MPs debated clause 14 on disposals of UK land etc: payment on account of capital gains, clause 17 on non-uk resident companies carrying on UK property businesses and clause 18 about the diverted profits tax, in this morning's session.
Clause 14 and Schedule 2 - Disposals of UK land etc: payments on account of capital gains tax (and amendments)
This clause and Schedule extend from 6 April 2019 existing CGT reporting and payment on account obligations on non-UK residents disposing of UK property to include new interests chargeable to tax; and also introduce from 6 April 2020 reporting and payment on account obligations for residential property gains chargeable on UK resident persons and UK branches and agencies of non-UK resident persons.
Amendment 31 (Labour) would delay the commencement of the paragraph in Schedule 2 relating to the obligation to make a return in respect of a disposal to which the Schedule applies, until the Treasury has released details of HMRC‘s consultation with representative bodies concerning awareness of the provisions amongst those who may be covered by them - WITHDRAWN
Amendment 32 (Labour) would require the Chancellor of the Exchequer to review the revenue effects of the provisions of Schedule 2 if they were introduced in 2019/20 - WITHDRAWN
Amendment 33 (SNP) would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 2.- FAILED
Financial Secretary to the Treasury Mel Stride said it is right that any CGT is paid promptly. Changes made after consultation on the measure includes allowing reasonable estimates to be used, he said. Stride said the capitlal allowance is applicable when the first payment is made.He told an MP that there will be an allowance for each taxpayer in a couple.
On amendments 31, 32 and 33, Stride pointed out that HMRC have published a summary of responses to its consultation. The fiscal impact will be monitored. HMRC will also publish tax gap figures going forward which will take account of this measure.
Shadow Treasury Minister Anneliese Dodds said this measure has been a long time coming, way back in 2015 the Government signalled its intention on this. On amendment 31, Dodds said the proposed measures require filing a return far earlier than at present and she is concerned that taxpayers may fail to inform their accountant of this and miss the deadline - and therefore incur interest on non-payments. Thirty days is not that long a period to act, she said. Some of these calculations may be complex, after all. She is also concerned about ambiguity in the consultation about what happens if people cannot make payment in time. HMRC will not be happy with people asking for alternative payment methods, especially if they are dealing with the fallout to Brexit and perhaps short staffed in general. Will the Treasury be setting out procedures on time to pay to act as guidance for HMRC?
On amendment 32, she said there are two effective start dates for the schedule and it is unclear why this is the case. And we need to understand and anticipate the impact of these measures more so than the information supplied to the Committee.
SNP's Mhairi Black said the party is happy to support Labour amendments. It seems sensible that the Chancellor informs MPs how he expects this clause to impact on the Tax Gap, so MPs can measure its impact, for example. It cannot hurt to be more transparent, she said. Labour supports this amendments.
Stride responded by saying this is something carefully consulted on (eight week technical consultation). This is a significant change to timings, he accepted. Part of the purpose of bringing this forward is to concentrate the time at which the asset is being sold with the requirement to file paperwork. Another aspect to this, he said, is that there is a moment when there is a tipping point ahead of an exchange which gives additional time, and said it is possible to have a balancing of pay arrangement going forward that can manage estimates. Stride said a shorter period of time, as suggested in the measure, will help HMRC rather than cause them any additional stress on resources. The total headcount at HMRC is higher than in recent years, in any case.
Dodds withdrew Labour amendments, saying Labour is not against the measure. She finished by stressing her concerns about the brain drain of skilled HMRC staff leaving and the tax authority having the lowest morale of any Government 'department'. She asked Stride for more data on how the balancing payments will work, partly to see if they can be abused. Stride agreed to write to Dodds with more information about that and the criteria of time to pay arrangements.
Clause 17 and Schedule 5 - Non-UK resident companies carrying on UK property businesses etc
This clause charges the profits of a UK property business and other UK property income of non-UK resident companies to Corporation Tax rather than to Income Tax as at present. The change has effect from 6 April 2020. Focuses solely on UK property income. It will deliver more equal tax treatment for UK and non-UK resident companies in receipt of similar income, and take steps to prevent those that use this difference to reduce their tax bill on UK property through offshore ownership.
Amendment 35 (SNP) would require a review of the effects of this Schedule on the public finances - WITHDRAWN
Amendment 38 (Labour) would require an annual review of the revenue effects of this Schedule, in each year following the Schedule coming into force - FAILED
Amendment 39 (Labour) would require an annual report on companies to which corporation tax is chargeable due to the provisions of this Schedule - NOT VOTED ON
New Clause 4 calls for an analysis of the revenue effects of this measure compared to revenue if corporate tax rate was at 26 per cent on large companies - NOT VOTED ON
Tax Minister Mel Stride said this clause provides more coherent and fair tax regime. Companies will also be brought into new rules to counter tax avoidance, such as corporate interest restrictions and hybrid mismatch rules. The OBR said the changes will bring in £365 million over five years.
Shadow Treasury Minister Anneliese Dodds seeks a more thorough review because of the lack of information on this matter so far. The gulf between corporation tax and income tax will grow even more under this Government, she pointed out. NC4 is sensible when many businesses are concerned about sunk costs of business rates and apprenticeship levy, and also the availability of resources paid out of the public purse, such as skilled labour. It would be helpful to know who are the affected non-resident company landlords and where they are located, she said. We are talking about companies, not individuals, so Conservative privacy arguments and concerns against a register identifying taxpayers and what taxes they pay, do not really count.
SNP economy spokesperson Kirsty Blackman said NC4 is not SNP's position (SNP do not want any more reduction in corporation tax), although the party will support NC4. On amendment 35, she said MPs need clearer data on the expected revenue benefits of this measure. She is concerned about a lack of transparency on provided figures, but also that the Governemnt not been clear about its intention and the rationale behind this. There is no point moving people from one tax to another to reduce impact to the Exchequer in the short term, she suggested. Pullng people into these tax avoidance measures will not bring any significant tax take benefits, she said.
Stride said there is an obvious benefit in equality of treatment and also in bringing affected people into tax avoidance measures, which will bring in more money in tax take, he told Blackman. Stride will write to Blackman with more statistics. Dodds replied that there is a lack of infomation about the revenue impact of the measure, especially as Stride just said there might be a negative impact on revenues of this measure in future years.
Clause 18 and Schedule 6 Diverted profits tax
This clause and Schedule amend the diverted profits tax legislation in Part 3 of Finance Act (FA) 2015, to ensure those rules work effectively where avoidance arrangements give rise to tax planning opportunities, to make clear that diverted profits will be taxed under either corporation tax or diverted profits tax, and introduce modifications to the mechanics of the diverted profits tax legislation.
Amendment 37 (SNP) would require the Chancellor of the Exchequer to review the effect on public finances of the diverted profits tax provisions in this Bill - WITHDRAWN
Amendment 40 (Labour) would require the Chancellor of the Exchequer to review the effect on public finances on the provisions in Schedule 6 - DEFEATED
Amendment 41 (Labour) would require the Chancellor of the Exchequer to review DPT against its policy objectives. over five years - WITHDRAWN
Amendment 42 (Labour) would require the Chancellor of the Exchequer to review DPT against the Government’s proposed Digital Services tax - WITHDRAWN
Amendment 43 (Labour) would require the Chancellor of the Exchequer to review the impact of introducing this measure in 2019-20 - DEFEATED
Amendment 46 (Labour) would remove the proposed extension of the review period to 15 months - DEFEATED
Tax Minister Mel Stride said concerns have raised by some commentators that diverted profits should be taxed by either DPT or CT but not both; this clause puts that matter beyond doubt. DPT incentivises companies to agree adjustments to CT return during DPT review period and pay the correct amount of CT on their diverted profits, he said.
On amendment 46, he said it is in companies' interests to resolve matters during DPT period because DPT is paid up front. HMRC need time to tackle complex tax-driven arrangements to reduce tax loss. He was keen to say this extension does not provide any new power or relief for taxpayers. The Treasury has become aware that in a limited amount of cases the current DPT legislation may allow DPT to be inappropriately reduced after the end of the review period, which undermines the purpose of the regime. No tax has been lost in this way, he was keen to say, and this clause will put an end to this risk.
He also said that HMRC already published Tax Gap figures that look at DPT. On a public register amendment, he is against it not least because non-disclosure can encourage people to pay taxes.
Shadow Treasury Minister Anneliese Dodds, on amendment 45, said that when DPT was announced it was said to be a 'Google tax' but it is not clear if that company is actually covered by that scheme at all. The £130 million 'settlement' between HMRC and Google is not nearly enough, when there was UK sales of £4.6 billion. Labour wants to 'shine a light' on what taxpayers have been 'subject' to this tax so the public can judge its success for themselves.
Amendment 40, she wants the Tax Minister to delineate the different components of the Treasury's assessment of the value of DPT. She is concerned that it is not covering the very biggest firms, especially those that it was promoted as tackling in the media when DPT was announced. On amendment 42, it is needed because the DST and DPT have fundamentally different assumptions about appropriate basis for corporate taxation. The DPT assumes transfer pricing is still alive and kicking, while DST uses a particular form of revenue as a taxable quantum rather than profit.
On amendment 42, Labour feels there is no clear rationale from the Government.
The debate on clause 18 and schedule 6 resumed at 2.00pm following lunch.
Kirsty Blackman said that the SNP supported the amendments put forward by Labour. Speaking to the SNP amendment 37, she said this was a broad request to obtain further information from the government. She spoke to the explanatory notes to the Finance Bill and said that with further information, the Finance Minister would have faced less questioning from opposition MPs.
Sir Robert Syms (Conservative) said the diverted profits tax was a "backstop" to challenge businesses to ensure that they were paying the correct amount of (corporation) tax. He said providing a report on this specific tax would likely fail to glean sufficient, meaningful information due to the variances in the number and types of companies challenged each year by HMRC. He said overall corporation tax revenues should be the focus of enforcement and monitoring and urged the government to reject the opposition's amendments.