with EU law which perhaps we will not need. For example, there is a measure that extends transfer pricing rules to UK transactions on the statute book but it has never really been tested or enforced. Perhaps we can sweep that away, thus taking away a compliance burden.

The vote may prompt our questioning whether our ever-expanding corporation tax code is sensible. Is now the right time, when we know that we have a big change coming, to see whether there is a better way of taxing our businesses? Is there a simpler tax code—perhaps something closer to accounts profit—that does not need all these adjustments? Can we capitalise on our general anti-abuse rule and perhaps have not quite so many detailed technical anti-avoidance rules? Can we just now rely on a robust principle that we know those rules are there, that they work and that we are building on them? Might it not make us an even more attractive destination if we say that we now have an even simpler tax code?

As I have said, I welcome the signal that we are reducing the corporation tax rate further, but if we are to help our economy grow over the next few years, we need to send some even stronger signals. There is more that we can do to our corporation tax code over the next four years than this sector is currently planning.

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I specifically want to talk about clause 43 in relation to vaccine breakthrough. I have issues with a couple of the Government’s proposals. First, it has been made clear that this measure costs the Government very little. In terms of foreign projections, the removal of the relief does not increase the Treasury’s take by a vast amount.

The explanatory notes on this were incredibly helpful and I really appreciated them, but they seem to be missing a few things. First, they say that only 10 firms claimed the relief, but they do not make it clear how many firms research and develop vaccines. After my slightly rudimentary research, I could find only about 10 firms that research and develop vaccines, which means that all of them claim the relief. Therefore, if I am correct, the uptake is quite high. That could be why companies are choosing to research and develop vaccines. I would appreciate it if the Minister confirmed how many companies research and develop these things. If he does not have that information today, perhaps he could write to me with any details he has on that.

The explanatory notes mention the Ross Fund. I appreciate that the fund is a good thing and that it is good that the Government are financially supporting the development of vaccines, but it seems to me that the fund does not necessarily cover everything that the vaccine relief previously covered. The Ross Fund covers the following: antimicrobial resistance, which is a really important thing to be funding in this day and age; diseases with epidemic potential, which, given what happened with Ebola, is a really important area to be funding; and neglected tropical diseases, which is a fabulous area for the Government to support. It is really important to be putting money into the various areas of research that have previously been neglected.

From the research that I have, it seems that vaccine research relief covers HIV/AIDS, whereas the Ross Fund does not. I would really appreciate it if the Government told whether HIV/AIDS research now falls through a gap, because it is an area that we need to continue to research and for which we do not currently have any vaccine or cure. I do not want it to get lost because companies are no longer able to claim aid or funding for such research.

I will not speak at too much length, as my concerns are around clause 43 and the fact that, although helpful, the explanatory notes left me with quite a few questions.

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I want to add my support to clause 42, notwithstanding the important points made by my hon. Friend the Member for Amber Valley (Nigel Mills), who set out the need for further thinking, perhaps, in the light of the Brexit vote. I was on a different side of the debate from him—only marginally—because I thought that there were concerns about economic risk, but there are certainly opportunities ahead, as well.

We need to ensure that we are ready to explore and realise those opportunities and the Government are absolutely committed to doing that. I hope that the Opposition are as well. It seems that the hon. Member for Wolverhampton South West (Rob Marris) is indicating that. We are up for that. As a result, I am perplexed about why clause 42 is not being supported by the Opposition. Such measures were vital when the proposals were first set out, and it is now even more important to put out a clear signal that we are open for business, that we understand business, that we want business to continue to come to the UK and that we want our exporters to thrive and flourish.

The corporation tax level is an important signal and an important driver in that regard. It is noticeable that the Federation of Small Businesses stated at the time of the announcement that it saw clause 42 as an important statement of intent that will provide a boost for affected firms. Small businesses are of course the backbone of our economy, but it is clear that the clause is an important signal for bigger businesses, too. It helps to illustrate and underline that Britain is open for business.

Given the decision made by the public, which I fully respect, it will be very important that we maintain the flow and increase the levels of foreign direct investment. I thought we were exposed in that area for a period of time, and I think that that exposure is still real, but we are currently the biggest destination in Europe for foreign direct investment. We have seen the biggest increase in FDI in projects in the north-west and I want to work with the Government and whichever party is around to ensure that we continue to see that flow. I want to ensure that the success we see in the country continues and that the northern powerhouse can fulfil its full potential. Key initiatives such as the life sciences corridor in Cheshire will require clear signals to businesses in the UK and abroad that we are open and want to move further forward, which is why I will support clause 42 when we vote, as I understand we will.

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I want to show our support for clause 42. In fact, I think it would be a bit strange for someone from Northern Ireland to take a different stance, especially given the fact that the Northern Ireland Government have put the reduction and devolution of corporation tax at the centre of their policy for attracting investment into Northern Ireland over the next 10 to 15 years.

There are two things. First, we must ask ourselves whether we believe that a reduction in taxation on businesses acts as an incentive. As I listened to the Opposition spokesman’s opposition to this measure, it raised a query in my mind: is the reduction of other business taxes regarded as acceptable and indeed desirable by the Labour party as a means of incentivising and helping small business? For the Opposition, it seems as though the reduction in business rates, which are a form of taxation, is desirable because it helps small businesses, but that the reduction of corporation tax seems to have no effect, or the opposite effect. If we are going to have some consistency, we must ask ourselves whether the principle of reducing taxes on businesses and their profits, and the impact that that has on the amount of money they retain for investment, is an effective means of stimulating business. If it is true of one form of tax, it is true of another. That is one of the reasons why I believe that the reduction in corporation tax is an important decision.

Secondly, during my former role as a Member of the Northern Ireland Assembly and as a Minister there, one of the things that came up consistently when we spoke to investors was corporation tax. We had an especially big problem, because we were living next door to a country—we have a land border with it—that had emphasised the reduction in corporation tax. Time and again, though not exclusively—there is no point in over-egging this pudding—investors mentioned the level of corporation tax: 12.5% in the Irish Republic and 22% then in Northern Ireland. When companies looked at the headline level of taxation, they viewed the Irish Republic as a much more desirable place to invest. Of course they looked at other things—the skills base, the availability of office and factory space, the infrastructure and so on—but corporation tax was an important factor.

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May I caution the hon. Gentleman? For some of those companies—not all of them—this is a classic sob story. Corporation tax in America is roughly twice the rate that it is here. People still invest in companies in America. Corporation tax is part of an overall picture, as he says. Yes, companies should pay tax. If we followed the logic of some of the things that he has said this afternoon, we would not tax companies. That may be his position; it is not the position of Labour party.

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It is not the position of the Democratic Unionist party either, because there are other ways in which companies can be held responsible for their infrastructure requirements. For example, one of the forms of taxation that the Government have introduced recently is the apprenticeship levy, where companies will be held responsible. They need trained workers, and they have to make a contribution from their profits to train those workers. There are ways to target the contribution that we require companies to make. I am not saying that companies should not pay for the infrastructure from which they benefit, but we must address one of the issues that they raise when they are considering whether we are a competitive place to invest.

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The hon. Gentleman is making characteristically important points. Although there has been a nod to what has gone on in the US, it is important to look at what is happening in the UK. As we have seen a reduction in corporation tax, we have seen a strong performance in foreign direct investment. Let us look at what has happened here, which has helped to move the situation further forward—and no doubt it has done so in Northern Ireland as well as the mainland.

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The hon. Gentleman is quite right: if we look at the record of companies in the United Kingdom as corporation tax has decreased, we see that we have experienced increasing foreign direct investment. Indeed, since the Northern Ireland Government announced that corporation tax will be reduced in, we hope, a year and a half’s time, there has been an upsurge of interest in the number of companies that wish to consider Northern Ireland as an investment proposition. We are already the second most successful region in the United Kingdom for foreign direct investment—I suppose that this bears out the Opposition spokesman’s point—because we have emphasised the other selling points that are available to us at present, but corporation tax is the additional one that will make things easier for us.

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Coming back to something that the hon. Gentleman said earlier about the training levy, for want of a better term, employers and particularly small businesses in this country have traditionally been reluctant about that levy. What do businesses in Northern Ireland feel about the levy?

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Of course, all businesses will seek to emphasise the additional costs that the levy imposes on them. However, many businesses that face a shortage skills in Northern Ireland now recognise that there must be a means to ensure that we have a supply of skilled labour. Opinions differ on how to provide that supply of skilled labour and how the apprenticeship levy should be applied and used, but people now accept, given the importance of skilled labour to firms, that they have to pay for it.

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I return to the earlier point that the hon. Gentleman was making about inward investment. Does he agree that, compared to Brexit, this measure is pretty marginal in its likely impact in encouraging inward investment? As I am sure we are both very concerned about inward investment, does he agree that we should have an urgent debate to consider the implications of the Brexit vote?

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I am reluctant to get involved because I know that the Chair will call me to order, but perhaps you will indulge me, Mr Howarth, and allow me to answer the point. I do not share the hon. Gentleman’s views about the detrimental impact of Brexit. Indeed, for businesses in Northern Ireland, where we have become export-oriented, it opens up the opportunity to look to those parts of the world where there are growing economies and allows us to make our own trade deals with them. I believe that Brexit will be of benefit to us and—

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Order. I understand the connection that the hon. Gentleman is making, but he is about to strain it beyond the limits.

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I was about to say, Mr Howarth, that the reduction in corporation tax will be an additional means by which we can capitalise on those opportunities.

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Would the hon. Gentleman like to see corporation tax in Northern Ireland at the same level as in the Republic of Ireland? Would that be possible?

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I have two more points that I want to make. The first is that the reduction in corporation tax in this Budget gives the Northern Ireland Government more flexibility. I hope the Minister will be able to clarify how much this reduction in corporation tax will reduce the bill for the devolution of corporation tax to the Northern Ireland Assembly. The reduction of that bill enables the Northern Ireland Government to do one of two things: either to have a lower cost for the reduction—the 12.5% —or to reduce the rate below 12.5%, accepting that there will be a hit of £280 million. If that has already been factored into the Budget, the rate of corporation tax can be reduced even further to make us more competitive.

Lastly, if the Government had decided not to go down the route of lowering the headline rate, one way of giving incentives to firms would simply be to increase the number of capital allowances or make them more complex. Although it could be argued that that would allow the Government to target particular kinds of investment, it has two impacts. First, it increases the cost of collecting tax, and, secondly, it makes it more complex for firms to have their corporation tax calculated. For small firms that is a burden. For larger firms it may not be such a burden.

I wish to quote that famous Scottish economist, Adam Smith—I am sure my friends in the Scottish National party will be glad to hear this. He set out in his principles of taxation that in the collection of taxes there should be economy, certainty and equity. I believe that having more capital allowances militates against that and makes it more costly, and firms will have less certainty about what their eventual tax bill should be. That is one of the reasons why I welcome clause 43 and some of the other clauses that reduce the number of allowances, as that simplifies the tax system and makes taxes easier to collect.

There may be only 10 companies that claim the vaccine research relief, but that requires an infrastructure to carry out the collection and a number of civil servants to be appointed to do the job. If we want to find ways of cutting the cost of collecting taxes, it makes sense to look at reliefs that may not be widely used but still absorb resources within HMRC. For these reasons, my party and I will not support the opposition to clause 42 and we will join the Government in pushing it through.

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I thank hon. Members for their contributions to the debate. I will perhaps turn to corporation tax rates and clause 42 at the end of my speech—I think we will save the most exciting element to the end. Let me first pick up some of the other points that have been raised.

Vaccine research relief is currently available only to large firms; it was removed for small and medium-sized enterprises in 2011, at the same time as the general SME R and D relief was increased. It is also worth pointing out that all vaccine producers can claim normal R and D relief on qualifying expenditure. Incentivising vaccine production remains a priority for the Government, but we believe that spending programmes such as the Ross fund are more effective at doing that. The amount claimed through VRR is less than £5 million a year, despite a generous raise.

The Ross fund was announced by my right hon. Friend the Chancellor in November 2015. It will target infectious diseases, including malaria, diseases with epidemic potential, neglected tropical diseases, which affect more than 1 billion people globally, and antimicrobial resistance, which poses a substantial and growing threat to global health. In January 2016 the Chancellor built on the announcement of the Ross fund by confirming that the Government will invest £500 million a year over the next five years in the fight to end deaths from malaria. That formed part of the £3 billion commitment between the Government and Bill Gates. The UK continues to contribute to the Global Fund to Fight AIDS, Tuberculosis and Malaria, an internationally supported organisation designed to accelerate the end of AIDS, tuberculosis and malaria as epidemics. I wanted specifically to come back on the very good point raised by the hon. Member for Aberdeen North (Kirsty Blackman).

The Ross fund does constitute official development assistance. It is worth pointing out that all UK ODA is administered with the promotion of the economic development and welfare of developing countries as its main objective, and it is in line with internationally agreed rules on ODA, so it is perfectly reasonable that we include the fund in the 0.7%, and it can clearly make a huge difference to large numbers of people.

The hon. Member for Wolverhampton South West (Rob Marris) asked how much is lost to the Exchequer through some of the schemes we seek to address in clause 66. Over the scorecard period, which takes us to 2020-21, it is expected that the changes will yield about £20 million of tax that would otherwise have been avoided and that they will potentially protect much more. This is not the largest measure by any means, but it is, none the less, a contribution. By way of background, the relevant case law is the 1948 House of Lords decision, Gold Coast Selection Trust Ltd v. Humphrey—no doubt familiar to the hon. Member for Wolverhampton South West. It has been suggested that this is no longer good law as it predates generally accepted accounting practice and the enactment of current legislation setting out the rules for the calculation of trading income. Let me be very clear that HMRC does not accept this proposition. [Interruption.] As the hon. Member for Wolverhampton South West mutters, it is a case of belt and braces. HMRC’s view, and the Government’s view, is that we should change the law now as a response to the potential risk, which is in the region of £125 million in one case alone. The challenge we have seen seeks to suggest that the current case law that dictates the tax treatment is outdated. I hope that clause 67 helps to address this risk.

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I asked the Minister for reassurance that this would not affect the barter economy. He might wish to write to me later.

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I think I can provide that reassurance, but perhaps it would be best if I wrote to the hon. Gentleman—again, on a belt and braces basis.

The hon. Gentleman raised the concern that had been put to him that clause 68 might force businesses to claim capital allowances and that that might complicate the system. He gave the example of a saw, with a carpenter potentially encountering complications in his or her tax affairs . The answer is that that is very unlikely. Most small businesses will find that their capital spending on equipment is fully relieved by the £200,000 annual investment allowance, which is now at a record permanent level. Accordingly, they would receive a full deduction for their expenditure in the year and would not usually have to calculate annual writing-down allowances. The changes will ensure that tax relief for expenditure incurred by business on replacement and alteration of tools means that all capital expenditure on equipment is dealt with in a fair and proportionate way.

I was asked whether clauses 69 and 70 will cause some complication in the old 10% wear-and-tear deduction, which was simple. Of course, Labour Members highlighted the wear-and-tear allowance as a potential saving within the tax system. It is interesting that, despite its simplicity, a significant number of interested parties agreed with the Government that the wear-and-tear allowance was not fair. It applies only to landlords of fully furnished properties, and provides relief even where landlords have not had to meet any actual expense. We have carefully considered the different ways in which a relief based on actual expenditure could be designed and implemented, and we have legislated for the simplest possible basis.

Turning to clause 42 and the wider issues, I am grateful for the supportive contributions by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Macclesfield (David Rutley), and by the hon. Member for East Antrim (Sammy Wilson). If the hon. Gentleman had argued a different case, I might have pointed to the many conversations that we have had over very many years in the context of devolution of corporation tax to Northern Ireland. I was struck by his point about how, when talking to international businesses, people often note the headline rate of corporation tax; international investors are aware of that. It is certainly my experience, having met many international businesses over a number of years when promoting the UK as a place in which to do business, that our low corporation tax rate, and our destination towards an even lower rate, attracts attention and a fair degree of admiration, and ultimately attracts jobs and investment to the UK. That is why we have taken steps to reduce the corporation tax rate, and I think that that has played a significant role in the fact that business investment is up significantly; that employment numbers are as high as they are; and that foreign direct investment in this country has been so strong. Of course, that is not the only factor; there are others. This country also faces particular challenges in the light of recent events, but, as my hon. Friends the Members for Amber Valley and for Macclesfield have said, it is absolutely right that we have a competitive corporation tax rate.

The message that we want to send to those businesses that may have concerns about the consequences of the referendum vote is that the UK is open for business. We continue to provide a skilled and ambitious workforce, and to offer links with much of the rest of the world. Clearly, there is a debate to be had about how much access we can continue to have to the single market, but I certainly hope that we can do that. The UK also has a competitive tax system and the 17% rate of corporation tax is absolutely key to that. In particular, it would be a grave mistake for us to step away from what we have already announced, namely our clear determination to move towards a lower rate of corporation tax, because this is a competitive world and the UK needs to make the case that we are open for business.

With those remarks, I hope that the various clauses under discussion will be supported. In particular, I hope that there will be resounding support for clause 42, which further moves the United Kingdom in the direction of having a competitive, attractive and dynamic economy.

Question put and agreed to.

Clause 41 accordingly ordered to stand part of the Bill.

Clause 42

Rate of corporation tax for financial year 2020

Question put, That the clause stand part of the Bill.

Division 27

28 June 2016

The Committee divided:

Ayes: 308
Noes: 255

Question accordingly agreed to.

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Clause 42 ordered to stand part of the Bill.

Clauses 43 and 44 ordered to stand part of the Bill.

Clauses 65 to 71 ordered to stand part of the Bill.

Clause 72

Reduction in rate of capital gains tax

Question proposed, That the clause stand part of the Bill.

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With this it will be convenient to discuss the following:

That schedules 11 and 12 be the Eleventh and Twelfth schedules to the Bill.

Government amendments 30 to 35.

Clauses 73 to 75 stand part.

Government amendments 36 to 38.

That schedule 13 be the Thirteenth schedule to the Bill.

Clause 76 stand part.

Government amendments 39 to 64.

Amendment 181, in schedule 14, page 432, line 45, at end insert—

“169VS Expiration of Chapter V provisions

(1) The provisions of Chapter V of part 5 of this Act shall remain in force until five years after their commencement and shall then expire, unless continued in force by an order under subsection (2).

(2) The Secretary of State may by order made by statutory instrument provide—

(a) that all or any of those provisions which are in force shall continue in force for a period not exceeding 12 months from the coming into operation of the order; or

(b) that all or any of those provisions which are for the time being in force shall cease to be in force.

(3) No order shall be made under subsection (2) unless—

(a) a draft of the order has been laid before and approved by a resolution of both Houses of Parliament,

(b) the Secretary of State has laid the report of a review of the operation of Investor’s Relief before both Houses of Parliament.”

Government amendments 65 to 68.

That schedule 14 be the Fourteenth schedule to the Bill.

Amendment 182, in clause 77, page 135, line 17, leave out “£100,000” and insert “£50,000”.

Government amendment 184.

Clauses 77 to 81 stand part.

New clause 2—Review of remuneration of investment fund managers—

The Chancellor of the Exchequer must commission a review of ways in which the law could be amended to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income, and must publish the report of the review within six months of the passing of this Act.”

New clause 11—Entrepreneur’s relief: value for money

“The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish a report giving HM Treasury’s assessment of the value for money provided by Entrepreneur’s Relief.”

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The final session of today’s debate considers a number of changes to capital gains tax, along with Government amendments and one Opposition amendment.

Clause 72 will provide an incentive for people to invest in companies by reducing the main rate of capital gains tax from 18% to 10% and 28% to 20% on most gains made by individuals, trustees and personal representatives. The Government want to ensure that companies can access the capital they need to grow and create jobs, and want the next generation to be backed by a strong investment culture. We believe the best way to encourage this is to let investors keep more of the rewards when their investment is successful. At 28%, our higher rate of capital gains tax is among the highest in the developed world. We do not want high tax rates to deter investment. The lower capital gains tax rates introduced by this clause will make it more attractive for people to invest in companies, helping those companies to access the capital to expand and create jobs. Gains made on residential properties that do not qualify for private residence relief, and those from carried interest, will remain subject to the 18% and 28% rates. Retaining these rates will create an incentive for individuals to invest in companies rather than in property.

Clauses 73 to 75 make changes to ensure that entrepreneurs relief on capital gains tax rewards business owners and entrepreneurial investors while safeguarding the effect of measures introduced last year to prevent abuse of the relief. The Government are committed to supporting enterprise and entrepreneurship, but they are equally committed to fairness in the tax system. Entrepreneurs relief allows certain capital gains to be taxed at 10%, rather than the normal rates, and plays an important role in supporting the enterprise culture of this country, but, as with all tax reliefs, we need to make sure that it is not being claimed in circumstances where it does not achieve its intended purpose.

These changes will improve the targeting of the anti-abuse rules introduced in 2015. The changes in clause 73 will allow relief for gains on disposal of a private asset used in a business in cases of genuine retirement or where members of the claimant’s family succeed to the claimant’s business. These changes will level the playing field for family-run businesses and allow them to be passed to the next generation without an unfair tax charge.

The changes in clause 74 will allow someone selling their business to a limited company to claim relief on the goodwill of that business, providing they have only a small stake in the company. The relief will still be denied where the former proprietor or partner could continue running the business through the company and benefit directly from future profits and business growth. Entrepreneurs relief on gains on shares is due only where those shares are in trading companies or the holding companies of trading groups. Clause 75 amends the definition of a trading company to ensure that relief is available for shares in a company that has no trade of its own but which holds shares in a trading joint venture company where the investor effectively holds 5% or more of the joint venture company. The further changes made by these clauses will be backdated to the date on which the 2015 changes came into effect, meaning that no one who has made a genuine disposal for commercial reasons should be disadvantaged by the new rules.

The Government have tabled several minor amendments to the clauses. Amendments 30 to 33 simply move one of the new conditions introduced by clause 73 to a different place in the relevant statute. Amendments 34 and 35 correct two unintended retrospective effects of clause 73. Without the amendments, someone who made a disposal after Budget day 2015 and was eligible for entrepreneurs relief could find themselves deprived of that relief by changes announced at Budget 2016. Amendments 36 to 38 clarify the commencement provisions for the new rules introduced by clause 75 and ensure that the new definition of a trading company supersedes the definition used by the Finance Act 2015. These amendments do not reflect any change in policy and will have no impact on the costings of the measures.

Now is an appropriate time to address new clause 11, tabled by Opposition Members, which proposes that my right hon. Friend the Chancellor of the Exchequer publish within six months of the passing of the Act a report of the Treasury’s assessment of the value for money provided by entrepreneurs relief. Opposition Members will be aware that the Government keep all tax policy under review. This includes entrepreneurs relief, as demonstrated by recent action taken to ensure that the relief is effective, well targeted and not open to abuse, and we will continue to act where appropriate. I can inform the Committee that officials have for some time been developing a detailed research programme designed to identify taxpayers’ motivations for using entrepreneurs relief, and I expect the results to be published at some point in 2017. I do not believe it is necessary to legislate for a review, so I hope that the Opposition will not press the new clause.

Clause 76 and schedule 14 introduce investors relief and apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an external investor in an unlimited trading company for at least three years. Many companies struggle to attract the long-term external investment they need to grow and expand, and this can be particularly difficult for unlisted companies, which is why, on top of cutting the capital gains tax rates, the Government are introducing this additional financial incentive to invest in these companies over the longer term. Investors relief has been designed to help unlisted companies attract inward equity investment from external investors. This clause and schedule apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an investor in an unlisted trading company or trading group. The investor must not be an employee or officer of the company at the time of subscription. In addition, the shares must have been newly issued after 17 March 2016 and held for a period of at least three years starting from 6 April 2016. The amount of relief is capped, with individuals subject to a lifetime cap of £10 million on qualifying gains.

We are today making a number of amendments to this clause to ensure that the rules surrounding the relief are fair and clear, and to extend the scope of the relief to prevent market distortions and unlock further sources of capital. Amendments 39 to 41, 43, 44, 50 and 61 will ensure that trustees of a settlement as well individuals who choose jointly to subscribe with other individuals are able to subscribe for investor relief qualifying shares. In the case of trusts, amendment 51 includes rules that prevent individuals from creating multiple trusts, each with a £10 million lifetime limit.

Amendments 45 to 49 clarify how to determine the number of shares that qualify for investors relief when a disposal is made that consists of a mixture of qualifying and non-qualifying shares. Amendments 52 to 60 and amendments 65 to 68 clarify the provisions that deal with share disposals, share exchanges, elections, subscriptions and the distribution of value to existing shareholders.

Finally, some investors may wish to monitor and protect their investment through a seat on a company’s board. Amendments 42 and 62 to 64 allow such an investor to become a director after their investment has been made as long as they are not remunerated in that capacity. They also allow an individual who becomes an employee of the company to access relief in most situations after 180 days of the share issue. Investors relief is designed to attract new capital into unlisted companies, enabling them to grow their business. It will help to advance this Government’s aims for a growing economy driven by investment and supporting businesses to grow.

Let me turn to the Opposition amendment that was tabled by the hon. Member for Feltham and Heston (Seema Malhotra), but is now being taken up by her successor—and may I congratulate the hon. Member for Salford and Eccles (Rebecca Long Bailey) on her promotion? Amendment 181 seeks to end the relief after a period of five years, with the option of an additional 12-month extension if agreed by both Houses, subject to the Chancellor laying a review of the operation of the relief before both Houses. The amendment is unnecessary when the Government rightly keep all tax policy under review in line with normal tax policy-making practice. There would be limited merit in conducting the review within five years; the first data on the uptake of the relief in its first year of operation would not be available to HMRC until 2020-21. The Government believe that legislating for a review within five years is unnecessary and inappropriate. I therefore hope that amendment 181 will be withdrawn.

Clause 77 relates to shares given to employees who accept employee shareholder status. It places a lifetime limit of £100,000 on the capital gains tax exempt gains that a person can make on disposal of those shares. The limit will apply to shares received under arrangements entered into after 16 March 2016. The change will enable employee shareholders to realise the significant growth in the value of their shares without paying any capital gains tax, while helping to ensure that the status is not misused. The clause provides for fair and consistent treatment of transfers of shares to a spouse or partner. The change will benefit the Exchequer by £10 million in 2019-20 and £35 million in 2020-21.

It is also an appropriate point to address amendment 182, which was tabled by Opposition Members. It proposes that the lifetime limit be £50,000 rather than the Government’s proposed £100,000. This is not a change that the Government would welcome. The introduction of a cap of £100,000 where there was none before is, we believe, a significant change. The level of the cap is a matter of weighing up two policy objectives—ensuring that employee shareholder status is not misused, and encouraging and rewarding entrepreneurship. The Government believe that setting the cap at £100,000 strikes the right balance. It encourages entrepreneurship by allowing an exemption from capital gains tax which is still generous while reducing the likelihood of abuse by ensuring that the benefits for individuals are proportionate and fair. I therefore invite hon. Members to reject amendment 182.

On Government amendment 184, the normal CGT rule is that when a share is involved in certain paper-for-paper transactions, such as a bonus issue or a share-for-share takeover, a tax charge is prevented from arising at that time because the shareholder receives no cash from which to pay that tax. The new lifetime cap in clause 77 means we need a rule to ensure fair and consistent treatment when an exempt employee shareholder share is involved in these types of transactions. This amendment ensures that an employee shareholder will not have to pay CGT at the time of those transactions. Without the amendment, an employee shareholder who has used the whole of his or her lifetime limit may suffer a tax charge owing to events beyond their control although they receive no cash from which to pay that tax. That would plainly be unfair and inconsistent with the treatment of other shareholders in similar circumstances.

Clause 78 introduces a further limit to the relief from CGT on the disposal of employee shareholder shares. The clause is designed to ensure that investment fund managers cannot take advantage of the employee shareholder rules to avoid tax on the rewards they receive for managing funds. Clause 78 is part of the legislation introduced by this Bill to ensure fund managers are eligible to pay CGT on their performance-linked rewards or carried interest only when the underlying fund they manage holds investments for the long term. To continue the Government’s work ensuring that fund managers pay the right amount of tax, this clause is designed to ensure that any planning that seeks to exploit the employee shareholder rules will not work. The changes made by clause 78 are narrow in scope. They amend the rules governing the relief afforded to employee shareholders to make it clear that the relief from CGT does not apply to the management fees and carried interest paid to fund managers. Those funds were never intended to benefit from this relief and should always be charged to tax at the appropriate rate.

Turning to new clause 2, the SNP proposes a review within six months of Royal Assent of the tax treatment of investment fund managers’ remuneration. Legislating for a review in six months is unnecessary. The Government have already undertaken extensive work on this area over the last year, launching a consultation after last year’s summer Budget on the remuneration of investment fund managers and publishing draft legislation at autumn statement. Indeed following this work the Government have included provision in this Bill to ensure that investment managers’ rewards will be charged to income tax whenever the underlying fund is not investing for the long term. By contrast, treating carried interest that arises to fund managers from long-term investment strategies as essentially a capital gain, rather than an income issue, is the right approach, and one that keeps the UK in step with other countries. It is also the approach consistently adopted by previous Governments in this country over a long period. Of course if any part of a manager’s reward payments are properly regarded as income rather than capital they should be charged to income tax and the clauses included by the Government in this Bill will ensure fund managers do not access CGT treatment except where they are long-term investors.

I welcome this debate. The Government have already looked closely at income and capital for fund managers’ remuneration and have introduced clauses in this Bill to ensure that the line is drawn in the right place. Again I hope Opposition Members will not press new clause 2.

Clauses 79, 80 and 81 make minor changes to ensure the CGT system for non-residents operates effectively. Since April 2015 non-residents disposing of UK residential property have been subject to CGT. This has addressed a significant unfairness in the tax regime and ensures that non-residents investing in the UK property pay their fair share of tax. While the regime is working well overall, the Government have identified a small number of technical issues that need addressing. The changes made in clause 79 will ensure that there is neither double counting nor under-counting in the determination of how much capital gains tax is due when a non-resident disposes of UK residential property. The changes made in clause 80 will provide for two circumstances in which a capital gains tax return by a non-resident is not required when no tax is due, and gives the Treasury secondary legislative power to add, amend or remove circumstances. That will minimise the administrative burden on taxpayers.

Clause 81 adds capital gains tax to the provisions in the Provisional Collection of Taxes Act 1968, which allows tax to be collected on a provisional basis between Budget and Royal Assent. Before capital gains tax for non-residents was introduced, it was normally payable at the end of the tax year, so there was no need to collect tax on a provisional basis. However, non-residents are required to notify and pay any capital gains tax that is due within 30 days. From April 2019, UK residents disposing of residential property will also notify and pay capital gains tax within that period. It is therefore now necessary for any rate cut or rise to apply properly to UK residents and non-residents disposing of residential property before a Finance Bill receives Royal Assent.

A wide range of measures is before us, and I have already spoken for long enough—for too long, some might argue. Taken together, those measures do much to support entrepreneurship, investment and economic growth. The introduction of investors relief and the reduction in the main rates of capital gains tax for non-property investments in particular are big, ambitious steps. Meanwhile, we are also being vigilant in tightening areas of capital gains tax and associated reliefs that have the potential to be exploited, and addressing any instances in which restrictions unfairly exclude justified users. I encourage Members on both sides of the Committee to support our proposals.

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I thank the Minister for his earlier kind words, and commend him for his sterling effort over the last two days. He has fought his way through the Finance Bill with a bad back, and we wish him a speedy recovery. There will be a place in heaven for him, I am sure of that.

I want to speak about clauses 72 to 81, schedules 11 to 14, Government amendments 30 to 68, new clause 2, and the amendments that stand in my name and those of my hon. Friends. Clause 72 and schedules 11 and 12 cut the basic rate of capital gains tax from 18% to 10%, and the 28% rate to 20% on most gains made by individuals, trustees and personal representatives. Gains accruing on the disposal of interest in residential properties that do not qualify for private residence relief, and gains arising in respect of carried interest, remain subject to the 18% and 28% rates.

The Government have said that the retention of the higher rates for residential property is intended to provide an incentive for investment in business over property. Entrepreneurs relief will remain at 10 %, and will be extended to investors. I shall return to those reliefs, about which the Opposition have some concerns, later in my speech. The changes will take effect on 6 April 2016.

As the Committee will know, Labour Members have a serious problem with this policy decision, which they opposed during the Budget debate and on Second Reading. It constitutes a major tax giveaway to the tune of £2.7 billion over the next five years for the wealthiest in our society, at a time when the poorest communities are crying out for help and investment. The Chancellor had a choice to make in his Budget. He had to decide whether to use any spare cash, of which he keeps saying there is none, to help the most vulnerable, who have suffered six years of the Government’s austerity programme, or to give a tax break to those who need it the least. He chose the latter, and, in the Opposition’s view, that says it all about the Government’s priorities.

The explanatory notes state that

“the Government wants to ensure that companies have the opportunity to access the capital they need to grow and create jobs, and wants the next generation to be backed by a strong investment culture.”

Opposition Members want capital investment in our economy. Indeed, we champion it and we have been saying so for more than nine months. However, we question whether cutting the headline rate of capital gains tax will indeed trigger large-scale investment. We believe that it could simply line the pockets of some of the wealthiest.

The Chartered Institute of Taxation echoes those concerns, stating that

“the intention of the reduction is stated as being to drive productivity growth across the UK, but we question whether a simple reduction in rates will stimulate growth”.

The Office for Budget Responsibility’s economic and fiscal outlook document suggests that such a cut is unlikely to put rocket boosters under business investment, having not predicted massive increases over the next five years. What is more, business itself has not been calling for this measure, which was totally unexpected. The top priority for business is investment in skills and infrastructure, not cuts in the top-line rate of taxation—especially when the headline rates are frequently chopped and changed by the Chancellor in what Paul Johnson, the director of the Institute for Fiscal Studies, describes as an

“up and down rollercoaster ride”.

He also stated that

“we need a serious plan and strategy here. This is not the way to make good tax policy”.

In the current economic climate, given the result last Thursday, it is even more vital to provide as much certainty as possible to business on the rates of tax that they will pay. Given the serious risk of recession in the latter end of this year, I again make the point that £2.7 billion is a lot of money that could be put to better use. The Opposition will not support such an unfair measure, and we will oppose this clause standing part of the Bill.

Clauses 73 to 75 relate to entrepreneurs relief, which provides a rate of capital gains tax of 10% on any gains accrued when directors who own 5% or more of a company sell shares in the companies they own, up to a lifetime limit of £10 million. The clauses address some issues with the legislation that was introduced in the Finance Act 2015. According to the Government’s explanatory notes to the Bill, changes in that Act

“prevented certain abuses involving ER, but they also limited the availability of relief on some transactions where there was no abuse. The effect of the changes made by this clause are backdated to the introduction of FA 2015 in order to mitigate the disadvantage suffered by some as a result of earlier changes.”

Opposition Members have no issue with the content of the clauses, and we are pleased that the Government have tabled amendments to correct the poor drafting of the original ones. The Chartered Institute of Taxation had raised some concerns about that, so we are pleased that the Government have clarified the legislation.

However, the Opposition are concerned about entrepreneurs relief as a whole and we have therefore proposed, in new clause 11, that the Government produce a report within six months of the passing of this Bill giving the Treasury’s assessment of the value for money provided by entrepreneurs relief. The relief was estimated to cost £2 billion in 2012-13, rising to £3 billion in 2015-16. That represents a vast amount of Government revenue that is being forgone, and there appears to be no assessment of the relief’s efficacy in encouraging entrepreneurialism. We understand the rationale behind it, but as with all tax reliefs, the Government must ask themselves whether it provides value for money and whether it works in practice.

Tax Research UK’s analysis of the relief suggests that in the 2013-14 financial year, 3,000 people received tax relief to the tune of £600,000 each, at a total cost to the Treasury of £1.8 billion. Will the Minister confirm whether that is the case and tell us whether the Treasury has the relevant figures for 2014-15? That analysis also highlighted a couple of issues with the logic behind the relief itself, arguing that it is given at a time when people cease to be entrepreneurs by selling their businesses, and that it therefore does not encourage entrepreneurialism. It also argues that the relief has unfortunate behavioural consequences because by increasing the reward from sale it encourages sale far too early. The Opposition therefore feel that an assessment of the relief is in order given the vast amount of forgone Government revenue, which appears to be concentrated in the hands of a small number of individuals. I noted the Minister’s earlier comments and look forward to the results of the Government’s research, due to be published in 2017.

That leads me nicely on to clause 76, Government amendments 44 to 68 and Opposition amendment 181 relating to investors’ relief. Clause 76 extends entrepreneurs relief to external investors in unlisted companies, applying a 10% rate of capital gains tax to gains accruing on the disposal of shares in an unlisted trading company. Shares must be held by individuals, be newly issued on or after 17 March 2016 and have been held by the investor for at least three years, starting from 6 April 2016. A person’s qualifying gains are subject to a lifetime cap of £10 million. The theory behind the relief was that it would encourage investment in small businesses that need capital to expand and create jobs, and it is expected to cost £120 million over the next five years.

We are happy to support the initial implementation as an experimental relief, but as with entrepreneurs relief we believe that the Government should periodically assess its efficacy. Amendment 181 would introduce a sunset clause whereby the relief will expire in five years’ time. To extend it, the Chancellor would have to enact secondary legislation, but before such an order could be made he must review matters and lay a report of the investors relief before Parliament. That would be a sensible approach to ensure that the relief is doing in practice what the Government intend it to do in theory. I hope that the Government can see the merits of that approach and accept our amendment, but I will not seek to divide the House on it today.

Clauses 77 and 78 relate to employee shareholder schemes, as does Opposition amendment 182. Employee shareholder schemes allow employees to become a shareholder in the company by which they are employed by giving up some statutory employment rights in exchange for free shares issued by the employer. As the Chancellor helpfully explained in 2012:

“You the company: give your employees shares in the business. You the employee: replace your old rights of unfair dismissal and redundancy with new rights of ownership. And what will the government do? We’ll charge no capital gains tax at all on the profit you make on your shares. Zero percent capital gains tax for these new employee-owners. Get shares and become owners of the company you work for.”

Under the current law, the tax treatment is that the first £2,000 of free shares received by the employee shareholder are free of income tax and national insurance. Gains on the first £50,000 of shares received are free of capital gains tax when sold. Clause 77 places a lifetime limit of £100,000 on the capital gains tax exempt gains that a person can make on the disposal of shares acquired under employee shareholder agreements entered into after 16 March 2016.

Now, I must be clear that the Opposition do not like employee shareholder schemes one bit. Giving up one’s statutory employment rights is certainly a red line for me and the Opposition. However, we welcome this specific clause and the imposition of a lifetime limit. Frankly, we are amazed that it has taken so long seeing as how the scheme has been labelled

“the best tax wheeze in town”.

Given the mounting evidence to suggest that the scheme is being misused for tax avoidance purposes, we question whether a £100,000 limit is too high. Amendment 182 proposes reducing it to £50,000. I hope the Minister will heed my concerns about the schemes, and I look forward to his response. Again, I do not want to divide the House on this matter tonight, but I hope that the Government will address my points.

Clause 78 is an anti-avoidance measure designed to prevent investment managers from converting their management fees and carried interest into an exempt gain for capital gains tax purposes. The clause prevents the employee shareholder scheme capital gains tax exemption from applying if the relevant disposal is not compliant with a new test introduced in clauses 36 and 37. We support this measure.

Clauses 79 to 81 make some minor changes to the capital gains tax regime for non-residents disposing of UK residential property. The first corrects a technical error, removing a potential double charge, and the second provides two circumstances when a non-resident’s capital gains tax return is not required. The last simply amends the Provisional Collection of Taxes Act 1968 to include capital gains tax. I have no issues with those clauses, and we will support them.

New clause 2, tabled by the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) would specifically require the Chancellor to conduct a review of the ways in which the law could be amended to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated, for tax purposes, wholly as income. We welcome that suggestion and we will support it if Scottish National party Members push it to a vote.

We are supportive of most of the measures up for discussion in this group of clauses, but I hope that the Minister will take account of the Opposition’s concerns that I have outlined about the entrepreneurs relief, investors relief and employee shareholder schemes. However, what we cannot support is such a huge, huge tax giveaway for the wealthiest in society with this cut to capital gains tax while our communities are completely starved of investment. We will therefore oppose clause 72.

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I welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her new post. If I recall correctly, one of the first debates that we took part in together was about that very important topic of whisky. It is appropriate that I mention that given the Minister’s condition.

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It was not from drinking whisky.

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No, I know, but perhaps the Minister could take a few drams to relieve the pain. I certainly think that he deserves it given what he has put himself through over the past couple of days.

May I also say to the hon. Lady that we on the SNP Benches agree with everything that she has argued? I am delighted to say that we will be supporting her opposition to clause 72.

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That was a short speech.

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It is not quite as short as that.

I want to speak to new clause 2, which is in my name, and I will begin with a quote that I have used before in this House:

“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”

I entirely agreed with the Chancellor of the Exchequer when he said that in April 2012. That is precisely why we are bringing this new clause to the Floor of the House today. Many people in remunerated employment, working hard every day of the week, will be surprised to learn that the managing director of an average European firm can expect to receive around £8 million in remuneration. Private equity fund managers are able to shrink their bills by paying, as we have heard, only 28% in capital gains, rather than 45% in income tax simply because it is classified as carried interest. In effect, they are getting a remuneration for managing other people’s money, and therefore they should be taxed in the same way that other people are taxed—through income tax.

A fund manager’s ability to pay capital gains instead of income tax allows them to avoid paying national insurance on part of their income. I am well aware of the Minister’s technical explanations about why we are dealing with a different form of gain. However, that does not wash with people in society who are undertaking their work in most other occupations in life. The Government yesterday indicated that they were content to squeeze yet more money out of the contractor sector, affecting teachers, nurses, people in rural communities and the like. These are not the people who are aggressively avoiding tax. The people who are aggressively avoiding tax are people working in the City of London. They are avoiding paying the income tax that the rest of the people in society are quite happy to comply with.

The loopholes that continue are simply an example of the over-complication of our tax system, a matter that has been referred to by hon. Members on both sides of the House. As we look at the thousands upon thousands of pieces of paper in the tax code, it is clear that the bigger we make it the more we create the possibility of loopholes. Surely the time has come for a more fundamental review of all forms of business taxation, a matter that I know the hon. Member for East Antrim (Sammy Wilson) has raised in the past.

Indeed, some of the people gaining considerable sums of money have great sympathy with this. I would like to quote not some of the campaigners but one of the highest-paid people in the country, the head of the private equity firm Cerberus, Stephen Feinberg. He said in 2011, tellingly:

“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”

I do not think that we should allow this gentleman, the head of an investment fund, and others to be embarrassed any more. I think we should end their embarrassment by making sure that in the future they pay appropriate levels of income tax.

We also find ourselves in agreement with the OECD, which in May 2014 recommended in its position on tax

“taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options”,

and that this should be paid as income tax.

We have evidence not just from campaigners but from people in the City who admit that this is an anomaly that needs closing, so I ask the Minister to give further consideration to this important move. I would also say in general that we welcome quite a lot of the technical changes that have been made on investment, entrepreneurs relief and the like. We want to encourage an entrepreneurial economy, but not at the cost of heightening income inequality and of further division in society.

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I shall be relatively brief in responding to the debate. I addressed one of the issues that we have debated in my fairly lengthy remarks earlier and there is also a certain sense that these are issues we have debated in the past. I certainly remember debating the issue of carried interest with the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) in last year’s Finance Bill. He made very similar points and I am inclined to make very similar points in response, so I will not necessarily run through all that once again. I remind the hon. Gentleman that where we are talking about remuneration that is income, we are determined to ensure that it is taxed as income. As a Government we have shown a willingness to make changes in this area.

Let me turn to the wider issues of capital gains tax and yet again welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her position. I wish her a long and distinguished period as shadow Chief Secretary, given that I understand that there might be uncertainty more generally on the Labour Front Bench. It is extremely important that our tax system is competitive and encourages investment, which will drive our economy forward in the future. A number of external bodies have welcomed the steps that we have taken in reducing CGT rates. The CBI and the Institute of Economic Affairs have welcomed these cuts as means to encouraging entrepreneurship and growth. A number of internal studies indicate that lower rates of CGT support equity investment in firms and promote higher-quality investment in start-ups. That is an important source of innovation and growth.

I do not accept the hon. Lady’s criticism that this is somehow just a tax cut for the wealthy. These changes will encourage wider public involvement in investment opportunities and help companies to expand and create jobs. By retaining the 18% and 28% rates for residential property, the Government are encouraging investment in shares, rather than property, thus giving the British economy a boost at a time of global uncertainty. At 20%, the CGT rate paid by higher rate taxpayers is still two percentage points higher than under the last Labour Government. For residential property and carried interest, the rate is 10 percentage points higher.

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I am sorry that my hon. Friend is in so much pain when he stands up.

I am surprised by some of the things said in this debate. We all recognise the importance of enterprise and of encouraging further enterprise, particularly in the northern powerhouse, as the hon. Member for Salford and Eccles (Rebecca Long Bailey) recognised. We can achieve the aim of encouraging enterprise by using exactly the mechanism that my hon. Friend talks about. Does he agree that that is why the bodies he mentions have made this proposal? It will make a material difference to our enterprising spirit and economic growth.

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My hon. Friend makes an excellent point. We must create wealth in this country to be a successful economy. We need to have an entrepreneurial and dynamic economy. He made this point earlier in the context of corporation tax, but similar arguments can be made in the context of CGT as well.

On the criticism that entrepreneurs relief is badly targeted, I argue that, of course, as with all tax reliefs, it is entirely appropriate that the Government keep it under review to ensure that it is well targeted and not open to abuse, but we believe that it is right to incentivise individuals to set up and expand their businesses. Entrepreneurs relief plays an important part in our pro-growth agenda. It is a highly popular and widely used relief, which supports about 40,000 entrepreneurs a year, according to our latest data. We do not believe that this support should be withdrawn. The latest published cost of entrepreneurs relief is £3 billion, but that is a static figure; the true cost will be different, due to potential changes in the disposals and behavioural change. That behavioural change is very important. On when the data for 2014-15 will be released, these statistics are published annually, and the new release is due in October 2016.

On rates going up and down, let me point out that the 28% higher rate of CGT was introduced in 2010, by the coalition Government, and this is the first change since then. The Government have published the “Business tax road map”, setting out plans for business taxes over the entire Parliament and providing some certainty and stability to businesses.

On the argument that employee shareholder status should be withdrawn, we believe that ESS provides vital flexibility for early-stage firms and that it is right that employee shareholders receive tax benefits on shares awarded in exchange for relinquishing certain employment rights. The purpose of the lifetime limit is to ensure that small firms can offer attractive tax benefits to employees, while ensuring that the benefits are proportionate and fair.

I hope that, with those remarks, I can seek to dissuade the Labour party from voting against the reductions in CGT and the SNP from pressing its amendment to a vote, but if I have been unsuccessful in persuading them not to do so, I urge my right hon. and hon. Friends not to support such measures.

Question put, That the clause stand part of the Bill.

Division 28

28 June 2016

divided:

Ayes: 308
Noes: 264

Question accordingly agreed to.

View Details

Clause 72 ordered to stand part of the Bill.

Schedules 11 and 12 agreed to.

Clause 73

Entrepreneurs’ relief: associated relief

Amendments made: 30,  page 132, line 8, leave out “before “A1” insert “ZA1,”” and insert “after “A1,” insert “A1A,””.

Amendment 31, page 132, line 10, leave out subsections (3) and (4).

Amendment 32, page 132, leave out line 23 and insert—

“(1AA) Condition A1A is that P makes a material disposal of business assets which consists of the disposal of the whole of P’s interest in the assets of a partnership, and—

(a) that interest is an interest of less than 5%,

(b) P holds at least a 5% interest in the partnership’s assets throughout a continuous period of at least 3 years in the 8 years ending with the date of the disposal, and

(c) at the date of the disposal, no partnership purchase arrangements exist.

(1AB) Subject to subsection (6A), for the purposes of conditions A1 and A1A,”.

Amendment 33, page 132, line 42, leave out “ZA1 or A1” and insert “A1 or A1A”.

Amendment 34, page 133, line 27, leave out “this section” and insert “subsections (2)(a), (3) to (10) and (12) to (14)”.

Amendment 35, page 133, line 28, at end insert—

“( ) The amendments made by subsections (2)(b) and (11) have effect in relation to disposals of assets which are acquired on or after 13 June 2016.”—(Mr Gauke.)

Clause 73, as amended, ordered to stand part of the Bill.

Clauses 74 and 75 ordered to stand part of the Bill.

Schedule 13

Entrepreneurs’ relief: “trading company” and “trading group”

Amendments made: 36, page 413, line 30, leave out “omit subsection (4A)” and insert

“subsection (4A) is treated as never having had effect, and is omitted accordingly”.

Amendment 37, page 421, line 30, after “Schedule” insert “(except paragraph 3)”.

Amendment 38, page 421, line 31, at end insert

“, but only for the purposes of determining what is a trading company or trading group at times on or after that date.

(2) In conditions B and D in section 169I of TCGA 1992 (material disposal of business assets)—

(a) a reference to a company ceasing to be a trading company does not include a case where, as a result of the coming into force of the amendments made by this Schedule, a company which was a trading company immediately before 18 March 2015 is treated as ceasing on that day to be a trading company, and

(b) a reference to a company ceasing to be a member of a trading group does not include a case where, as a result of the coming into force of the amendments made by this Schedule, a company which was a member of a trading group immediately before 18 March 2015 is treated as ceasing on that day to be a member of a trading group.

(3) Sub-paragraph (2) is without prejudice to the operation of section 43(4) of FA 2015.”—(Mr Gauke.)

Schedule 13, as amended, agreed to.

Clause 76 ordered to stand part of the Bill.

Schedule 14

Investors’ relief

Amendments made: 39, page 422, line 7, after second “of” insert

“(and disposals of interests in)”.

Amendment 40, page 422, leave out lines 18 and 19 and insert—

“(6) Sections 169VGA and 169VGB make provision about disposals by trustees of a settlement.

(6A) Section 169VGC makes provision about disposals of interests in shares.

(6B) Sections 169VGD and 169VGE provide for a cap on the amount of investors’ relief that can be claimed.

(6C) Section 169VGF makes provision about claims for investors’ relief.”

Amendment 41, page 422, line 27, after second “of” insert

“(or of an interest in)”.

Amendment 42, page 423, leave out lines 11 to 14 and insert—

“(g) at no time in the share-holding period was the investor or a person connected with the investor a relevant employee in respect of that company (within the meaning given by section 169VQA), and”.

Amendment 43, page 424, leave out line 8 and insert—

“(4) In this section—

(a) subsection (1) is subject to section 169VGA (disposals by trustees of a settlement: further conditions for relief), and

(b) subsection (2) is subject to—

section 169VGB (reduction of relief for certain disposals by trustees of a settlement), and

sections 169VGD and 169VGE (cap on investors’ relief).”

Amendment 44, page 424, leave out lines 14 and 15 and insert—

“(6) For the application of this section to disposals of interests in shares, see section 169VGC.

(7) In this Chapter a “qualifying person” means—

(a) an individual, or

(b) the trustees of a settlement.”

Amendment 45, page 424, line 29, leave out from “shares” to “and” in line 30 and insert “found under subsection (4),”.

Amendment 46, page 424, line 31, leave out “that disposal.” and insert “the disposal concerned.”

Amendment 47, page 424, line 32, leave out from “The” to end of line 33 and insert

“number of qualifying shares found under this subsection is—”.

Amendment 48, page 424, line 35, leave out “disposal,” and insert “disposal concerned,”.

Amendment 49, page 424, line 41, leave out “169VC(1)” and insert “169VC(1)(a)”.

Amendment 50, page 425, line 1, leave out “by the qualifying person”.

Amendment 51, page 426, line 44, leave out from beginning to end of line 13 on page 427 and insert—

169VGA Disposals by trustees: further conditions for relief

(1) Where a disposal falling within section 169VC(1)(a) and (b) is made by the trustees of a settlement, section 169VC does not apply to the disposal unless there is at least one individual who is an eligible beneficiary in respect of the disposal.

(2) For the purposes of this section, an individual is an “eligible beneficiary” in respect of the disposal if—

(a) at the time immediately before the disposal, the individual has under the settlement an interest in possession in settled property that includes or consists of the holding of shares mentioned in section 169VC(1),

(b) the individual has had such an interest in possession under the settlement throughout the period of 3 years ending with the date of the disposal,

(c) at no time in that period has the individual been a relevant employee in respect of the company that issued the shares (within the meaning given by section 169VQA), and

(d) the individual has (by the time of the claim under section 169VC in respect of the disposal) elected to be treated as an eligible beneficiary in respect of the disposal.

(3) For the purposes of subsection (2)(d), an individual elects to be treated as an eligible beneficiary in respect of a disposal if the individual tells the trustees (by whatever means) that he or she wishes to be so treated; and an election under subsection (2)(d) may be withdrawn by the individual at any time until the claim is made.

(4) In this section “interest in possession” does not include an interest in possession for a fixed term.

(5) In relation to a disposal made by the trustees of a settlement, any reference in section 169VB(2)(g) to the investor is to be read as a reference to any trustee of the settlement.

169VGB Disposals by trustees: relief reduced in certain cases

(1) Subsection (2) applies where—

(a) a disposal falling within section 169VC(1)(a) and (b) is made by the trustees of a settlement,

(b) section 169VC applies to the disposal by reason of there being at least one individual who is an eligible beneficiary in respect of the disposal (see section 169VGA), and

(c) at the time immediately before the disposal, there are two or more persons each of whom has under the settlement an interest in possession in the settled property.

(2) In such a case the reference in section 169VC(2) to the relevant gain is to be read as a reference—

(a) to the eligible beneficiary’s share of the relevant gain (see subsections (3) to (6)), or

(b) if there is more than one individual who is an eligible beneficiary in respect of the disposal, to so much of the relevant gain as is equal to the aggregate of the eligible beneficiaries’ shares of that gain.

(3) In this section—

“eligible beneficiary” has the meaning given by section 169VGA(2);

“relevant gain” has the meaning given by section 169VC(3);

“the settled property” means settled property that includes or consists of the holding of shares mentioned in section 169VC(1).

(4) Subsection (5) applies to determine for the purposes of this Chapter, in relation to any individual who is an eligible beneficiary in respect of a disposal within section 169VC(1) made by the trustees of a settlement, that individual’s share of the relevant gain.

(5) That individual’s share of the relevant gain on the disposal is so much of the relevant gain on the disposal as bears to the whole of that gain the same proportion as X bears to Y, where—

X is the interest in possession (other than for a fixed term) which, at the time immediately before the disposal, that individual has under the settlement in the income from the holding of shares mentioned in section 169VC(1), and

Y is all the interests in that income that persons (including that individual) with interests in possession in that holding have under the settlement at that time.

169VGC Disposals of interests in shares: joint holdings etc

(1) In section 169VC(1)(a), the reference to the case where a qualifying person disposes of a holding, or part of a holding, of shares in a company includes the case where a qualifying person disposes of an interest in a relevant holding.

(2) In this section a “relevant holding” means either—

(a) a number of shares in a company which are of the same class and were acquired in the same capacity jointly by the same two or more persons including the qualifying person, or

(b) a number of shares in a company which are of the same class and were acquired in the same capacity by the qualifying person solely.

(3) In this section—

(a) “an interest” in a relevant holding means any interests of the qualifying person, in any of the shares in the relevant holding, which are by virtue of section 104 to be regarded as a single asset, and

(b) references to an interest include part of an interest.

(4) Where section 169VC(1) applies by reason of this section, section 169VD(3) and (4) have effect as if any reference to the number of shares disposed of were a reference to the number of shares an interest in which is disposed of.

(5) In relation to a disposal by the trustees of a settlement of an interest in a relevant holding falling within subsection (2)(a), sections 169VGA(2) and 169VGB(3) and (5) have effect as if any reference to the holding of shares mentioned in section 169VC(1) were to the interest disposed of.

(6) In accordance with subsection (1)—

(a) in sections 169VI(1)(d), 169VK(1)(d) and 169VN(1)(d) (reorganisations), any reference to a disposal of all or part of a holding includes a disposal by the qualifying person of an interest in the holding, and

(b) the reference in section 169VO(2) to a disposal of the original shares is to be read, in relation to a case where the original shares fall within subsection (2)(a) above, as a reference to a disposal of the qualifying person’s interest in those shares.

169VGD Cap on relief for disposal by an individual

(1) This section applies if, on a disposal within section 169VC(1) made by an individual (“the individual concerned”), the aggregate of—

(a) the amount of the relevant gain on the disposal (“the gain in question”),

(b) the total amount of any gains that, in relation to earlier disposals by the individual concerned, were charged at the rate in section 169VC(2), and

(c) the total amount of any reckonable trust gains that, on any previous trust disposals in respect of which the individual concerned was an eligible beneficiary, were charged at the rate in section 169VC(2),

exceeds £10 million.

(2) The rate in section 169VC(2) applies only to so much (if any) of the gain in question as, when added to the aggregate of the total amounts mentioned in subsection (1)(b) and (c), does not exceed £10 million.

(3) Section 4 (rates of capital gains tax) applies to so much of the gain in question as is not subject to the rate in section 169VC(2).

(4) In this section—

“eligible beneficiary”, in relation to a disposal, is to be read in accordance with section 169VGA(2);

“reckonable trust gain”, in relation to a trust disposal in respect of which the individual concerned was an eligible beneficiary, means—

(a) if section 169VGB(1)(c) applied in relation to the disposal, that individual’s share of the relevant gain on that disposal, within the meaning given by section 169VGB(4) and (5);

(b) otherwise, the relevant gain on that disposal;

“the relevant gain”, in relation to a disposal, has the meaning given by section 169VC(3);

“trust disposal” means a disposal by the trustees of a settlement.

169VGE Cap on relief for disposal by trustees of a settlement

(1) This section applies where—

(a) a disposal (“the disposal in question”) is made by the trustees of a settlement,

(b) that disposal is within section 169VC(1), and

(c) there is an excess amount in relation to an individual who is an eligible beneficiary in respect of the disposal in question (“the individual concerned”).

(2) For the purposes of this section there is an “excess amount” in relation to the individual concerned if the aggregate of—

(a) the amount of the current gain,

(b) the total amount of any gains that, in relation to earlier disposals made by the individual concerned, were charged at the rate in section 169VC(2), and

(c) the total amount of any reckonable trust gains that, on any previous trust disposals in respect of which the individual concerned was an eligible beneficiary, were charged at the rate in section 169VC(2),

exceeds £10 million.

(3) The rate in section 169VC(2) applies to the current gain only to the extent (if any) that the current gain when added to the aggregate of the total amounts mentioned in subsection (2)(b) and (c) does not exceed £10 million.

(4) Section 4 (rates of capital gains tax) applies to so much of the current gain as is not subject to the rate in section 169VC(2).

(5) In this section—

“the current gain” means the reckonable trust gain on the disposal in question;

“eligible beneficiary”, in relation to a disposal, is to be read in accordance with section 169VGA(2);

“reckonable trust gain”, in relation to any trust disposal in respect of which the individual concerned is an eligible beneficiary, means—

(a) if section 169VGB(1)(c) applies in relation to the disposal, that individual’s share of the relevant gain on that disposal, within the meaning given by section 169VGB(4) and (5);

(b) otherwise, the relevant gain on that disposal;

“the relevant gain”, in relation to a disposal, has the meaning given by section 169VC(3);

“trust disposal” means a disposal by the trustees of a settlement.

169VGF Claims for relief

(1) Any claim for investors’ relief must be made—

(a) in the case of a disposal by an individual, by that individual;

(b) in the case of a disposal by the trustees of a settlement, jointly by—

(i) the trustees, and

(ii) the eligible beneficiary in respect of the disposal, within the meaning given by section 169VGA(2) (or, if more than one, all those eligible beneficiaries).

(2) Any claim for investors’ relief in respect of a disposal must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made.”

Amendment 52, page 430, line 28, leave out from first “in” to end of line 29 and insert

“an exchange of shares treated under section 169VL or 169VM as a reorganisation of share capital,”.

Amendment 53, page 430, line 33, leave out “reorganisation or”.

Amendment 54, page 430, line 39 , leave out “reorganisation or”.

Amendment 55, page 430, line 42, leave out “reorganisation or”.

Amendment 56, page 430, line 45, at end insert—

“(2A) Accordingly—

(a) in section 169VB(2)(f) and (g) as they apply to the original share, any reference to the share-holding period is to be read as to the period mentioned in subsection (2)(a) above, and

(b) in section 169VB(2)(f) and (g) as they apply to a share representing the original share, any reference to the share-holding period is to be read as to the period mentioned in subsection (2)(b) above.”

Amendment 57, page 431, line 1, leave out “subsection (2) applies” and insert

“subsections (2) and (2A) apply”.

Amendment 58, page 431, leave out lines 16 and 17 and insert—

“(3) Any election under this section must be made—

(a) if the reorganisation or exchange of shares would (apart from section 127) involve a disposal by the trustees of a settlement, jointly by—

(i) the trustees, and

(ii) the person who if the disposal were made would be the eligible beneficiary in respect of the disposal, within the meaning given by section 169VGA(2) (or, if more than one, all the persons who would be such eligible beneficiaries);

(b) otherwise, by the individual concerned.”

Amendment 59, page 431, line 32, leave out from “of” to “and” in line 34 and insert

“arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage to any person,”.

Amendment 60, page 431, line 36, at end insert—

“( ) In subsection (1) “arrangements” and “tax advantage” have the same meaning as in section 16A.”

Amendment 61, page 432, line 3, at end insert—

“( ) In this Chapter, apart from subsections (2) and (3), references to a person’s having subscribed for a share include the person’s having subscribed for the share jointly with any other person (and references to a person’s holding a share or to a share being issued to a person are to be read accordingly).”

Amendment 62, page 432, line 23, at end insert—

“169VQA “Relevant employee”

(1) This section applies to determine for the purposes of—

(a) section 169VB(2)(g), or

(b) section 169VGA(2)(c),

whether a particular person has at any time in the relevant period been a “relevant employee” in respect of the issuing company.

(2) A person who has at any time in the relevant period been an officer or employee of—

(a) the issuing company, or

(b) a connected company,

is to be regarded as having at that time been a relevant employee in respect of the issuing company, but this is subject to subsections (3) and (5).

(3) If—

(a) a person is an unremunerated director of the issuing company or a connected company at any time in the relevant period, and

(b) the condition in subsection (4) is met,

the fact that the person holds that directorship at that time does not make the person a relevant employee in respect of the issuing company at that time.

(4) The condition referred to in subsection (3) is that at no time before the relevant period had the person mentioned in that subsection, or a person connected with that person, been—

(a) connected with the issuing company, or

(b) involved in carrying on (whether on the person’s own account or as a partner, director or employee) the whole or any part of the trade, business or profession carried on by the issuing company or a company connected with that company.

(5) If—

(a) a person becomes an employee of the issuing company or a connected company at a time which is—

(i) within the relevant period, but

(ii) not within the first 180 days of that period,

(b) at the beginning of the relevant period, there was no reasonable prospect that the person would become such an employee within the relevant period, and

(c) the person is not at any time in the relevant period a director of the issuing company or a connected company,

that employment of the person does not make the person a relevant employee in respect of the issuing company at any time in the relevant period.

(6) For the purposes of subsection (5) there is a “reasonable prospect” of a thing if it is more likely than not.

(7) In this section—

“director” is to be read in accordance with section 452 of CTA 2010,

“connected company” means a company which at any time in the relevant period is connected with the issuing company (and it does not matter for this purpose whether that time is a time when the person in question is an officer or employee of either company);

“the issuing company” means the company mentioned in (as the case may be) section 169VB(2)(g) or 169VGA(2)(c);

“the relevant period” means the period mentioned in (as the case may be) section 169VB(2)(g) or section 169VGA(2)(c);

“unremunerated director” has the meaning given by section 169VQB.

169VQB “Unremunerated director”

(1) For the purposes of section 169VQA a person (“the person concerned”) is an “unremunerated director” of the issuing company or a connected company at a particular time in the relevant period if that person is a director of that company at that time and—

(a) does not receive in the relevant period any disqualifying payment from the issuing company or a related person, and

(b) is not entitled to receive any such payment in respect of that period or any part of it.

(2) In this section “disqualifying payment” means any payment other than—

(a) a payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by the person concerned in the performance of his or her duties as a director,

(b) any interest which represents no more than a reasonable commercial return on money lent to the issuing company or a related person,

(c) any dividend or other distribution which does not exceed a normal return on the investment to which the dividend or distribution relates,

(d) any payment for the supply of goods which does not exceed their market value,

(e) any payment of rent for any property occupied by the issuing company or a related person which does not exceed a reasonable and commercial rent for the property, or

(f) any necessary and reasonable remuneration which is—

(i) paid for qualifying services that are provided to the issuing company or a related person in the course of a trade or profession carried on wholly or partly in the United Kingdom, and

(ii) taken into account in calculating for tax purposes the profits of that trade or profession.

(3) In this section a “related person” means—

(a) a connected company of which the person concerned is a director, or

(b) any person connected with the issuing company or with a company within paragraph (a).

(4) In this section any reference to a payment to the person concerned includes a payment made to that person indirectly or to that person’s order or for that person’s benefit.

(5) In this section “qualifying services” means services which are—

(a) not secretarial or managerial services, and

(b) not services of a kind provided by the person to whom they are provided.

(6) In this section the following expressions have the same meaning as in section 169VQA—

“connected company”;

“director”;

“issuing company”;

“relevant period”.”

Amendment 63, page 432, line 25, at end insert—

““employee” (except in the expression “relevant employee”, which is to be read in accordance with section 169QVA) has the meaning given by section 4 of ITEPA 2003;”

Amendment 64, page 432, line 38, leave out “169VC(6)” and insert “169VC(7)”.

Amendments 65, page 433, line 7, at end insert “on a particular date”.

Amendment 66, page 433, line 30, after “(b)” insert

“in relation to the shares”.

Amendment 67, page 433, line 31, at end insert “in relation to them”.

Amendment 68, page 433, line 37, at beginning insert

“In sub-paragraphs (3) and (4) and”.—(Mr Gauke.)

Schedule 14, as amended, agreed to.

Clause 77

Employee shareholder shares: limit on exemption

Amendment made: 184, page 135, line 31, at end insert—

“(3A) Section 236F of TCGA 1992 (reorganisation of share capital involving employee shareholder shares) is amended in accordance with subsections (3B) and (3C).

(3B) After subsection (1) insert—

(1A) Subsection (1B) applies where—

(a) an exempt employee shareholder share (“the original EES share”) is held by a person (“P”) before, and is concerned in, a reorganisation, and

(b) the original EES share is disposed of on the reorganisation.

(1B) P is to be treated as if the original EES share were disposed of for consideration of an amount determined in accordance with subsections (1D) to (1H) (the “relevant amount”).

(1C) In this section “notional gain” means the gain, if any, that would accrue to P if the original EES share were disposed of on the reorganisation for consideration of an amount equal to the market value of the share.

(1D) Subsections (1E) to (1G) apply where a notional gain would accrue to P on the disposal of the original EES share.

(1E) Where the whole of the notional gain would be a chargeable gain by virtue of section 236B(1A), the relevant amount is the amount that would secure that on the disposal neither a gain nor a loss would accrue to P.

(1F) Where part (but not the whole) of the notional gain would be a chargeable gain by virtue of section 236B(1A), the relevant amount is the maximum amount, not exceeding the market value of the share, that would secure that on the disposal no chargeable gain would accrue to P.

(1G) Where no part of the notional gain would be a chargeable gain by virtue of section 236B(1A), the relevant amount is equal to the market value of the original EES share at the time of the disposal.

(1H) Where no notional gain would accrue to P on the disposal of the original EES share, the relevant amount is the amount that would secure that on the disposal neither a gain nor a loss would accrue to P.

(1I) In determining for the purposes of this section whether any part of a notional gain is a chargeable gain by virtue of section 236B(1A), subsection (1B) is to be disregarded.

(1J) Where more than one original EES share is disposed of by P on a reorganisation, references in this section to the disposal of the original EES share are to be treated as references to the disposal of all of the original EES shares disposed of on the reorganisation.

(1K) In this section “reorganisation” has the same meaning as in section 127.”

(3C) In subsection (2) for “reference in subsection (1) to section 127 includes” substitute “references in this section to section 127 include”.”—(Mr Gauke.)

Clause 77, as amended, ordered to stand part of the Bill.

Clauses 78 to 81 ordered to stand part of the Bill.

New Clause 2

Review of remuneration of investment fund managers

“The Chancellor of the Exchequer must commission a review of ways in which the law could be amended to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income, and must publish the report of the review within six months of the passing of this Act.”—(Roger Mullin.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Division 29

28 June 2016

divided:

Ayes: 259
Noes: 315

Question accordingly negatived.

View Details

The Deputy Speaker resumed the Chair.

Bill (Clauses 7 to 18, 41 to 44, 65 to 18, 129, 132 to 136, and 144 to 154, and schedules 2, 3, 11 to 14, and 18 to 22), as amended, reported, and ordered to lie on the Table.

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Before we move to the four Ways and Means resolutions numbered 2 to 5 on the Order Paper, the Minister has notified me that he wishes to move an additional Ways and Means motion relating to stamp duty. Copies have been in the Vote Office for the past 40 minutes and I hope hon. Members have had an opportunity to read it. The same procedure will apply as for the motions on the Order Paper.

FINANCE BILL: WAYS AND MEANS (STAMP DUTY: ACQUISITION OF TARGET COMPANY’S SHARE CAPITAL)

Resolved,

That the following provisions shall have effect for the period beginning with 29 June 2016 and ending 31 days after the earliest of the dates mentioned in section 50(2) of the Finance Act 1973—

(1) Section 77 of the Finance Act 1986 (acquisition of target company’s share capital) is amended as follows.

(2) In subsection (3), omit the “and” at the end of paragraph (g) and after paragraph (h) insert “, and

(i) at the time the instrument mentioned in subsection (1) isexecuted there are no disqualifying arrangements, within the meaning given by section 77A, in existence.”

(3) In subsection (3A) for “(3)” substitute “(3)(b) to (h)”.

(4) In subsection (4) after “this section” insert “and section 77A”.

(5) After section 77 of the Finance Act 1986 insert—

“77A Disqualifying arrangements

(1) This section applies for the purposes of section 77(3)(i).

(2) Arrangements are “disqualifying arrangements” if it is reasonable to assume that the purpose, or one of the purposes, of the arrangements is to secure that—

(a) a particular person obtains control of the acquiring company, or

(b) particular persons together obtain control of that company.

(3) But neither of the following are disqualifying arrangements—

(a) the arrangements for the issue of shares in the acquiring company which is the consideration for the acquisition mentioned in section 77(3);

(b) any relevant merger arrangements.

(4) In subsection (3) “relevant merger arrangements” means arrangements for the issue of shares in the acquiring company to the shareholders of a company (“company B”) other than the target company (“company A”) in a case where—

(a) that issue of shares to the shareholders of company B would be the only consideration for the acquisition by the acquiring company of the whole of the issued share capital of company B,

(b) the conditions in section 77(3)(c) and (e) would be met in relation to that acquisition (if that acquisition were made in accordance with the arrangements), and

(c) the conditions in paragraphs (f) to (h) of section 77(3) would be met in relation to that acquisition if—

(i) that acquisition were made in accordance with thearrangements, and

(ii) the shares in the acquiring company issued asconsideration for the acquisition of the share capital of company A were ignored for the purposes of those paragraphs;

and in section 77(3)(e) to (h) and (3A) as they apply by virtue of this subsection, references to the target company are to be read as references to company B.

(5) Where—

(a) arrangements within any paragraph of subsection (3) are part of a wider scheme or arrangement, and

(b) that scheme or arrangement includes other arrangements which—

(i) fall within subsection (2), and

(ii) do not fall within any paragraph of subsection(3),those other arrangements are disqualifying arrangements despite anything in subsection (3).

(6) In this section—

“the acquiring company” has the meaning given by section 77(1);

“arrangements” includes any agreement, understanding or scheme (whether or not legally enforceable);

“control” is to be read in accordance with section 1124 of the Corporation Tax Act 2010;

“the target company” has the meaning given by section 77(1).”

(6) The amendments made by this Resolution have effect in relation to anyinstrument executed on or after 29 June 2016 (and references to arrangementsin any provision inserted by this Resolution include arrangements entered into before that date).

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of section 50 of the Finance Act 1973.—(Mr Gauke.)

FINANCE BILL: WAYS AND MEANS (TRANSACTIONS IN LAND)

Resolved,

That provision may be made for and in connection with the taxation of:

(1) profits of trading activities concerned with land, or the development of land, in the United Kingdom; and

(2) other amounts representing profits from a disposal of, or of property deriving its value from, land in the United Kingdom.—(Mr Gauke.)

FINANCE BILL: WAYS AND MEANS (RECEIPTS FROM INTELLECTUAL PROPERTY: DIVERTED PROFITS TAX)

Resolved,

That provision be made amending Part 3 of the Finance Act 2015 (diverted profits tax).—(Mr Gauke.)

FINANCE BILL: WAYS AND MEANS (RECEIPTS FROM INTELLECTUAL PROPERTY: TERRITORIAL SCOPE)

Resolved,

That:

(1) In section 577 of the Income Tax (Trading and Other Income) Act 2005 (territorial scope of Part 5 charges), at the end insert—

“(5) See also section 577A (territorial scope of Part 5 charges: receipts from intellectual property).”

(2) After that section insert—

“577A Territorial scope of Part 5 charges: receipts from intellectual property

(1) References in section 577 to income which is from a source in the United Kingdom include income arising where—

(a) a royalty or other sum is paid in respect of intellectual property by a person who is non-UK resident, and

(b) the payment is made in connection with a trade carried on by that person through a permanent establishment in the United Kingdom.

(2) Subsection (3) applies where a royalty or other sum is paid in respect of intellectual property by a person who is non-UK resident in connection with a trade carried on by that person only in part through a permanent establishment in the United Kingdom.

(3) The payment referred to in subsection (2) is to be regarded for the purposes of subsection (1)(b) as made in connection with a trade carried on through a permanent establishment in the United Kingdom to such extent as is just and reasonable, having regard to all the circumstances.

(4) In determining for the purposes of section 577 whether income arising is from a source in the United Kingdom, no regard is to be had to arrangements the main purpose of which, or one of the main purposes of which, is to avoid the effect of the rule in subsection (1).

(5) In this section—

‘arrangements’ includes any agreement, understanding, scheme, transaction or series of transactions

(whether or not legally enforceable);

‘intellectual property’ has the same meaning as in section 579;

‘permanent establishment’—

(a) in relation to a company, is to be read (by virtue of section 1007A of ITA 2007) in accordance with Chapter 2 of Part 24 of CTA 2010, and

(b) in relation to any other person, is to be read in accordance with that Chapter but as if references in that Chapter to a company were references to that person.”

(3) The amendments made by paragraphs (1) and (2) have effect in relation to royalties or other sums paid in respect of intellectual property on or after 28 June 2016.

(4) It does not matter for the purposes of subsection (4) of section 577A of the Income Tax (Trading and Other Income) Act 2005 (as inserted by paragraph (2)) whether the arrangements referred to in that subsection are entered into before, or on or after, 28 June 2016.

(5) Where arrangements are disregarded under subsection (4) of section 577A of the Income Tax (Trading and Other Income) Act 2005 (as inserted by paragraph (2)) in relation to a payment of a royalty or other sum which—

(a) is made before 28 June 2016, but

(b) is due on or after that day,

the payment is to be regarded for the purposes of subsection (1) of that section as made on the date on which it is due.

(6) In determining the date on which a payment is due for the purposes of paragraph (5), disregard the arrangements referred to in that paragraph.

(7) Where—

(a) an intellectual property royalty payment within the meaning of section 917A of the Income Tax Act 2007 is made on or after 28 June 2016,

(b) the payment is made under arrangements (within the meaning of that section) entered into before that day,

(c) the arrangements are not DTA tax avoidance arrangements for the purposes of that section,

(d) it is reasonable to conclude that the main purpose, or one of the main purposes, of the arrangements was to obtain a tax advantage by virtue of any provisions of a foreign double taxation arrangement, and

(e) obtaining that tax advantage is contrary to the object and purpose of those provisions,

the arrangements are to be regarded as DTA tax avoidance arrangements for the purposes of section 917A of the Income Tax Act 2007 in relation to the payment.

(8) In paragraph (7)—

“foreign double taxation arrangement” means an arrangement made by two or more territories outside the United Kingdom with a view to affording relief from double taxation in relation to tax chargeable on income (with or without other tax relief);

“tax advantage” is to be construed in accordance with section 208 of the Finance Act 2013 but as if references in that section to “tax” were references to tax chargeable on income under the law of a territory outside the United Kingdom.

(9) Where—

(a) a royalty is paid on or after 28 June 2016,

(b) the right in respect of which the royalty is paid was created or assigned before that day,

(c) section 765(2) of the Income Tax (Trading and Other Income) Act 2005 does not apply in relation to the payment, and

(d) it is reasonable to conclude that the main purpose, or one of the main purposes, of any person connected with the creation or assignment of the right was to take advantage, by means of that creation or assignment, of the law of any territory giving effect to Council Directive 2003/49/EC of 3rd June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different member States, section 758 of the Income Tax (Trading and Other Income) Act 2005 does not apply in relation to the payment.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—(Mr Gauke.)

FINANCE BILL: WAYS AND MEANS (DEDUCTION OF INCOME TAX AT SOURCE: INTELLECTUAL PROPERTY)

Resolved,

That:

(1) Part 15 of the Income Tax Act 2007 (deduction from other payments connected with intellectual property) is amended as specified in paragraphs (2) and (3).

(2) In section 906 (certain royalties etc where usual place of abode of owner is abroad), for subsections (1) to (3) substitute—

“(1) This section applies to any payment made in a tax year where condition A or condition B is met.

(2) Condition A is that—

(a) the payment is a royalty, or a payment of any other kind, for the use of, or the right to use, intellectual property (see section 907),

(b) the usual place of abode of the owner of the intellectual property is outside the United Kingdom, and

(c) the payment is charged to income tax or corporation tax.

(3) Condition B is that—

(a) the payment is a payment of sums payable periodically in respect of intellectual property,

(b) the person entitled to those sums (‘the assignor’) assigned the intellectual property to another person,

(c) the usual place of abode of the assignor is outside the United Kingdom, and (d) the payment is charged to income tax or corporation tax.”

(3) For section 907 substitute—

“907Meaning of ‘intellectual property’

(1) In section 906 ‘intellectual property’ means—

(a) copyright of literary, artistic or scientific work,

(b) any patent, trade mark, design, model, plan, or secret formula or process,

(c) any information concerning industrial, commercial or scientific experience, or

(d) public lending right in respect of a book.

(2) In this section ‘copyright of literary, artistic or scientific work’ does not include copyright in—

(a) a cinematographic film or video recording, or

(b) the sound-track of a cinematographic film or video recording, except so far as it is separately exploited.”

(4) The amendments made by paragraphs (2) and (3) have effect in respect of payments made on or after 28 June 2016.

(5) But the amendments made by paragraphs (2) and (3) do not have effect for the purposes of the definition of “intellectual property royalty payment” in section 917A of the Income Tax Act 2007 inserted by Resolution 23 of the House of 22 March 2016 (deduction of income tax at source: tax avoidance).

(6) That section has effect in relation to payments made on or after 28 June 2016 as if “intellectual property royalty payment” also included (so far as it would not otherwise do so) any payments referred to in section 906(2)(a) or (3)(a) of the Income Tax Act 2007 substituted by paragraph (2).

(7) In determining whether section 906 of the Income Tax Act 2007 applies to a payment, no regard is to be had to any arrangements the main purpose of which, or one of the main purposes of which, is to avoid the effect of the amendments made by paragraphs (2) and (3).

(8) Where arrangements are disregarded under paragraph (7) in relation to a payment which—

(a) is made before 28 June 2016, and

(b) is due on or after that day,

the payment is to be regarded for the purposes of section 906 of the Income Tax Act 2007 as made on the date on which it is due.

(9) In determining the date on which a payment is due for the purposes of paragraph (8), disregard the arrangements referred to in that paragraph.

(10) In this Resolution “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable and whether entered into before, or on or after, 28 June 2016).

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—(Mr Gauke.)