Finance Bill 2016 - Third match of the day. Worth the wait?

Like the third big name match on Centre Court at Wimbledon, the Finance Bill debate today had to wait its turn. And the preceding games were certainly four set, if not five set marathons, with David Davis on Brexit and Jeremy Hunt on the junior doctors.

So it was nearly 7:30pm before we started. Everyone settled down for some long rallies, including on public country-by-country reporting ("CBCR").

Here are some highlights of the debate as it related to direct taxes, and tax transparency.

Oil & Gas (New clause 5)

Firstly, Kirsty Blackman MP (SNP) called for substantive changes to the Finance Bill in response to the Brexit vote. She then went on to the subject of this amendment, calling for changes to the tax rates applying to the oil & gas sector. With the reduction in the oil price, there are now an increasing number of marginal and negative cash projects. Also, some new projects are not being sanctioned. Over time, this will lead to a fall in production, with resulting economic and fiscal impacts.

Jane Ellison MP (Financial Secretary to the Treasury) responded by reiterating government support for the oil & gas sector, and that the Government published a paper on 2014 entitled “Driving investment: a plan to reform the oil and gas fiscal regime”. She said, “The Government have remained consistent in their approach”.

The house divided and the amendment was rejected.

Patent Box (New clause 10)

Rebecca Long Bailey MP (Lab) proposed this amendment by quoting economist Mariana Mazzucato calling the Patent Box a “scam with no effect on innovation”. The amendment called on the Minister to provide any evidence that there is a real tangible benefit from the Patent Box through a thorough review of the efficacy of the Patent Box regime.

The house did not divide on this proposed amendment.

Taxation of securitisation companies (New Clause 11)

Rebecca Long Bailey then put forward the case for new, increased regulation on the securitisation sector. The proposed amendment only covers the taxation of these companies, as that is the allowed scope, but she called for a much wider review to be carried out.

Jane Ellison responding setting out the actions already being taken on this issue, and that a further assessment is not required. She called on the House to reject the amendment, if called upon to divide.

The house did not divide on this proposed amendment.

Corporation Tax (Amendment 177)

Mark Field MP (Con) called for HMT to consider a turnover tax for high tech companies who have “squirrelled away” their profits so as to avoid tax. “Taxes on profits are not going to be the right way forward”.

Having raised the cases of Apple, Google and others, he made the case that an altogether new alternative to the current Corporation Tax was the solution, at least for some sectors.

Greg Mulholland MP (Lib Dem) said “Amendment 177 is a probing amendment that would sweep away corporation tax altogether and is intended to try to trigger that debate, which we should be having as a country. The reality is that the Government will continue to argue that a cut in corporation tax will somehow boost growth, but the evidence for a cut below 20% is simply not there. The Government are failing to ask whether corporation tax actually works.”

As this amendment would in effect abolish Corporation Tax without replacing it with anything else, there was clearly no intention that the House divide.

Corporation Tax Rate (Amendment 162)

Rebecca Long Bailey put the case for halting the fall in corporation tax rates. As well as calling on the Chancellor to provide evidence for the increased tax take from lower tax rates. But she also put forward a challenge to the assumption that lowering tax rates increased Foreign Direct Investment. “In 2005 the level of FDI flows into the UK was £96.8 billion and corporation tax was 30%. In 2014 FDI was £27.8 billion and corporation tax was 21%. Again, there could be many factors at play, but the figures demonstrate that there is no strong correlation between low rates of corporation tax and higher rates of investment and FDI.”

“Could the money be better spent to incentivise investment?”

The house divided and the amendment was rejected.

Country-by-country Reporting (“CBCR”) (Amendment 145)

And so to the most anticipated amendment.

Caroline Flint MP (Lab), ably assisted by Meg Hillier MP (Lab), set out the case for public CBCR. She talked about the challenges of tackling tax avoidance, and the long list of NGOs saying tax transparency is part of the tools to help developing countries to get their “fair share” of tax. What she didn’t do was make a particularly extensive case for why the disclosures need to be public.

However, she did receive cross-party support, including from Charlie Elphicke MP (Con), who based his case on Apple.

The debate then moved away to a more generic discussion about tax havens and the use of aggressive, contrived structures to avoid tax.

While setting out the progress made by the Government on tackling tax avoidance and advancing tax transparency, Jane Ellison went on so say “We fully support the intentions of amendment 145 and will support its inclusion in the Bill”.

This is significant, not only because this support enabled the amendment to be passed, but also it cemented Government support not only for the amendment, but also the “intent”.

This is only an enabling clause, but it is a significant step further towards public CBCR.

The Tax Gap (New Clause 13)

Rebecca Long Bailey put the case for a thorough review of the Tax Gap, including the impact on the Tax Gap of British Overseas Territories.

Jane Ellison responded that “The methodology is judged by independent third parties to be robust, and it has been intensively reviewed and given a clean bill of health by both the International Monetary Fund and the National Audit Office. There is therefore no need for a report on the tax gap. Furthermore, HMRC publishes a methodological annexe alongside the tax gap publication, which provides details of the data and methodology used to produce estimates of the gap.”

The house divided and the amendment was rejected.

Conclusion

So, quite a lot of interesting debate, some amendment that didn’t go to a vote, and a few that did.

But the real news here is on CBCR.

So was the CBCR debate a five set Centre Court classic. Well, no. In fact it wasn't really a match at all, with the amendment being carefully worded so as to obtain Government support.

Do we now have public CBCR? No.

But what we do have is the mechanism by which Government can introduce it, and an expression of support for the “intent” of the amendment that brought it about.

The Government has a position that it will promote public CBCR on a multilateral but not unilateral basis, and that has not changed. So we shouldn’t expect to see the Government exercising the option to introduce public CBCR immediately. However, this is a very significant step in that direction.

This is another piece of evidence that public CBCR is coming. So businesses need to start thinking about how they prepare, and what this might mean for how they tell they talk about their tax affairs.