A live blog of the sixth public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), which took place on Thursday 11 June 2020 from 2pm. The session covered the later clauses in Part 2 of the Bill, which covers the introduction of the Digital Services Tax.
Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.
Proceedings can be listened to here.
Reports on previous debates on this Finance Bill are available:
Second Reading debate - Monday 27 April 2020
Public Bill Committee - 1st sitting (liveblog) - Thursday 4 June 2020 (am)
Public Bill Committee - 2nd sitting (liveblog) - Thursday 4 June 2020 (pm)
Public Bill Committee - 3rd sitting (liveblog) - Tuesday 9 June 2020 (am)
Public Bill Committee - 4th sitting (liveblog) - Tuesday 9 June 2020 (pm)
Public Bill Committee - 5th sitting (liveblog) - Thursday 11 June 2020 (am)
NB. The live blog below is contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.
New clauses debated during proceedings will not be voted on until the end of the committee's proceedings
Committee members are listed here. The main contributors are expected to be:
For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)
For the Opposition:
Bridget Phillipson (Labour), Shadow Chief Secretary to the Treasury
Stephen Flynn, SNP Treasury Spokesperson
Finance Bill Public Bill Committee - Sitting Six - Thursday 11 June 2020, 2pm
Debate continued on the Digital Services Tax (DST). The DST is a new 2% tax on the revenues of large digital businesses to ensure that the amount of tax paid in the UK is reflective of the value derived from UK users. The tax will apply to groups providing a social media service (eg Facebook), internet search engine (eg Google) or online marketplace (eg Amazon marketplace).
Clauses 51-55 and Schedule 7 - Digital Services Tax: Duty to submit returns etc
These clauses cover obligations and duties to notify HMRC of, for example, changes in relevant information as well as filing returns.
The FST explained that the measures provided a duty on businesses to submit returns. Those with revenues above the threshold should provide HMRC will the necessary information to assess tax. They need only submit returns where there is a liability. HMRC will direct companies when they can stop providing returns. He said this should make the tax easier for companies and HMRC to administer. He concluded his remarks by noting that the powers needed for HMRC to operate the tax and ensure the correct amounts of tax are paid were drawn from existing powers and that HMRC would have no further, additional powers for ensuring compliance.
Bridget Philipson said that the Labour Paty would support the proposals but noted the concerns raised by ICAEW in relation to the 90-day notifcation period, which they argued should be tied into the deadline for filing accounts. She said that the implementation and administration of the DST, as a new tax, should be fair and provide adequate time for businesses - espcially those on the margin of eligibility - to provide HMRC with accurate calculations of what they should be paying.
Robin Millar (Conservative) welcomed the tax, which he suggested was 'progressive in its nature and intent'. He argued that the basis of the tax should be considered not just by the revenues its raises but by the way it reflects the type of society that the government is looking to create. The FST welcomed Mr Millar's remarks, and spoke of Edmund Burke's notion of the state as a moral idea.
The FST, in response to Ms Philipson's comments, said that information provided by companies in respect of their liabilities could be delivered in real time. He said the proposals as put forward by the government were deliverable.
Claues 51-55 were passed unanimously.
Clauses 56-59 - Digital Services Tax: Groups, parents and members
These clauses cover, among other things, the meaning of “group”, “parent” etc in relation to company groups.
The FST described the measures as dealing with the technical requirements and definitions contained in the Bill. Using concepts and ideas already in use in the tax regime, he said, would make the tax simpler and easier to operate. Bridget Philipson had no further comments or questions on these clauses.
Clauses 56-59 were passed unanimously.
Clauses 60-63 - Digital Services Tax: Accounting periods, accounts etc
These clauses cover accounting periods, apportionment of revenue between years, etc.
Speaking to these clauses, the FST explained that these were again of a technical nature and would help with the smooth administration of the tax. There were no further comments from Bridget Philipson on the part of the opposition.
Clauses 60-63 were passed unanimously.
Clauses 64-69, clause 71 and schedules 8-9 - Digital Services Tax: Supplementary; General
These clauses cover miscellaneous other things relating to Digital Services Tax, including anti-avoidance measures and interest on overdue and overpaid DST
As with the previous two grouping of clauses, the FST once again stated that these clauses were technical and essential to the effective operation of the tax. The help to ensure that, among other things, HMRC can collect debts and enforce penalties. They will have familiarities to the corporation tax regime.
Bridget Philipson welcomed the anti-avoidance measures contained in the bill. She expressed concern at the 'considerable skill' that many digital companies use to reduce their tax liabilities. She said a number of stakeholders had expressed concern at the need to ensure that there was sufficient capacity within HMRC to collect the tax and ensure that revenues were properly accounted for.
The FST said that HMRC already had a digital services team in place to support the tax and that the DST - which empowers businesses to self-assess - was designed in a manner that minimises administrative burdens. He said that HMRC staff had shown themselves to be incredibly flexible to changing needs, as shown during the establishment of the various support programmes in light of the COVID-19 pandemic, and paid tribute to their efforts. He said the government would take 'future care' with regards to avoidance or evasion but that the legislation was designed to make the DST hard to avoid.
Clauses 64-69 and schedules 8 and 9 were passed unanimously.
Clause 70 (and new clause 11) - Review of Digital Services Tax
Clause 70 requires the Treasury to conduct a review of the DST before the end of 2025.
Amendment 7 from Labour would require the Government to report on the DST annually.
The SNP's new clause 11 would require a government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.
Bridget Philipson said that the amendment would provide for an annual report on the operation of the tax. Ms Philipson cited evidence from the OBR published in 2018 suggesting there were significant 'uncertainties' in the government's costing of the methodology behind the tax. This was driven largely by behavioural responses from firms (such as shifting profits and revenues out of the scope of the tax). She said it was clear that the 'already limited takings of this tax' could be reduced further and that yearly reporting could address whether such concerns were justified.
Philipson added that the review could allow for a greater understanding of the distributional impacts of the tax, citing CIOT concerns that it could under tax businesses with high profit margins, and over tax those with low profit margins. She also cited the government's response to its own consultation had shown a need to review and increase thresholds for the tax over time.
Philipson noted CIOT comments on the level of revenues being raised by the tax which stated that they were unlikely to raise the amounts that materially affect the country's finances, particularly in the context of the amounts being spent on COVID-19 measures.
She said such concerns spoke to wider issues around tax transparency, suggesting that there was a role for government to ensure that stronger action is taken on corporate tax avoidances, the promotion of fair tax measures and the prevention of share buybacks. She said that there had been 'no excuse' for levels of tax avoidance in recent years and that there would be a growing expecation among the public for stronger action. If these measures were unlikely to generate huge sums, she sugessted that it could leave the door open to further discussions around the wider taxation of multinational companies and digital enterprises.
Ms Philipson also said that the lack of a sunset clause in the legislation - a point she said had been highlighted by CIOT - suggested that the government may look to keep the legislation in place for longer than envisaged.
In response, the FST said it was the government's intention for there to be an international solution for the issue of taxing digital companies and for the DST to be removed from the statute book as soon as possible. This helped to explain the absence of a sunset clause He said there were already 'very substantial processes in place' for HMRC to review the tax and for politicians and the public to scrutinise the revenues received. He said that existing plans to review the tax in 2025 would ensure that it could be evaluated (if still in operation). The FST defended the government's record on tackling tax avoidance which had won the support of the opposition and which had contirbuted to a continued fall in the tax gap.
The chair then invited Stephen Flynn to move the SNP new clause 11. Flynn said that the new clause was in two parts and would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships (SLP). He said that this could help to address public concern and cynicism towards digital companies and their tax affairs. Flynn said that there was a need to bring SLPs 'under control' and that this was an issue his SNP colleagues had been pressing the government on in recent years. He said there were 'justifiable concerns' that SLPs (which are not taxable in the UK if their members are not resident in the UK) may be used to avoid the DST.
Responding, the FST doubted that the public were as cyncial as Mr Flynn had suggested and would welcome the government's measures. He added that the government had recognise the concerns with SLPs and was working on a legislative response. He said the new SNP clause would not provide usedul information on DST receipts, as the suggested review period would fall outwith the scope of reporting deadlines for tech companies.
Amendment 7 to Clause 70 was defeated by 6 votes to 10.
Clauses 70 and 71 were agreed unanimously.
The committee adjourned at 3.02pm and will resume again next Tuesday with consideration of Clause 72.