Clause 217 - Controlled foreign companies etc

Finance Bill – in a Public Bill Committee am 11:30 am ar 20 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 11:30, 20 Mehefin 2013

I beg to move amendment 149, in clause 217, page 126, line 13, at end add—

‘(2) The Chancellor of the Exchequer shall consider what steps Her Majesty’s Government could take, working alongside developing country governments, to assess the impact of changes to the Controlled Foreign Company Rules in the Finance Act 2012 and as a result of this Part of this Act on the overall tax take of developing countries. He shall report on this issue to Parliament within six months of Royal Assent.’.

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

With this it will be convenient to discuss the following:

Clause stand part.

That schedule 45 be the Forty-fifth schedule to the Bill.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is a pleasure to be debating the Finance Bill on its final day in Committee. Clause 217 introduces schedule 45 to ensure that the controlled foreign companies regime introduced by the Finance Act 2012 operates as intended. As the explanatory notes state,

The Schedule addresses two tax planning opportunities, and in addition makes six minor consequential amendments to provide consistency of interpretation”.

The Opposition of course welcome the moves to close down potential loopholes in the CFC provisions so I will restrict my comments on clause 217 to just one main question. Can the Minister provide some detail on those tax-planning opportunities? I ask that because the tax information and impact note suggests that the changes in clause 217 will have nil impact on the Exchequer, but it also suggests that they

“will remove some specific opportunities for corporation tax avoidance.”

Can the Minister confirm whether any of those opportunities have been exploited to date and, if so, at what cost? What are the expected savings to the Exchequer from closing the loopholes?

Our amendment 149 relates to the way in which the Government’s changes to the CFC rules may impact on developing countries. I am sure that the Minister will want to draw attention to the fact that the Opposition’s concerns on this issue were discussed at length in the Committees considering the Bills that became the Finance Acts of 2011 and 2012. We have also discussed the issue more recently than that—in the Committee of the whole House on this Bill on 17 April.

We are keen to reinforce the serious concerns that have been expressed on the issue and the Opposition have proposed a way in which they might be addressed. As we all know, many development charities believe that the CFC rule changes will make it easier for UK companies to avoid paying tax in developing countries in which they own subsidiaries. Although the changes have been estimated to cost the UK Exchequer £1 billion a year, ActionAid, one of the development charities campaigning on this issue, has estimated that they could cost some of the poorest countries in the world a staggering £4 billion a year, so although the Prime Minister and other Ministers express their commitment to supporting developing countries, some of the poorest countries, with minimal public services, could be losing as much as £4 billion a year in vital revenue that they should be investing in health care, education and sanitation. That could be a direct result of these taxation changes made in the UK.

We all know from the excellent “Enough Food For Everyone IF” campaign how vital increasing the tax take of developing countries is to ensuring that we end the 21st-century scandal of 1 billion children and young people growing up hungry and malnourished and more than 2 million dying of hunger every year.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

Obviously, at various times in the discussion of this issue—we discussed it in the Finance Bill last year and it has been under discussion since—it has been said that someone has cast doubt on some of the figures. The Government, for example, have perhaps felt that some of the campaigning organisations exaggerated the issue. When there is that degree of difference of opinion, there is all the more reason to ascertain the correct figure.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend makes an extremely important point and it is the reason why we wanted to table the amendment. It is not enough simply to state that the figures are disputed when in fact we believe that the Government should be taking every action they can to be sure that the rules are not contributing  to those devastating figures of children and young people growing up hungry and malnourished and dying in their millions every year. As the IF campaign states:

“Taxes are the most important, sustainable and predictable source of finance for developing country governments. Moreover, as the UK government says, ‘governance appears to be better where governments have to earn their incomes by taxing a wide range of citizens and economic activities...well-managed taxation systems can play a major role in state building.’ It is therefore shameful that the Government does not even seem prepared to countenance how its changes to the CFC rules in this country might be affecting the tax take of developing countries elsewhere.”

Let me remind Committee members of the Minister’s response to the Opposition’s request for a full impact assessment on the CFC rule changes back in 2011. He said:

“The Government do not consider that a full impact assessment of CFC interim changes and the reforms to foreign branch taxation on developing countries’ tax bases would be appropriate. Such an impact assessment would need to focus primarily on the nature of tax regimes in the developing countries, making it an assessment not of our tax rules, but of the tax rules of other countries. Such an assessment would not be relevant to the task of creating the most competitive corporate tax system in the G20 and encouraging more businesses to be based in the United Kingdom…The Government are committed to providing advice and guidance to developing countries to enable them to create and maintain their own effective tax regimes. That approach should ensure that those countries have appropriate taxing rights over businesses that operate there.––[Official Report, Finance Public Bill Committee, 7 June 2011; c. 423.]

The response that we got last year was not much better. The Minister said:

“Any assessment of the impact of CFC reform on developing countries would need to focus on, and would require, a full understanding of the interaction between multinational companies and the tax regimes in the developing countries in which they are located. It would be an assessment, not of our tax rules but of the tax rules of a range of other countries.”––[Official Report, Finance Public Bill Committee, 19 June; c. 468.]

The Minister’s comments in April, in response to our earlier Opposition amendment to the Bill, were equally unforthcoming. He simply said:

“The answer…is that as a matter of practicality it is difficult for HMRC to perform the roles required by the amendments as they require assessments not of our tax rules but of the tax rules of developing countries. That takes us outside what HMRC can realistically do.”—[Official Report, 17 April 2013; Vol. 561, c. 447.]

So amendment 149 does not ask HMRC or the Government to form anything the Minister might consider to be unreasonable, unrealistic or impractical. Instead of the Minister having to give his “computer says no” answer on this issue, the Chancellor is simply asked to consider what steps the Government could take, working alongside developing countries’ Governments, to assess the impact of the changes to the CFC rules on the overall tax take of developing countries.

We do not need to hear again about what is impossible for the Government to do. The Government should think about what they can do rather than dismissing such concerns out of hand. I remind the Committee and the Minister that both the Prime Minister and the Chancellor have frequently stated their commitment to championing tax transparency during the UK’s presidency of the G8, and obviously we have heard much about that this week. They are also on record as being absolutely committed to ensuring that developing countries benefit from the reforms yet, with the exception of a relatively  small pot of money for capacity building work, the measures to combat tax avoidance under the Bill do nothing to assist poor countries.

It is time for joined-up thinking on the issue. The Government, who boast of their commitment to spending 0.7% of gross national income on overseas aid—building on Labour’s legacy, I might add—are not just giving with one hand but taking away much more with the other from the very areas where it would be most important to ensure that developing countries can support themselves.

Photo of Stephen Doughty Stephen Doughty Llafur, De Caerdydd a Phenarth

Was my hon. Friend, like me, concerned to read the comments from several of the campaigning organisations, including the IF campaign yesterday, about the G8 summit and the tax agreements made there, saying that there was a large amount of unfinished business, especially regarding the position of developing countries? I was a little disappointed by the Prime Minister’s response yesterday about what steps he would take next. Was she also disappointed?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is fair to say that many development agencies that are campaigning so hard on the issue have been fairly lukewarm in their response to the outcomes from the G8. But we have an opportunity today to make a difference, and the Government have an opportunity to put their commitment into reality by supporting the amendment. I am pleased that the hon. Member for Bristol West (Stephen Williams) is now in Committee. Indeed, only last year his amendment was disappointingly withdrawn, but at the time he said that the

“purpose behind this amendment was to strive for joined-up government, in particular between Her Majesty’s Treasury and the Department for International Development…The reason why I mentioned joined-up government in the context of an enormous increase in the Department for International Development’s budget is that, given the budget pressures elsewhere, it would be perverse to increase the largesse that British taxpayers spread across the world while the foreign Governments who receive that increased assistance are unable efficiently to collect the tax revenues that are due.”––[Official Report, Finance Bill Public Bill Committee, 19 June 2012; c. 464-465.]

Photo of Stephen Doughty Stephen Doughty Llafur, De Caerdydd a Phenarth

Is it not ironic that we have seen a lack of progress on tax in the past couple of days while on aid spending, we, in fact, saw an 8% underspend in the Department for International Development’s budget, on the instructions of the Chief Secretary to the Treasury. We need to see the action on both aid and tax in respect of nutrition, hunger and other important issues.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend has put his case passionately and very much makes the case that I am putting across, as well as the argument advanced last year by the hon. Member for Bristol West. We could not agree more with the hon. Gentleman’s sentiments. The Government should be doing everything that they can to consider how changes to our taxation system impact on some of the poorest countries in the world.

Photo of Stephen Williams Stephen Williams Democratiaid Rhyddfrydol, Bristol West

Good morning, Mr Amess. I do not resile from the words that I used last year. In fact, I am pleased to see the progress that has been made as a result of the amendment and our discussion this time last year.

One of the reasons why the amendment was withdrawn was that those on the Opposition Front Bench at the time said privately that they had no intention of supporting it.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I dispute what the hon. Gentleman has said. I do not know how to express my words in a parliamentary manner, but I am surprised by the tone he used, given that he was supportive of such changes. We have been at pains in tabling the amendment today to make sure that it is worded reasonably and that it is not requesting anything unreasonable, impractical or unrealistic from the Government or, indeed, members of the Liberal Democrat party on the Government Benches. Therefore, we hope that members of the Committee will stand by the warm words from the Government Benches about supporting developing countries in their efforts to secure their own tax base and live up to the promises of the G8 on tax transparency and support for developing countries, and vote for our amendment today.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

It is a pleasure to continue to serve on the Committee under your chairmanship, Mr Amess. Many of us are seeing the light at the end of the tunnel and hoping that we will soon be given the freedom not to be in this room—until, perhaps, next year, when I am sure many of us will have the great pleasure of coming together for another Finance Bill. It is significant that we are again debating an issue—one that is very important—that has been raised each time we have had a Finance Bill, certainly in my short time in this House. That shows the seriousness of this question.

The provisions and changes that have been introduced in relation to controlled foreign companies are largely designed, it is argued, to improve the British economy. The argument in favour of what is being done in this field is that it will encourage companies to headquarter in the UK, bringing their main business here, from which substantial benefits will flow to all of us in the UK. The argument has been put that, even with the changes pending a couple of years back, companies were already deciding to change their headquartering arrangements and come to the UK for the first time, or else, having previously offshored themselves—presumably for financial and tax reasons—were deciding to come back to the UK. I do not know whether the Minister thinks it is relevant in this context, but it would be interesting to know exactly how many companies had done that, rather than hearing a reiteration of the same couple of names, which seem to come up in debates on this issue all the time.

We have to strike a balance between the advantages to the UK economy of having companies headquartered here and the impact—perhaps not an intended one—on developing countries. A number of NGOs working in the field have been making that argument throughout in debates on this issue. The crux of their concerns is that, as a result of these changes, the arrangements that companies can put in place could, albeit not intentionally, damage the economies of developing countries.

We all pay a great deal of lip service to the importance of helping developing countries to boost their economies. We also all agree that aid can only be one part of that;  aid is, sadly, still essential in many circumstances, but in itself it is a sticking plaster—a measure to help in situations that have already gone bad. Getting the tax situation right for developing countries is therefore extremely important. Given that context, it is important to take steps to ensure that what we have agreed to do will not have an inadvertent effect on developing countries.

Nearly two years on from a very similar debate—doubtless held in this very room—I would hope that the Government are now prepared to agree that it would be good to assess this area, rather than merely saying that that is happening internally anyway; that is neither public nor transparent, and does not give the opportunity to those with very grave concerns in this field to make their contribution. I therefore hope that, on this occasion, the Minister will accept our amendment.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee 11:45, 20 Mehefin 2013

It is a pleasure, as always, to serve under you, Mr Amess —if not next to you today, as your parliamentary neighbour.

I oppose the amendment, and in all candour am not sure whether it is an effective use of money. If there is a pot of money available, I am not convinced that it is best to spread it thinly across all developing countries. In the continent I know best, Africa, there are 54 different countries with 54 different tax systems.

If we have money to support developing economies by analysing their tax take in relation to their problems and looking at issues relating to how we tax controlled foreign companies, it would be better to add it to the pot of what DFID already spends. I have seen good work done in Lesotho, where DFID money goes to supporting customs and revenue collection. I feel that the amendment is flawed because an analysis would be expensive, given how many countries it would be spread across.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I sincerely apologise for my electronic device playing Radio 4 just now. I appreciate the argument that the hon. Gentleman is very sincerely making. However, I question whether he is responding to the amendment, which simply asks the Government to assess how it might go about assessing the impact of these changes. It does not try to prescribe how that should be done; it simply asks the Government to look sincerely at the way in which they could improve the impact of the changes to the CFC rules. Therefore, I suggest that the hon. Gentleman’s argument goes some way towards supporting the amendment.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

I was speaking specifically to amendment 149, which, I appreciate, does not give a figure for the costs. However, it is always costly to ask a Department to look at anything, and that time and money could be better used elsewhere. It would be much more effective to look at a specific country. If that country—be it Lesotho, Swaziland or Botswana, countries I know something about—says it has a problem with this piece of legislation, we should investigate it through the prism of the work DFID does in that country, rather than getting the Treasury to look at it from the centre.

Photo of David Gauke David Gauke The Exchequer Secretary

It is a great pleasure to serve under your chairmanship, Mr Amess, on this final morning of our Committee proceedings. Clause 217 introduces schedule  45, which makes eight amendments to the new controlled foreign company rules. The amendments close one tax planning opportunity, close one disclosed avoidance scheme, and introduce six minor changes to ensure that the rules work as intended and to protect the UK’s corporation tax base.

The CFC rules are designed to protect the UK tax base from artificial diversion of profits. The rules were extensively reformed last year to ensure that the necessary protection for a more territorial corporate tax base is provided in a way that reflects modern global business practices while significantly reducing the compliance burdens on business. The CFC rules were reformed as part of the Government’s corporate tax road map, which gave businesses a competitive and stable tax system that provides the right conditions for investment in the UK.

The changes made by clause 217 will apply to UK resident companies that hold an interest in controlled foreign companies. Two of the changes will ensure that the protection to the UK tax base provided by the CFC rules is maintained. The other six will ensure the CFC rules remain targeted on profits that have been artificially diverted from the UK. The changes will extend the scope of the new CFC rules to include profits from all finance-leased assets, including hire purchase and similar types of contract. They will limit the amount of double taxation relief for UK companies where arrangements involve the routing of a loan between two CFCs via a UK company; ensure that references to certain accounting practices are consistent throughout the new CFC rules; introduce a minor consequential amendment to the arbitrage anti-avoidance rules; and ensure that the definitions of a group treasury company and the worldwide debt cap rules and the CFC rules remain aligned. In two specified circumstances, the changes will also relax the current rule that limits the scope for full exemption for intra-group profits where funding arrangements involve UK debt and ensure that the rules that limit the total CFC charge from partially exempt intra-group lending profits to the aggregate net borrowing costs of the UK members of the group are applied to all such intra-group lending profits.

The changes to prevent there being an avoidance-of-tax planning opportunity, along with two of the minor technical amendments, were published as draft legislation for technical consultation in December last year. The changes to maintain the protection provided by the CFC rules were considered a proportionate response. A proposal to relax the amendment limiting double taxation relief was considered, but it was rejected as it would increase complexity, would be inconsistent with how such relief is normally given, and would encourage the use of UK companies to help create offshore tax shelters.

Since 1 January, businesses have been subject to new CFC rules, and Her Majesty’s Revenue and Customs has been extensively engaged in clarifying points of uncertainty. That work has identified the need for four additional minor changes, which were subject to a short informal consultation. It was agreed that they were sensible changes that will help to ensure that the CFC rules target profits artificially diverted from the UK. As the new rules have been operational only since 1 January, their application will continue to be monitored to ensure that they work as intended. Their introduction last year was an important part of our reforms of the corporate  tax system. The schedule makes eight amendments to those rules to close tax planning opportunities and introduce six minor changes.

In response to the hon. Member for Newcastle upon Tyne North, the two tax planning opportunities were identified before businesses had the chance to exploit them. We have acted quickly, and there will consequently be no loss of tax to the Exchequer.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

If the loopholes were identified before anybody had the opportunity to exploit them, how were they identified? Was it through the disclosure of tax avoidance schemes, for example? It would be useful to understand why the changes are being made in this year’s Finance Bill instead of being dealt with last year, when the rules were changed by the Finance Act 2012.

Photo of David Gauke David Gauke The Exchequer Secretary

As I mentioned, the amendment to the relevant finance lease definition arose from a submission under DOTAS, but I did not say that the amendment to the amount of double taxation relief available for certain loan arrangements arose from HMRC’s ongoing discussions with business on the new CFC regime. I hope that that is helpful.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I note the various changes introduced to the CFC rules this year that were obviously not detected last year, when the rules were changed. Does the Minister have any concerns that that might undermine the Government’s initial assessment of the impact on developing countries? That was estimated at £1 billion, but that is disputed by development agencies that fear it is more in the region of £4 billion. Given that the Government did not quite get the rules right when they brought them in last year, does that not add weight to the argument that they should reassess the impact of these changes on developing countries?

Photo of David Gauke David Gauke The Exchequer Secretary 12:00, 20 Mehefin 2013

The fact that we have made some amendments underlines the fact that we are serious about ensuring that the new CFC rules protect the UK’s corporation tax base while contributing to a competitive corporation tax regime. The other changes are minor. Given the more than 100 pages of legislation that we introduced last year, as I am sure the hon. Lady will recall, I do not think that the changes would in any way undermine confidence in the CFC regime. From time to time there will be a need to make amendments to reflect disclosures—under DOTAS, for example—and we remain vigilant. I should also correct her by saying that the Government have not made an estimate of the impact on developing countries of the changes to the CFC regime.

Amendment 149 asks the Government to consider how they could work with Governments of developing countries to assess the impact of changes to the UK’s CFC rules, including any effects on the overall tax take of those countries. The amendment is similar to proposals that we have debated in the past. The hon. Lady tried to draw a distinction between us. The way that I would draw the distinction is that in the past she called for a review, whereas now she appears to call for a review into having a review. The essence of the case is much the  same, and my response is also much the same: it is not feasible to carry out an assessment of the sort that she is calling for. Any assessment of the impact of CFC reform on developing countries would need to focus on and require a full understanding of the interaction between multinational companies and the tax regimes of all the developing countries in which they are located. The assessment would not be of our tax rules but the tax rules of a range of other countries. Even with the assistance of those countries’ Governments, an assessment of that nature would be a hugely complex task.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The Minister is churning out the “computer says no” response again. What our amendment is asking for, and what many development aid agencies are asking for, is something quite reasonable, which is for the Government to provide not short responses as to why the issue is impossible, unrealistic or too expensive to look at, but a report to explain why they believe that that is the case and what they could do to resolve the concerns that have been expressed. This is the third time that we have visited this argument. Would it not therefore be in the Government’s interest at least to take a more proactive approach to resolve the concerns?

Photo of David Gauke David Gauke The Exchequer Secretary

The debate is essentially the same that which we have had in the past, as is my response: we do not think that such assessments would be proper or feasible. We are committed to ensuring that developing countries have the assistance they need to ensure that their own rules reduce tax avoidance and protect their own tax base, but what has been proposed is not the right response. Our corporate tax system is not the right way to help developing countries. Our system and CFC regime are designed to protect the UK’s tax base, not that of other countries.

Photo of David Gauke David Gauke The Exchequer Secretary

Let me make this point. The key issue is to ensure that developing countries have effective systems that protect their own tax bases and that they can access and act on tax information, which is exactly what we are doing.

The UK provides considerable support through the Department for International Development and HMRC to provide robust, fair and sustainable domestic taxation systems. Our priorities in achieving that are building capacity in developing countries to allow them to establish and maintain effective tax systems of their own, improving exchange of tax information, and increasing transparency in the extractive sector to address corruption. Indeed, we have made considerable progress, not least in the past few days, in meeting those objectives. Perhaps I can give the Committee some specific examples of our work in this area.

Photo of Stephen Doughty Stephen Doughty Llafur, De Caerdydd a Phenarth

The Minister’s argument is basically that this is all too complicated and difficult to look at. We already engage in extremely detailed analysis of developing countries’ governmental, fiscal and tax systems to provide the sort of support he describes, so why would this be so complicated? It is just a simple request.  The sums of money involved are huge. I do not understand the logic of his argument if we are giving aid to countries when they could be raising it from their own tax bases and doing things that could make that more problematic.

Photo of David Gauke David Gauke The Exchequer Secretary

The logic of the argument is that our tax rules are designed to protect our tax base and to ensure that we have a competitive tax system. If we were to go down the route advocated in the amendment, we would need to have an understanding of every developing country’s tax system in order to provide that assessment. We do not write tax laws for other countries; we provide support to other countries. I will give some examples.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

On reflection, is it not even more complicated than that? If we accepted this amendment and found that there was a gap in developing countries, we would need to look to see what could be done to close that gap in a way that did not haemorrhage our tax take to developed countries.

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend is right; we would need to have a deep understanding of the interaction of all of these rules. In order to do that, we would need to have an understanding of developing countries. He noted earlier that there are 54 countries in Africa—I think that was the number he used—and it would presumably require analysis of a vast number of those. The Opposition appear to be calling for a report on their tax systems and their interaction with our tax system. That is a huge task for which HMRC is not well suited. I would rather use its resources in this area, with the support of DFID, to help developing countries to develop their own tax systems so that they can protect their own tax base, and that is exactly what we are doing.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

What the Minister is telling us seems to be entirely at odds with the statements made by the Prime Minister at the G8 summit. The Lough Erne declaration published yesterday states:

“Tax authorities across the world should automatically share information to fight the scourge of tax evasion. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where… Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.”

It is there in black and white. We are providing the means by which the UK tax authorities could help developing countries better to understand how changes to our tax rules could help or undermine their ability to collect their taxes.

Photo of David Gauke David Gauke The Exchequer Secretary

What I am saying is entirely consistent with the Lough Erne declaration. What we can do to help developing countries is help them develop their tax capacity. I want to give some examples of what we are doing. In February, HMRC tax professionals supported their counterparts from Tanzania and Uganda through a knowledge sharing event on exchange of information, tax treaties and transfer pricing. HMRC has also worked closely with the Tanzanian revenue authority to support the development of a new website which was launched in April. The new site has been well received by taxpayers and brings together online services in one place. I should add that I had the pleasure of meeting some  representatives from the Tanzanian revenue authority a couple of weeks or so ago to discuss the work we are doing there.

HMRC supported the Rwanda Revenue Authority through hosting a study visit in March to share best practice on tax audit. We are preparing to welcome 30 delegates form Nigeria, Malawi, Burundi, Malaysia, Sri Lanka and Namibia for two training programmes which HMRC hosts every summer on behalf of the Commonwealth Association of Tax Administrators. The training programmes develop the leadership and technical skills of senior managers and tax inspectors and cover all aspects of tax administration, from transfer pricing to debt management.

Projects such as those play a vital role in helping the Governments of developing countries put in place effective tax policy and collect the tax that they are owed. Indeed, at the G8 summit earlier this week, it was agreed that we would continue to provide practical support to developing countries’ efforts to build capacity to collect the taxes owed to them and to engage in and benefit from the exchange of information. The G8 called on all jurisdictions to join the global forum on transparency and exchange of information for tax purposes and the multilateral convention. The G8 reiterated that we would continue to provide practical support to developing countries looking to join that forum. In addition, the G8 committed to continue to share expertise and to help to build capacity, as well as to engage in long-term partnership programmes to secure success. Those are considerable matters.

I want to make a point about the Labour party. Yes, it has consistently asked for reviews and for us to devote a lot of HMRC staff to investigating the area—we will not reach agreement on whether that is a practical step—but there has been no indication that the Opposition would reform CFC rules as a consequence. I am pleased to say that, because they were right to support our reforms. On the one hand, the Opposition are taking a sensible pro-business position in supporting our position on the CFC system, but on the other they are tabling amendments that would reform it, when they are not committed to doing so. I have this horrible suspicion that they are trying to give an impression to NGOs that they support a position that they do not really hold.

Photo of David Gauke David Gauke The Exchequer Secretary

If the hon. Lady wants to provide clarity, I should give her that opportunity.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The Minister is heading down a cynical road. Given the incredible efforts that the Prime Minister appears to have been putting into this agenda, this measure seems to undermine and go against the grain somewhat. I appreciate the list of efforts that HMRC is making to work with DFID in assisting developing countries in collecting their taxes, but we did support the controlled foreign company rule reforms, although we expressed the concerns expressed to us on the impact those reforms would have on developing countries.

This is what the measure boils down to: we have made a change to our tax system that could have a devastating impact on developing countries, yet the  Government are unwilling to even look at what that impact might be. Our point is that they have a responsibility to look at the impact and on the basis of that take, whatever actions are necessary to mitigate it. That is why the amendment asks them to look harder at the issue and come back to Parliament with a report in the spirit of transparency, which they seem to trumpet so loudly.

Photo of David Gauke David Gauke The Exchequer Secretary

I do have to point out that it is under this Government that we will meet the 0.7% target and that we have made the most enormous strides in the automatic exchange of information. Overseas territories and Crown dependencies have signed up to the multilateral convention, which no one would have thought was possible a year ago. It is under this Government that we are increasing our support to developing countries, so that they can participate in some of the conventions and treaties that give them access to the information. We have got a proud record in this area, but I have to emphasise that the best way of supporting developing countries is by helping them build capability and gain access to tax information and to not try to use our tax system as a world policeman. Our tax system is designed to protect our tax base, and that is one of the principles behind the CFC reforms that were supported by the Labour party, so if the party is backing away from that it should say so. I do not believe that it is doing that—

Photo of David Gauke David Gauke The Exchequer Secretary

But perhaps the hon. Gentleman is.

Photo of Stephen Doughty Stephen Doughty Llafur, De Caerdydd a Phenarth

The Minister is being extremely generous in giving way. He is painting a rosy picture of the Government’s current international commitments, and I do not think that is borne out in the facts. Despite the Minister’s claims, we see the underspend in the Department for International Development and the lack of a Bill about the 0.7%, and in the past few days we have seen that agreement, which contains some important principles but also huge holes.

I again press the Minister on the complexity point. He makes out as if HMRC would somehow have to do it all on its own and that it is such a difficult thing to do, but the International Monetary Fund, the World Bank and many other bodies, including non-governmental organisations such as ActionAid, are conducting the type of analysis that HMRC could draw on to find out the answers to the important questions asked by my hon. Friend the Member for Newcastle upon Tyne North.

Photo of David Gauke David Gauke The Exchequer Secretary

I will make the point one last time. What is being proposed would require a very detailed understanding of the tax codes of other countries, which is not something that HMRC does or is designed to do. I think that the hon. Gentleman is being somewhat peevish about our contribution to the developing world. Let us not forget the scale of the deficit that we inherited when we came into government, and the difficult decisions we have had to make to cut spending. We have, nevertheless, been able to find additional resources, spending more on international development than any previous Government. Let us not, therefore, be peevish. Our record and determination here are strong, and I am  proud of our big contribution: HMRC and DFID working together have a good reputation for helping other countries to develop their tax systems.

Photo of Stephen Williams Stephen Williams Democratiaid Rhyddfrydol, Bristol West

I thank the Minister for giving way to a triangular intervention, in response to the comment made by the hon. Member for Cardiff South and Penarth about a rosy picture being painted of the Government’s contribution to overseas aid. Will the Minister have soon at his fingertips what the expenditure on overseas aid was in 2010, and what it will be by the end of the year? I think it will be nearly double.

Photo of David Gauke David Gauke The Exchequer Secretary

I am not sure that I do have those figures at my fingertips, but my hon. Friend may well be right. There has been a rapid increase in expenditure on overseas aid under this Government, and we are proud of that.

In conclusion, the clause introduces changes to the CFC rules to close two tax planning opportunities and to ensure that the rules work as intended. I hope that there is support for all that, and that we can remain united on our CFC regime. I ask the hon. Member for Newcastle upon Tyne North to withdraw her amendment, because we do not believe that it is the right way to help developing countries in practice.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We have debated the issue at some length, and it is obvious that we disagree. We believe it to be entirely reasonable that when the Government make such a significant change to their taxation system, in the spirit of international co-operation and Government transparency they should report back on the potential impact of the change on developing countries. That would serve not only this Parliament but members of public. We will, therefore, press the amendment to a vote, and particularly test the will of the Liberal Democrat members of the Committee, who have previously expressed much support for the matter.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 17.

Rhif adran 9 Decision Time — Clause 217 - Controlled foreign companies etc

Ie: 8 MPs

Na: 17 MPs

Ie: A-Z fesul cyfenw

Na: A-Z fesul cyfenw

Question accordingly negatived.

Clause 217 ordered to stand part of the Bill.

Schedule 45 agreed to.