Emergency debate: Paradise Papers

A number of stories have appeared in an expose of how politicians, multinationals, celebrities and high-net-worth individuals sometimes use complex structures to reduce their tax bills.

We published a write-up of an earlier urgent question on the Paradise Paradise - MPs pick holes in Government record on tax abuse - held last Monday.

You may be interested in our Q&A available here, written by an experienced tax adviser, which aims to provide dispassionate background information on the “offshore” world – particularly as it affects private individuals - and how that world interacts with the UK's tax system.

Liveblog of contributions to Emergency Debate on Paradise Papers

(NB. Notes reflect debate as heard by author and transcription errors cannot be ruled out) 

12.52pm: The debate was obtained by Labour MP Dame Margaret Hodge, former chair of the Commons Public Accounts Committee and current chair of the All Party Parliamentary Group for Responsible Tax. Hodge said the Paradise Papers revelations constitute a national and international disgrace to those people named and shamed. Avoidance is taking place on an ‘industrial scale’. Paying tax is essential part of a social contract into which we all enter as members of a community; one rule is taxation for the common good. Some people in the House of Commons claim tax avoidance is ok because it is lawful but HMRC's own definition of tax avoidance says it involves bending the rules of the tax system to gain an advantage that Parliament never intended. Tax avoidance is different to tax planning, such as pensions and ISAs. We should not tolerate and act urgently to eradicate other forms of it.

Intervention by Maria Eagle (Lab) who said legitimate scrutiny is needed through greater transparency. Anna Soubry (Con) spoke up for the Tories’ record on getting extra tax in by, in part, clamping down on tax avoidance and evasion.

Hodge saluted the investigative journalists who made sense of the millions of documents and the whistle blower.

She said systemic issues need to be considered if we are to make progress. Appleby is one of few offshore legal practices that belong to the magic circle of offshore service providers despite it being criticised 12 times in a ten-year period in reports issued by regulators in UK ‘tax havens’ (BVI, IoMan, Cayman and Bermuda), for its failure to comply with regulations to tackle funding of terrorism and money laundering.

Had David Cameron had his way with public country by country registers by UK ‘tax havens’, we may not have been here today, but his drive was weakened by International Finance Centres Forum lobbying of key decision makers which wanted to maintain ‘secrecy’.

Treasury ministers only listen to a small and exclusive group of tax professionals, she said. Making advisers accountable for the tax avoidance schemes they invent and market is a must, she added, referring to them as these ‘illegitimate practices’. "It is one thing for the Government to consult stakeholders on issues, but it is quite another for the government to be captured by the tax industry," she said. The measures in the Finance Act 2017 to make advisers accountable is a small step but definitions are too narrow to succeed, Hodge added.

An intervention by a Labour backbench MP said prosecuting authorities need to up their game, which Hodge agreed with.  

We need a public register of beneficial ownership, which at a stroke would undermine so much, such as putting off the Lewis Hamiltons and Bonos of the world.

We should introduce public register of property ownership that was enacted before the General Election and supported by the APPG on anti-corruption – no one knows why this has not been implemented when it is part of the fight against cooperation, avoidance and evasion. Every one pound invested in HMRC enforcement yields £97 in additional revenue – it is a ‘no brainer’ to support HMRC.

She urged the Chancellor to use the Budget to clamp down on tax avoidance evasion.

1.22pm: Financial Secretary to the Treasury Mel Stride supported a cross party approach to tackling avoidance and evasion. He said the Government has brought in £28.9 billion in additional compliance yield in the last 12 months alone by clamping down on tax avoidance, evasion and non-compliance. 

Caroline Flint (Lab) intervened to say the way in which the tax take is identified, and therefore the tax gap is calculated, is based on what we think should be paid in tax, but it does not deal with ‘the Googles, Amazons and Starbucks who hide their tax away and are therefore not computed into the actual tax we should take and therefore the figures for a tax gap'.

Stride pointed to the current Finance Bill which tackles disguised remuneration.  He said the Government have been so good at bringing in measures, that Opposition parties cannot keep up with them all. The GAAR has had ‘significant impact’ he added. 

He spoke of the ‘huge investment’ the Government has made in HMRC.

Through OECD, the Government has been at the vanguard of the BEPS project, Diverted Profits Tax and a directory of beneficial ownership.

In response to a question from Stride, Margaret Hodge said it is ‘not in the gift of the Guardian or the [BBC} Panorama to release the Paradise Papers - they are not able to do so’.  She added that, while she would oin the Minister in seeking any documentation that HMRC requires to pursue those who are guilty of avoidance or evasion, when she has given papers to HMRC in the past, around Google or other whistle blowers, they just disappear and no action seems ever to be taken. 

1:40pm: Shadow Chief Secretary to the Treasury Peter Dowd (Lab) said all MPs owe a debt of gratitude to the journalists involved in the Paradise Papers leaks. Most of the people involved are not criminals but that does not make it acceptable or justifiable in the 21st century. The UK is considered one of, if not the biggest player, in offshore ‘tax havens’, he said. “How many tax avoidance leaks before the Government acts? We desperately need a public inquiry into tax avoidance and use of offshore trusts and havens.” We need a public register of offshore trusts and must stop cuts to HMRC, he added.

Dowd was challenged by Justin Tomlinson (Con) who asked: "why did the Labour party block the three measures that we brought forward in the wash-up that would have been worth £8.6 billion?" Dowd replied that he was "more than happy to give the hon. Gentleman the narrative of the wash-up proceedings. If he wants, I am happy to talk to him outside, because the information that he has been getting from his Front-Bench team is nonsense."

1.50pm: Andrew Mitchell (Con) said the matters in the Paradise Papers are not a party political issue. The anti-bribery law started under Sir John Major was finally introduced into the UK in 2011, shows Conservative’ long term commitment to act. There is a ‘real momentum’ to tackle these ills, thanks to David Cameron. Overseas Territories already provide information to HMRC, requests which can be turned around in a few hours – but these registers should be open to the media, NGOs and those who can ‘join up the dots’. 

2pm: Kirsty Blackman (SNP) said the only reason the Government is taking action on Scottish Limited Partnerships (SLP) is because of pressure from the media. The Paradise Papers’ tax avoidance revelations showed ‘immoral’ behaviour by the wealthy and powerful. “Some people lack a moral compass… the Government should legislate to reduce avoidance”. Austerity cannot be implemented while leaving a tax gap, she said. No matter what people pay in tax, they still use public services. SNP wants collection of tax devolved to the Scottish Government because they would do a better job, she said.

2.08pm: David Morris (Con) said offshore companies are legal entities and have been set up with HMRC guidelines. The Isle of Man Government is the most regulated ‘haven’ in the whole world. Since 2011, the Isle of Man customs and excise has raised 30 assessments for undeclared and over claimed VAT against businesses in the aircraft leasing sector, protecting £4.7 million of VAT to the Exchequer.

2.11pm: Meg Hillier (Lab), chair of the Public Accounts Committee, said public Country by Country reporting is something the Government should do. Paradise Papers show these matters of tax avoidance only come up when information is in the public domain. Panama Papers released in April 2016, according to HMRC, there are 66 criminal or civil investigations underway, and four arrested. HMRC only expect £100 million to come from the Panama Papers, which is ‘small fry’ in relation to the tax gap. The Public Accounts Committee has asked HMRC to consider a ‘wealth tax’, as in Australia, she told the House.

2.17pm: Nigel Mills (Con) said the ‘avoiders and evaders are one step ahead’, and moving away from doing domestic tax planning to going offshore. Changing the behaviour of advisers is key. We cannot close the whole of the tax gap by tackling aggressive avoidance and evasion by rich and corporates because the largest group avoiding their taxes are SMEs. Further measures the Government should take (and for which it already has powers), include moving forward on public Country by Country reporting, which is not greatly enhanced disclosure, he said, and we need to have a transparent register of overseas owners of very expensive properties in the UK. On the UK's overseas territories, he is appalled at the behaviour of Apple that when being chased by the EU through Ireland, tried to move their affairs to Jersey to ‘avoid the tax we all think they owe’. Such territories ‘do not need to compete on being closed and dirty’.

2.24pm: Caroline Flint (Lab) spoke about public Country by Country reporting, something she successfully pushed for in the past and the Government can choose to enact this. Corporate tax avoidance damages societies and lead to unfair competition. Let the UK build a ‘coalition of the willing’ with other countries and move ahead on it.

2.29pm: James Cartlidge (Con) said the tax gap is six percent under the Conservatives and was eight per cent under the last Labour government and the difference in annual terms is £11.8 billion.

2.34pm: Lib Dem Leader Sir Vince Cable (LD) said he agreed with much of what Hodge has said. He identified some of the ways the coalition government of which he had been part had acted against tax avoidance. He offered "one practical suggestion - a very simple thing the Government could do - to deal with corporate tax avoidance. It is a simple regulation that would require large companies registered here to declare, first, their total UK revenues and then their total UK expenses. It would then be immediately apparent whether there was a tax liability that had not been met, and a simple levy in lieu of tax payment would bring some of those companies to book in a reasonable way."

Cable also talked of the 'highly aggressive' pursuit of people over IR35, which leads to ‘ire’ among taxpayers at the contents of leaks such as the Paradise Papers. 

2.42pm Craig Mackinlay (Con) said we must not lose an understanding of what foreign jurisdictions and so-called tax havens are there for. "They are actually essential in the mix of international trade. For instance, it is not uncommon for a French investing company to choose the Caymans or the British Virgin Islands as the place of contract for a deal to invest in, say, the Democratic Republic of the Congo. Much though I have great respect for the legal system of the Democratic Republic of the Congo, the legal system and common law of the UK are what create legal certainty. These things are not always about saving tax or avoiding tax; they are about trying to make transactions in the right place." He sgtressed that the Government must still bear down on egregious tax planning, continue the promotion of data sharing with our international partners and make sure that global profits are taxed in the right place.

2.45pm: Stella Creasy (Lab) asked why anyone would hold UK property and UK entities overseas. She wants the Government to close the loophole on CGT on commercial properties as a matter of urgency and rethink the decision to give PFI companies the tax relief the Government has just given them. “Frankly this is not about Paradise Papers, this is about parasites bleeding off money from our public sector.”

End

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By Hamant Verma