Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Clause 37 stand part.

That schedule 5 be the Fifth schedule to the Bill.

Clause 38 stand part.

Clause 36 makes changes to ensure that tax is paid on value built up in UK shares or securities even if the shares or securities are exchanged for an equivalent holding in a non-UK company. The measure is already legally in application since the point of its announcement in the autumn statement on 17 November last year. It will ensure that tax cannot be avoided where a UK resident non-domiciled individual with a degree of control in a UK company exchanges shares or securities in a UK close company for shares or securities in a non-UK holding company.

Before the measure was introduced, individuals could claim the remittance basis on disposal of the non-UK company shares and any income received in respect of the non-UK company shares. That means that tax will be paid only on the chargeable gain or the income if it is brought into the UK. The measure prevents the remittance basis from applying to the chargeable gain on disposal where the individual holds more than 5% of shares or securities in a UK close company and exchanges the shares for an equivalent holding in a non-UK company. Instead, the individual will pay tax as if the share exchange had not taken place. The clause will prevent tax avoidance by a small number of individuals, and protects £830 million of revenue across the scorecard period, ensuring that tax is paid on value built up in the UK on UK company securities even when securities are exchanged for securities in a non-UK company.

Clause 37 and schedule 5 make changes to require large multinational businesses operating in the UK to prepare transfer pricing documentation in accordance with the OECD’s transfer pricing guidelines. Transfer pricing is a means of ensuring that the pricing of transactions between connected parties is at arm’s length for tax purposes. From the financial year 2016-17 to 2021-22, HMRC brought in £10 billion in additional tax from transfer pricing compliance activities. HMRC does not currently prescribe specific transfer pricing records that UK businesses must prepare to demonstrate that their tax returns are complete and accurate, or the format of those records.

The proposed changes would require UK businesses to prepare OECD standardised documentation, which is described as a master file providing high-level information of the global business operations and a local file providing more detailed information about material cross-border transactions of UK group members with other members of the multinational group. The changes made by clause 37 and schedule 5 provide greater certainty for UK businesses, provide HMRC with better quality data to enable more efficient and targeted compliance interventions, and align the UK’s practice more closely with the transfer pricing documentation requirements of comparable tax administrations.

Clause 38 makes changes to ensure that access to double taxation relief is limited in respect of dividends received by UK companies in periods prior to the introduction of a broad distribution exemption regime in 2009. Specifically, it will prevent new claims for double tax relief credit calculated at the foreign nominal rate of tax on such dividends being made on or after 20 July 2022, the date on which the Government announced in a written ministerial statement that legislation would be introduced for that purpose. Unlike normal double tax relief, which is given on tax actually paid, foreign nominal rate credit is a notional amount calculated by reference to the rate of tax applicable to the profits out of which the overseas dividends were paid.

A first-tier tribunal decision in 2021 concerning the nature of this credit raised the prospect that certain claims could still be made by companies in receipt of foreign dividends prior to the introduction of distribution exemption in 2009, possibly as far back as 1973, so we needed to act. The measure will protect Exchequer revenue by preventing new claims from being made for long-settled years where no actual additional tax has been paid by the claimant. It does not seek to prevent such claims in relation to periods that are open or remain subject to ongoing litigation. The measure is intended to preserve the balance between taxpayers’ rights to make double-taxation relief claims and the need to impose reasonable time limits in respect of such claims. I recommend that all of these clauses stand part of the Bill.

I begin by addressing clause 36, which inserts new sections into the Taxation of Chargeable Gains Act 1992. As we heard from the Minister, the new sections will help to make sure that UK tax cannot be avoided on chargeable gains made on the disposal of a UK business, or on income received in respect of shares or securities held in a UK business, by exchanging securities in a UK company for securities in a non-UK holding company. Under the current legislation, where such an exchange takes place and the individual is a UK-resident non-domicile, they will be able to claim the remittance basis on any chargeable gain made on the disposal of the non-UK company’s securities or on any income received in respect of the offshore company’s securities.

I would be grateful if the Minister could set out the Government’s response to some of the queries about the detail of the Bill that have been raised by the Chartered Institute of Taxation, which has expressed concern that by applying only to individuals in their other guises—for example, when they are acting as trustees—the measure leaves gaps that could be exploited. The Chartered Institute of Taxation believes that there is potentially a straightforward avoidance opportunity here, whereby having shares held by trustees just before the share-for-share exchange could be resolved by extending the measure to cover trustees, rather than just individuals on their own. To tackle this issue, the Chartered Institute of Taxation suggests that individuals acting as trustees, or as partners or members of partnerships or LLPs, be included within the definition of those affected by the change, to ensure that artificial intermediaries are not put in place prior to any exchange.

The second point raised by the Chartered Institute of Taxation, which I would like the Minister to address, relates to the wording of the Bill with respect to the ownership of shares, which it believes may also create an avoidance opportunity. New section 138ZA(1)(d) of the Taxation of Chargeable Gains Act 1992, which clause 36 introduces, refers to the person to whom the shares are issued—the legal owner, as opposed to the beneficial owner. It is well recognised in tax law that the beneficial owner is the real owner for tax purposes, so the Bill should logically refer to beneficial ownership. The Chartered Institute of Taxation is therefore concerned that failure to clarify the beneficial, rather than legal, ownership could leave a possible avoidance opportunity open, and I would be grateful if the Minister could address that point.

More widely, looking beyond the specific detail of the Bill, we believe it is important to consider the context in which the clause operates. It seems clear that the situation that the measure in the clause seeks to address arises only because of the existence of the non-dom tax status and the associated remittance basis. Indeed, the Government’s own policy paper on this matter makes it clear that the measure is expected to affect a very small number of wealthy, UK-resident non-domiciled individuals a year. In practice, the measures we are considering need to be addressed only because the Government refuse to get rid of the £3.2 billion-a-year tax loophole that the Prime Minister has referred to as “that non-dom thing”.

The Minister may recall how she told the House in January that the measures we are debating today would mean that the Chancellor would close the loophole in non-dom legislation, but when we inspect the detail that is before us today, it is clear that this is just a smaller loophole within the much larger and more profound loophole: the continued existence of the non-dom tax status. The policy paper underscores this point and confirms that the measure will raise, on average over the next five years, just one 20th of the £3.2 billion lost through the non-dom tax status every year. I urge the Minister to go beyond the small step today and commit to abolishing the non-dom tax loophole altogether.

Moving on to clause 37 and schedule 5, we understand that this measure is intended to make sure that businesses maintain and provide upon request transfer pricing documentation prepared in accordance with the OECD transfer pricing guidelines. We recognise that accessing high-quality data in a standardised format would enable HMRC to carry out more informed risk assessments, target resources more efficiently and reduce the time taken to establish the facts in compliance interventions. Moreover, having to clearly report transfer pricing information in specific documentation will result in businesses having clearer and more robust transfer pricing positions to inform the filing of their return. This may encourage and incentivise businesses that adopt higher risk transfer pricing positions to change their behaviour.

In recent years there have been significant developments in the field of international taxation. More than six years ago, the OECD presented a package of measures in response to the G20-OECD base erosion and profit shifting action plan, including a requirement to develop rules regarding transfer pricing documentation. The action 13 final report recognised the importance of having the right information at the right time to identify and resolve transfer pricing risks. This led to the introduction of guidance on a standardised approach to transfer pricing documentation.

The standardised approach consists of three things: a master file containing standardised information relevant for all multinational enterprise group members; a local file referring specifically to material transactions of the local taxpayer; and a country-by-country report for the largest multinational enterprise groups containing aggregate data on the global allocation of income, profit, taxes paid, economic activity and so on among the tax jurisdictions in which it operates.

We understand from the policy paper on this measure that the UK did not originally introduce specific requirements regarding the master file and local file because the Government felt that the UK already had broad record-keeping requirements. They seem to have changed their mind on this, which has led to this Bill. It seems that the status quo had created uncertainty for UK businesses regarding the appropriate transfer pricing documentation that they needed to keep. That led to an inconsistency of approach. Although this measure relates to the standardised approach for transfer pricing documentation, I would like to ask the Minister to update the Committee on the status of country-by-country reporting.

The policy paper refers to the fact that the UK implemented the country-by-country minimum standard. However, as we know, the Government have long been hesitant to go beyond that minimum and provide public country-by-country reporting. Indeed, nearly three years ago my hon. Friend Bridget Phillipson made it clear to one of the Minister’s predecessors that for years the Opposition has been urging the Government to commit to country-by-country reporting on a public basis. Will the Minister give us her view on public country-by-country reporting and explain what is preventing the Government from implementing it?

Finally, clause 38 introduces a measure to limit access to double taxation relief in certain circumstances. Specifically, we understand that it will prevent new claims for double taxation relief credit, calculated by the foreign nominal rate of tax, which could arise in relation to overseas dividends received by UK companies in periods prior to the introduction of the distribution exemption in 2009. We recognise that this measure is intended to preserve the balance between double taxation relief claims and the need to impose reasonable time limits in respect of such claims, so we will not be opposing this clause.

It is an honour to speak under your chairmanship, Ms McVey. On the points made by my hon. Friend in relation to clause 36, it is important for the record that we understand the Government’s thinking around non-doms. Although work has been done to close the particular loophole that was mentioned, as my hon. Friend has just said it is quite apparent that that work is tiny compared to the scale of the problem. It is worth exploring the breadth of the problem.

Let us be clear. Non-doms receive around £10.9 billion in offshore income. That is capital gains that they are not required to report on to HMRC or pay tax on in the UK each year. For a non-dom using that remittance basis scheme, that amounts to a tax break of on average £420,000. Those unreported capital gains represent a huge untapped pool of tax. There are so many issues facing the country, and that money could be used appropriately to lift many people out of poverty.

Members on Government Benches have expressed on many occasions concerns about abolishing non-dom status and a potential flight or mass exodus from the UK. However, recent interesting research by the University of Warwick found that only 0.3% of those affected would leave the country. That is fewer than 100 people in total, most of whom are paying hardly any tax under the current regime. My question to the Minister is: why is there so little breadth in what has been brought forward? This was an opportunity to completely abolish non-dom status, or, if the Government are not prepared to do that, certainly to apply minds in the Treasury to a far wider range of areas, which would have brought much-needed money into our coffers. It is a problem that the Government are really a bit lax when it comes to tax.

Turning to a slightly different issue, because it is important for people to know just how severe the problem is, a report by the London School of Economics showed that more than one in five top-earning bankers, and two in five top earners in the oil industry, have benefited from non-dom status. One in four top earners in the car industry have enjoyed non-dom status at some point in their careers. One in six of the sports and film stars living in the UK have claimed non-dom status, with an average income of £2 million.

Does the Minister find it fair that so many are avoiding tax on this huge scale while enjoying all the benefits of living in this country that everyone else has, effectively subsidised by nurses, rail workers, public sector workers and low-paid workers in the private sector? It is important to understand why the Government have decided not to bring forward more punitive, harsher measures that are wider in scope in the Bill, which would have dealt with the non-dom status issues in the round, or, as my hon. Friend the Member for Ealing North said, abolished it in the first place.

I am delighted to answer the Opposition’s queries on non-domiciled taxpayers. Their stance is an interesting contrast to the Conservative party’s inclusive nature when it comes to wealth creation, and opening ourselves up to the rest of the world to encourage the best and brightest to come here and do business. I am interested to hear that the hon. Gentleman has something against film stars, singers and—dare I say it—movie stars who perhaps cross into the world of football. I will not name any taxpayers. But my goodness, I am sure he is proud of the fact that we have a leading film and creative industry in the United Kingdom, particularly on the outskirts of London. I have the great pleasure of meeting representatives of some of those industries from time to time; the excitement and the welcome they feel from the United Kingdom, partly because of the reliefs and support given by the Government, is really interesting to see.

Turning to the scheme itself, we want to have a fair but internationally competitive tax system, designed to bring in talented individuals and investment that will contribute to the growth of the economy. Non-domiciled individuals pay tax on their UK income and gains in the same way as everybody else, and they pay tax on foreign income and gains when those amounts are brought into the UK. They play an important role in funding our public services through their tax contributions. According to the latest information, non-UK domiciled taxpayers are estimated to have been liable to pay almost £7.9 billion in UK income tax, capital gains tax and national insurance contributions in 2021, and they have invested more than £6 billion in the UK using the business investment relief scheme introduced in 2012.

To put those numbers into context, £7.9 billion is just under half of what we spend on policing in England and Wales. They are extremely big numbers. When the Opposition put their plans forward, they do not address a significant risk, which we have looked into carefully. What happens if, by changing the rules and making ourselves less competitive, we start to turn away those very successful people?

The hon. Member for Ilford South talked about capital flight. I think he was referring to the research published by the London School of Economics and the University of Warwick, which suggested that abolishing the non-domiciled regime would lead to very little immigration—around 0.2%. That study looked at the particular response to the 2017 reforms. As colleagues will know, several policy mitigations that were put in place in 2017 reduced the migration impact of reform: protections for non-resident trusts, the option to revalue non-UK assets at their 5 April 2017 valuation for CGT purposes and the ability to rearrange offshore investments to make it easier to bring money to the UK. Abolishing the remittance basis outright would be expected to have a much more significant behavioural impact in the absence of any policy mitigations, so the headline result of the external research may underestimate the migration response.

This morning we discussed the Office for Budget Responsibility’s statement that the Bill will drag an extra 1.2 million people into the higher rate of tax, so will the Minister explain, in plain English, her reluctance to include non-domiciled taxpayers?

They are taxed, as UK taxpayers are taxed, on their UK income—that is the point. The hon. Lady will know that the threshold for the additional rate was lowered from £150,000 to just over £125,000 at the autumn statement. That will apply to the UK income tax of those who are earning here in the UK. That is precisely the point; the difference relates to their foreign income. We want to help these very mobile and very successful people who work for banks or in the movie and sporting worlds, and we want to help those who work for the various businesses to which the hon. Member for Ilford South referred to help us to build the best tech industry that we can possibly have. We want them to help us to build incredible life sciences solutions.

If the hon. Member for City of Chester took a bit of time to talk to some of the individuals involved in the life sciences industry—that golden triangle between Cambridge, Oxford and London—she would know that what they do is genuinely inspiring. Why on earth would we not welcome people from overseas to help us in that? That little golden triangle has more tech companies in it than any place on the planet other than New York and Silicon Valley. If those places are our competitors in the tech industry, we are doing very well indeed. We want to encourage more of them to come to our country to help us to build that.

It is a pleasure to serve under your chairmanship, Ms McVey. The Opposition already seem to have spent the money from this claimed non-dom bonus a dozen times over, by my count. The Minister referred to the University of Warwick research, which I have referred to during various debates in the main Chamber. If the Treasury analysis is that that research—that 0.3% figure—is misguided, is it not the case that the magic pot of money that the Opposition keep spending does not actually exist?

My hon. Friend brings a particular fervour to his intervention, if I may say so. I absolutely want very high-earning people to pay their proper taxes here in the United Kingdom, but we need to stay competitive, which is why we look at other countries around the world. Our competitors have regimes that give tax advantages, or they are more careful with the tax that they apply, to people who are so highly mobile. I want to bring those people to the UK and get them to pay UK taxes on their UK earnings.

It is a pleasure to serve under your chairship, Ms McVey. Is it not also the case that attracting those very mobile people to this country means that they then spend money in this country? Some of that is on VAT—a further tax—and much of it is on employing other people, who then pay tax themselves, so the very presence of such very mobile people has a multiplier effect on tax.

I completely agree: there is a ripple effect from those individuals. Conservative Members understand the concern that such people should pay their taxes fairly and contribute to our economy, which is precisely why it is a Conservative Government who act on loopholes when they emerge and are drawn to our attention, as we have done in the Bill but also in 2017. There is a delicate balancing act to ensure that we remain internationally competitive.

It is important that we are clear that non-dom status is mostly used by British citizens who were born in this country but have decided to not pay their taxes in this country, even though they live here for the majority of the year—[Interruption.] It is true. It is a hangover from the colonial era, when people used to have sugar plantations. Look at the history of non-dom status; it is hundreds of years old. It has not just been cooked up by the Treasury in the last five minutes, has it? It was a way of allowing people to own different things around the world—sugar plantations in the Caribbean are one example—and have that money come back to the UK without paying the taxes. It was a perk, essentially, for those people.

If Conservative Members do not believe me, they should go and look at the history. They are in government. They should know these sorts of things. The fact is that non-dom status is used as a tax dodge. The point is about fairness. Of course we want to encourage the brightest, most talented people to come to this country, make a life here and contribute, be that in life sciences, tech companies, the NHS or whatever, but I strongly suggest to the Minister that she should have a firm conversation with the Home Secretary about putting in place a progressive migration policy, because that is the problem here.

This is about taxation and people paying their fair share. Some 77,000 people—British residents, living most of the time in this country—use the non-dom scheme to not pay taxes—

Order. I remind Members that interventions should be brief.

The hon. Gentleman is trying to tempt me away from the scope of the Bill, and I will resist that temptation. I gently ask him to help me—perhaps afterwards—to understand the evidence he has to support his claim that the overwhelming number of non-dom claimants are British residents. We just need to be a little bit careful about definitions.

Let me move on to the questions from the hon. Member for Ealing North. The share exchange legislation prevents a relatively simple way for shareholders to avoid tax. It applies only to individuals. If individuals use artificial arrangements to prevent the legislation from applying, they will need to consider whether other anti-avoidance provisions apply.

The hon. Member asked about the difference between the legal owner and the beneficial owner. Again, the legislation applies to shares held on behalf of the individual in a nominee, or bare trust arrangement. Section 60 of the TCGA treats shares as being issued to the beneficial owner where there is a bare trust or nominee arrangement in place.

On public country-by-country reporting, we remain firmly committed to a multilateral approach, but it is important that such a requirement applies consistently across domestic and foreign headquartered multinationals to avoid distorting decisions on where companies decide to locate.

The Minister quoted some figures that we have heard before, and I think it is worth the Committee having the context for them. The Minister tried to defend non-dom tax status by claiming that non-doms paid £7.9 billion in UK taxes last year. As always, that argument entirely misses the point, because we are talking about the £3.2 billion of tax that non-doms avoid paying in this country every year.

The Minister also repeated her line about non-doms having invested £6 billion in investment schemes since 2012, but I am sure the Committee would want to know that that ignores the fact that only 1% of non-doms invest their overseas income in the UK in any given year. In fact, non-dom status discourages people from bringing money into the UK to invest. We have set out the Labour party’s position very clearly, explaining how we would have a modern, short-term scheme for temporary residents.

Finally, the Minister referred to the potential behavioural impact if non-dom status were abolished. She was quick to dismiss some of the independent findings of the LSE and Warwick, made on the basis of HMRC data. If she is so confident that the behavioural difference will be that different, will she publish the Treasury research, so we have it in the public domain?

We have to make judgments on how we ensure that the UK economy is not only internationally competitive but attractive to other countries. We are happy to make the point that non-domiciled taxpayers can make a valuable contribution to the United Kingdom, but of course we want them to pay—we require them to pay—UK income tax, and so on, on their UK income and remittances. We want to ensure that that system is in place.

On the behavioural aspects, we looked very carefully at the University of Warwick report, but what worries us is that there does not seem to be a recognition of the mobility of such people. They are able to live and work anywhere in the world. We do not want to put their living here at risk. Let us not forget that the hon. Gentleman is prepared to put at risk £7.9 billion. That is a risk we are not prepared to take.

I will focus on the question in my previous intervention. The Minister was keen to rubbish the LSE and Warwick analysis based on HMRC data. Will she—

On a point of order, Ms McVey.

James Murray will finish and then the Minister will come in.

Thank you, Ms McVey. The Minister was quick to rubbish the conclusions of the LSE and Warwick on the behavioural impact of abolishing non-dom status, even though the research was thorough and based on HMRC data. The question I asked the Minister was whether she will publish the Treasury analysis that she is relying on to rubbish that LSE-Warwick conclusion.

On a point of order, Ms McVey. My hon. Friend the Minister did not say that. Is it in order for Members of this House to misrepresent the words of other Members? I am pretty sure that “Erskine May” is clear, but I would be grateful for your guidance. I apologise for jumping in.

We cannot say “misrepresentation”, but I would like the Minister to give a full response to what was said.

We have been through this on many occasions. We are perfectly entitled to receive advice. We have come to the conclusion that non-domiciled status is right for ensuring that we remain internationally competitive. I am not rubbishing anyone, or anything of that nature, and it is improper to say that I am, but we do have reasonable concerns. We have to look at the evidence base. The one thing that we are not prepared to do is to put at risk that £7.9 billion going into the UK economy.

Question put and agreed to.

Clause 36 accordingly ordered to stand part of the Bill.

Clause 37 ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 38 ordered to stand part of the Bill.