House of Lords – Short debate on Tax Avoidance and Evasion – 13 September 2016
In a debate called by chartered tax adviser Lord Leigh of Hurley (Conservative), peers debated tax avoidance evasion for a little over an hour.
Lord Leigh (pictured) reflected that “When I started my somewhat short-lived career as a tax adviser, the idea of any immorality in avoiding tax would have been risible. However, these days responsible corporations have to consider seriously how far they should go. One very senior executive of a global bank told me that they look at their tax liability and do not let it fall below around 29%, so that they are in step with their peers. He explained that they felt they could easily concoct schemes to reduce the rate but had decided that this was not in their long-term interests as a respected institution. Regretfully, others clearly had no such concerns, and some international conglomerates have essentially ducked and dived their way around international tax treaties and devised complex transfer pricing agreements to negate any tax liability in certain jurisdictions.” He said he liked the Government’s new approach to apply the GAAR where it is clear that a multinational is using devices, such as offshore debt instruments, to reduce tax. He is concerned that HMRC must do more to tackle VAT evasion, particularly when international businesses are gaining an unfair advantage over UK businesses, for example Amazon and elsewhere selling goods on the internet without accounting for VAT.
Lord Tugendhat (Conservative) said it was “very important that the issue of tax evasion and tax avoidance should receive a very high priority” and “the introduction of a criminal offence for firms which do not stop staff facilitating tax evasion [was] a good place to start.” He pressed the minister for the Government’s view on the Apple state aid case. Another Conservative, Lord Borwick, complained that “our Houses pass new, complicated legislation every single year in the Finance Bill, yet we do not fully understand what is in it, let alone what impact it will have on millions of families and businesses. That is because it is too difficult to fully understand, and it gets more and more complex each year.” He urged the Treasury “to ask the Office of Tax Simplification to be bolder, then listen to what it has to say, with an intention to take action” adding the suggestion to the OTS that it “review the work done on abolishing corporation tax and replacing it with a tax on distributed profits. This would be a much simpler and more effective way of taxing the activity of companies.”
Lord Lupton (again a Conservative) was “encouraged by what I detect is a clear shift by the more forward-looking corporations from an ethos where legal tax avoidance and the minimisation of tax were a badge of honour to one which at least acknowledges that there are growing influences that may direct boards of companies to consider more carefully what all their stakeholders expect them to contribute to society.” He urged company stakeholders to exert their influence more, in enlightened self-interest, noting he found himself “in the peculiar position, as a free-market Conservative, of hoping that pressure groups will continue to hold companies to account to pay a fair rate of tax… through the medium of where it hurts most: the top line; that is, sales or turnover.” Lord Flight, the Conservative former Chief Secretary to the Treasury, began by objecting to people muddling evasion and avoidance before going on to consider Luxembourg’s laws that meant that royalties were free of tax. “That was a huge incentive to companies for which royalties were important to their business to very easily channel profits from one country to another and to Luxembourg subsidiaries that owned the royalty rights. That sort of thing is nonsense and if we cannot get international agreement, individual countries should enact legislation themselves.” He also expressed surprise that HMRC has not used its transfer pricing powers more.
For the Lib Dems Baroness Kramer argued that: “We must recognise that the structure of our businesses today are tending in a direction that enables and facilitates moving profits around the globe in a way that is extremely difficult to constrain… As we move into a world where artificial intelligence and machine learning will increase the capacity to set intellectual property anywhere in the world, even though manufacturing or services are delivered quite separately, this capacity to manoeuvre profits around becomes a problem that we must tackle.” She called for more attention to be paid to developing countries, asking the Government “to take a look at our own UK tax treaties with a number of developing countries”. Many of these were signed during the colonial era and they are very restrictive about the taxes that can be levied on UK companies, she said.
For Labour Lord Tunnicliffe confessed that he ‘rather liked’ paying tax. He set out some of the proposals Labour had put forward. These included 10 points of a tax transparency enforcement programme put forward in April, which had included “a public inquiry to examine the loss of tax revenues; increased powers for HMRC; the introduction of a general anti-avoidance principle; cracking down on accounting tricks; and the introduction of minimum standards of transparency for Crown dependencies and overseas territories.” There were also 13 recommendations in a report published the previous week by a group commissioned by the Labour Treasury Team, on Reforming HMRC. He summarised these as making HMRC “more dynamic and better resourced and governed. It should be much more open and available to scrutiny.”
Responding to the debate for the Government Lord Young of Cookham, a whip and, as Sir George Young, former Financial Secretary, claimed responsibility for Hector the Inspector, who helped launch self-assessment. He listed various government actions in the avoidance and evasion sphere and defended the work of the OTS, which had made more than 400 recommendations, he said. On Apple, he said this was “primarily an issue for the Irish Government, Apple and the European Commission, but the UK remains committed to ensuring that companies pay the right amount of tax on their activities.” He promised to continue to work with EU member states post the UK leaving the EU in addition to working with other international partners, to tackle avoidance. On the new corporate offence and whether it extends beyond corporate liability to individual liability, “I say that if a company is found guilty of not having reasonable procedures to prevent tax fraud, the people who are convicted are company directors for not having put in place reasonable procedures to prevent the fraud”. On tax treaties he said “decisions on the negotiation and renegotiation of a tax treaty are taken on the basis of a range of factors, including the role of treaties in promoting development”, adding “it has long been our practice to include robust anti-abuse provisions in all the revised double taxation agreements”. On the suggestion of alternative methods of taxing businesses, such as a corporate tax based on revenues not profits, Lord Young said that while these are theoretically simple, “issues remain as to whether such alternatives would achieve the right tax result, as linking profits to sales or staff numbers may well undervalue activity in the UK when most sales are undertaken abroad, thereby creating its own challenges”.