HC Deb 09 May 2002 vol 385 cc386-94
Mr. Flight

I beg to move amendment No. 23, in page 475, line 11, after "his", insert "alleged".

The Second Deputy Chairman of Ways and Means (Sir Michael Lord)

With this it will be convenient to discuss the following amendments: No. 35, in page 475, line 27, at end insert— '6A Nothing in this Schedule shall contravene the presumptions in law against retrospection whether statutory or otherwise.'. No. 24, in page 475, line 28, leave out paragraph 6.

Mr. Flight

The notes accompanying the Bill provide an innocuous description of clause 131 and schedule 38, saying that they improve existing arrangements for cross-border assistance between EU Member States in recovering indirect taxes, duties and penalties, and extend recovery procedures to cover direct taxes (income tax, corporation tax, capital gains tax and certain insurance premium taxes.

What the clause and schedule actually do is implement Council Directive 2001/44/EC, and provide a mechanism for its operation. They provide an automatic enforcement in the United Kingdom of any tax claimed in another EU member state against a UK party, without that UK party's being able to dispute the claim in the United Kingdom. The goods can be seized—it has to go through the standard channel—but the company or individual cannot question the amount or the circumstances of the claim.

Schedule 38 provides for the proceedings by the relevant UK authority to enforce the foreign claim by way of legal proceedings, through distress or otherwise, as for a corresponding UK claim. Unlike a claim by Customs and Excise or the Inland Revenue, however, such a claim will not involve any ability to question the claim: that is ruled out by paragraph 6(b). Similarly, paragraph 4(1) refers to "his liability", not to a claimed or alleged liability. An assumption of guilt is being introduced into the system of enforcement in the UK.

We consider that unacceptable. For one thing, there are major differences between the UK's tax law and that of other EU states, and between the tax laws of other EU states. Britain has what I would call the Magna Carta tradition. We may complain about the length of Finance Bills, but the law in the UK and the United States goes to great lengths to distinguish what is within the law and what is without, what is legal and what is illegal, what is avoidance and what is evasion.

In most EU states, there is no difference between those pairs of concepts. In other words, tax law is not clear. It is often ultimately political, and can be extremely arbitrary. For example, if the tax authority of another EU country—Greece, let us say—produced a trumped-up tax charge against a British company or citizen because it, or he, had a business or a property there, it would simply have to put the claim through its system, which does not involve the same abilities to dispute as ours, and then present it to the British tax authorities, saying, "Go get that money." The British company or citizen would be banned from disputing the claim in the British courts or with the commissioners for taxes. As I have said, an assumption of guilt is written into the Bill. That is why amendment No. 23 would insert the word "alleged" before the word "liability". Amendment No. 24 would remove paragraph 6—the key paragraph—which prevents the UK party from challenging the otherwise automatic enforcement of the tax claim by the UK authorities.

Amendment No. 35 deals with the fact that the UK has a six-year back period for revenue claims, a three-year back period for customs claims, and a 20-year back period for revenue claims involving fraud. The provisions in schedule 38 include no such parallel time limits, yet circumstances could arise in which a claim was automatically enforced in the UK that related to an alleged tax claim from, say, 30 years ago. Under the provisions, the date will depend on the rules of the other member state. Of course, application for UK enforcement cannot not be made until the Bill is enacted. Once enacted, the proceedings in the other member state must apply within five years of coming to the UK to enforce the claim. That is what the five-year limit means. However, such proceedings could relate to a time period and a claim that go back substantially further than that, depending on the prevailing rules and customs of the country in question.

British citizens enjoy the law and rules relating to back claims as they obtain in this country, but under the Bill back claims arising in an EU member state could be enforced, and property seized, without any right to dispute. Moreover, such claims could relate to a period some 30 years ago. That seems somewhat objectionable. That rather contravenes the principles of UK statute and case law, concerning the extent to which claims can be made and enforced retrospectively.

I do not want to single out poor old Greece yet again, but the extraordinary recent plane spotters case highlights the fact that the legal arrangements in some other states are rather more arbitrary and political than in this country. In mentioning Greece, I am mindful of the famous Don Pacifico incident. Lord Palmerston would turn in his grave if he realised what the Bill proposes to write into our laws.

What is hidden away in schedule 38 is objectionable and authoritarian, and contrary to the traditions of British civil liberty. It is wholly wrong to allow a tax claim by a foreign country to be enforced in Britain without giving the person claimed against the legal ability to dispute. Moreover, the potential exists to go back much further than in the case of a UK claim. In terms of the EU directive that the schedule will incorporate in law, I should point out to the Economic Secretary that the schedule in part involves an element of gold plating. I also understand that the parliamentary draftsmen had believed that the word "claim", and the five-year arrangements, referred to the year in which the UK claim was alleged to have been made, effectively limiting retrospection to five years, but that is not reflected in the directive. The directive is also fairly woolly and unclear, but it has been put into effect in the schedule in the way that I have described.

Given the time of day, we do not seek to divide the Committee on all three amendments, but I give notice that we shall seek to do so on amendment No. 24.

7.30 pm
Mr. Edward Davey (Kingston and Surbiton)

The thrust of the schedule is probably right, in the sense that the mutual assistance recovery directive is important for the British taxpayer. We need to ensure that citizens from other EU member states who owe the UK Exchequer money are not able to avoid that debt to the British people by moving to other EU member states. Indeed, such a debt might have been accrued by a UK citizen, but we do not want people to be able to avoid their due tax liabilities to the UK Exchequer by moving to other member states of the EU. To that extent, the directive is correct and the legislation appropriate.

In order for the Committee to be assured that the Exchequer will be protected, we need to know from the Minister how many other EU member states have enacted the directive. If she cannot tell us that all the other member states have enacted it, we need to know when she expects that to happen. We do not want to be the only member state to comply with the directive and our partner states to catch up with us in 10 or 15 years' time. That would mean that the legislation would give the UK Exchequer no advantage, and in fact would put it at a potential disadvantage.

Mr. Bercow ::

We are hearing an extraordinarily unbalanced speech by the hon. Gentleman.

Mr. Davey

I have not finished yet.

Mr. Bercow

I hope that we will hear more and that it will be better than what we have already heard. The hon. Gentleman, as a member of the Liberal Democrat party, which professes a belief in individual rights, is preoccupying himself with the protection of the Exchequer. Is he not concerned about schedule 38(6)(b) and the denial of individual rights that it entails?

Mr. Davey

The hon. Gentleman should stay in his place and let other hon. Members finish their speeches. There are two aspects to the schedule, one of which is the protection of the UK Exchequer. That is the one that I was addressing because I wished to seek assurances from the Minister that other EU member states are enacting the directive so that the UK Exchequer is protected. That is an important point. Indeed, I was surprised that the hon. Member for Arundel and South Downs (Mr. Flight) failed to make that point. We need to ensure that the UK taxpayer is protected and I am surprised that the hon. Member for Buckingham (Mr. Bercow) is so concerned that I am concerned about that. That makes the Tory attitude to financial improvements evident to everybody.

Mr. Flight


Mr. Davey

If the hon. Gentleman will stay in his place, I am about to come to the issue of the rights of the individual. He is right to say that schedule 38(6)(b) is a matter for concern. We want to know what protection UK citizens will have if the tax authority of another EU member state makes a false claim. The directive, and the way in which it is being put into our law, does not give adequate protection. I hope that the Minister will make it clear to the Committee that she has been reassured that it will not be possible for a UK citizen to be pursued by another EU member state's tax authority on no grounds. We need to hear from the Minister what rights of appeal UK citizens would have. For example, if they believed that the highest court of another EU member state had not given justice, would they be able to go to the European Court of Justice to override the decision? I hope that the Minister can reassure the House that important individual rights are not being overridden.

Ruth Kelly

I am quite surprised to hear the hon. Member for Arundel and South Downs (Mr. Flight) calling this provision objectionable and authoritarian. I completely agree with the hon. Member for Kingston and Surbiton (Mr. Davey) that people who have failed to pay tax that is legally due should not be able to escape payment simply by moving to another member state. It would not be right to provide a tax amnesty to people when the means to collect tax that is legally due already exists.

The system will build on the existing inter-state debt recovery service that has operated successfully for indirect tax for many years. A joint Customs and Excise and Inland Revenue mutual assistance unit is being set up with staff from both departments working together to co-ordinate and send requests to other member states, and to deal with requests from other member states that relate to UK taxpayers.

The hon. Member for Arundel and South Downs has unfortunately misinterpreted some aspects of the provision. His amendment suggests that the liability on which recovery is sought in UK proceedings should be an alleged liability. That is not the case. Recovery in the UK depends on the existence of liability in the member state making the request. Indeed, the applicant authority may not normally request recovery unless the claim, and the instrument permitting enforcement, are not contested in the member state in which it is situated.

It has been suggested that the provision involves some presumption of guilt. I dispute that charge. As soon as the UK is informed of a contested claim, either by the applicant authority or the interested party, the measure allows for the enforcement procedure to be suspended, unless the applicant authority requests that it continue, and the law, regulations and administrative practice in the UK allow for such action.

Chris Grayling

Will the Minister explain what the word "normally" means in that context?

Ruth Kelly

I think that most hon. Members understand what the word "normally" means. I do not think that this is the place to try to define such words.

I point out that provision to continue such actions exists already in UK law. For example, the requirement to pay Customs duty, even where an appeal against a decision of a Customs authority is pending under article 244 of the Customs code.

A key element of the measures is the provision that, once an instrument permitting enforcement of a claim has been received by the member state requested to pursue that claim, it must be recognised and acted on. That is the only practical way to handle such claims. The alternative would require the UK to review the procedures of other member states to ensure that their tax laws have been correctly followed in respect of each and every request for recovery.

The taxpayer's right to contest liability exists in the domestic legislation of each member state. That legislation must apply to each debt notified under the provisions. That avoids foreign courts having to familiarise themselves with the domestic tax legislation of each other member state. It also prevents the taxpayer from being able to delay recovery unduly through obstructive legal action.

Where a taxpayer can demonstrate that proceedings appealing against liability have been, or are about to be, instituted in another member state where the debt has been established, the member state attempting recovery is required to suspend its action, pending the outcome of the appeal.

It is worth pointing out to the Committee again that these provisions mirror provisions existing for indirect taxes since 1977. To date, those rules have caused no problems.

It has been suggested that it might be simpler if UK citizens were able to defend themselves in English in UK courts, but that would open up a new set of problems. We strongly support the principle of national competence in tax matters. The taxpayer's right to contest a liability will continue to exist, as I have said, within each member state's domestic legislation. To allow taxpayers to challenge the appeal system of other member states through their own national courts would be to subvert national competence for tax matters.

Mr. Bercow

I am extremely grateful to the Minister for giving way; she will recognise that these important matters must be debated thoroughly. Subsections (4) and (5) of paragraph 3 of the schedule and subsection (1) of paragraph 4 refer to regulations. Can the hon. Lady tell the Committee whether those regulations will be subject to the negative or the affirmative procedure?

Ruth Kelly

I will write to the hon. Gentleman with those details.

I confirm that if appeals against the application of the directive are received, as the hon. Member for Kingston and Surbiton has requested, there is an appeal mechanism through the European Court of Justice. I hope that the hon. Gentleman will be satisfied on that matter. I will write to him about the number of states that have already implemented the directive; I am sure that he will understand if I do not have that information to hand.

As I understand it, the implementation of the directive imposes no new liabilities on the taxpayer. It will not change the rights of the taxpayer or impose any tax liability that did not previously exist. Instead, it introduces procedures for recovering debts where the taxpayer has assets in another member state and allows arrangements for co-operation in collecting indirect taxes such as excise duties and VAT that have existed for many years to be extended to direct taxes as well. The only people who need worry about this measure are those who fail to pay the tax that they owe. I am sure that Members will agree that taxpayers should not be able to escape paying what they owe simply by moving to another member state. I urge the Committee to reject the amendment.

Mr. Flight

There is a huge difference between this matter and excise and VAT, which are administered on a fairly common basis throughout the EU. They are not personal taxes and not part of the EU territories, where much taxation can he arbitrary. The clause and schedule are doing something new and different; they are following the same path but addressing tax areas that in the EU can be extremely arbitrary.

I understand the practical point that it would be a lot of hassle to permit Greek or Spanish tax law, to the extent that it exists, to be disputed in an English court, but not to do so still seems authoritarian to me. A claim could be submitted against a British company or individual in Spain which they may not even know about because the authority may not be able to advise of such proceedings in the UK. That claim could be nodded through, resulting in the sums claimed being enforced without any right of dispute or defence.

Mr. David Heath (Somerton and Frome)

I understand the hon. Gentleman's point. However, this is a reciprocal arrangement and were the amendment to succeed, it would mean that Greek and Spanish courts, about which he seems so concerned, would have extra-territorial jurisdiction over British taxpayers about British taxation in this country. The interpretation of a Greek or Spanish court as to whether a British taxpayer was liable to pay British tax would supersede our own territorial jurisdiction. Is the hon. Gentleman not concerned about that?

Mr. Flight

Before I come to what other EU states are doing, let me make it clear that I believe that justice for British citizens is ultimately more important than the greater ease of UK tax authorities in collecting tax or instructing European authorities to seize goods on tax liabilities claimed here.

Furthermore, although the directive has not yet come into force in more than one EU member state, I am sure that the processes will be nowhere as diligent and efficient as in this country. The mere fact that the directive may have been incorporated in the tax law of all EU member states does not ensure that a claim advised by the UK authorities would be pursued and settled with the same efficiency as it would be in this country.

The self-interest tax-gathering point is not answered merely by asking whether the directive has been put into effect. My understanding is that the whole controversial issue of denying the right to challenge the claim is a relatively grey area in the EU directive. The UK authorities might have slightly gold-plated the requirements in the practical interests to which the Minister referred.

The arrangements that have operated for VAT and Customs have not presented such problems because the claims are not arbitrary. However, the proposal introduces a great deal of arbitrariness in claims for income tax and claims against property. It will permit an injustice against UK citizens, which the British authorities would be obliged to implement, denying British companies or citizens the right to dispute the claim. That is utterly wrong and objectionable and we would never have considered that such a measure could have been adopted in UK law in the past.

7.45 pm
Mr. Edward Davey

The hon. Member for Arundel and South Downs (Mr. Flight) has failed to acknowledge the fact that the measure is about reciprocal arrangements and that there could be an appeal to the European Court of Justice. The Conservatives are in danger of becoming the friends of the international tax avoider and the friends of the residents of the Costa del Crime.

Several hon. Members


The Second Deputy Chairman

Order. Does the hon. Member for Arundel and South Downs (Mr. Flight) want to press amendment No. 23 to a Division?

Mr. Flight

No, Sir Michael. As I said earlier, I do not want to press the amendment—[Interruption.]

The Second Deputy Chairman

Order. Does the hon. Gentleman wish to withdraw the amendment?

Mr. Flight

Yes, Sir Michael, I beg to ask leave to withdraw that amendment.

Amendment, by leave, withdrawn.

The Second Deputy Chairman

I understand that the hon. Gentleman wants to press amendment No. 24 to a Division. Is that correct?

Mr. Flight

Yes, Sir Michael.

Amendment proposed: No. 24, in schedule 38, page 475, line 28, leave out paragraph 6.—[Mr. Flight].

Question put, That the amendment be made:—

The Committee divided: Ayes 85, Noes 249.

Division No. 233] [7.48 pm
Atkinson, David (Bour'mth E) Lansley, Andrew
Atkinson, Peter (Hexham) Letwin, Oliver
Bacon, Richard Lewis, Dr Julian (New Forest E)
Barker, Gregory Liddell-Grainger, Ian
Baron, John Lidington, David
Beggs, Roy Lilley, Rt Hon Peter
Bellingham, Henry Loughton, Tim
Bercow, John Luff, Peter
Boswell, Tim McIntosh, Miss Anne
Brazier, Julian MacKay, Rt Hon Andrew
Burns, Simon McLoughlin, Patrick
Burnside, David Malins, Humfrey
Burt, Alistair Mawhinney, Rt Hon Sir Brian
Butterfill, John May, Mrs Theresa
Chope, Christopher Mercer, Patrick
Clifton-Brown, Geoffrey Murrison, Dr Andrew
Collins, Tim Norman, Archie
Davies, Quentin (Grantham) Osborne, George (Tatton)
Dodds, Nigel Paice, James
Duncan, Peter (Galloway) Paterson, Owen
Fabricant, Michael Prisk, Mark
Fallon, Michael Randall, John
Field, Mark (Cities of London) Robertson, Hugh (Faversham)
Flight, Howard Robinson, Peter (Belfast E)
Flook, Adrian Rosindell, Andrew
Forth, Rt Hon Eric Ruffley, David
Francois, Mark Sayeed, Jonathan
Gibb, Nick Simmonds, Mark
Gray, James Spink, Bob
Grayling, Chris Stanley, Rt Hon Sir John
Green, Damian (Ashford) Swayne, Desmond
Grieve, Dominic Syms, Robert
Hammond, Philip Taylor, John (Solihull)
Hawkins, Nick Turner, Andrew (Isle of Wight)
Hayes, John Tyrie, Andrew
Heald, Oliver Viggers, Peter
Hoban, Mark Walter, Robert
Howarth, Gerald (Aldershot) Watkinson, Angela
Hunter, Andrew Whittingdale, John
Jack, Rt Hon Michael Wiggin, Bill
Johnson, Boris (Henley) Wilkinson, John
Willetts, David Tellers for the Ayes:
Winterton, Mrs Ann (Congleton) Mr. Stephen O'Brien and
Yeo, Tim Mr. Laurence Robertson.
Abbott, Ms Diane Eagle, Maria (L'pool Garston)
Ainsworth, Bob (Cov'try NE) Edwards, Huw
Alexander, Douglas Efford, Clive
Allen, Graham Ellman, Mrs Louise
Anderson, Rt Hon Donald Ennis, Jeff
(Swansea E) Ewing, Annabelle
Armstrong, Rt Hon Ms Hilary Farrelly, Paul
Atkins, Charlotte Field, Rt Hon Frank (Birkenhead)
Austin, John Fisher, Mark
Bailey, Adrian Fitzpatrick, Jim
Barnes, Harry Flint, Caroline
Barron, Kevin Flynn, Paul
Beard, Nigel Follett, Barbara
Beckett, Rt Hon Margaret Foster, Don (Bath)
Bell, Stuart Foster, Michael (Worcester)
Berry, Roger Foster, Michael Jabez (Hastings)
Best, Harold Foulkes, George
Betts, Clive Gapes, Mike
Blackman, Liz Gerrard, Neil
Blizzard, Bob Gilroy, Linda
Boateng, Rt Hon Paul Green, Matthew (Ludlow)
Borrow, David Griffiths, Jane (Reading E)
Bradley, Rt Hon Keith (Withington) Grogan, John
Brennan, Kevin Hain, Rt Hon Peter
Bruce, Malcolm Harris, Dr Evan (Oxford W)
Bryant, Chris Harris, Tom (Glasgow Cathcart)
Buck, Ms Karen Havard, Dai
Burden, Richard Heath, David
Burgon, Colin Henderson, Ivan (Harwich)
Caborn, Rt Hon Richard Hendrick, Mark
Cairns, David Heppell, John
Campbell, Mrs Anne (C'bridge) Heyes, David
Caplin, Ivor Hill, Keith
Casale, Roger Hinchliffe, David
Challen, Colin Holmes, Paul
Clapham, Michael Hope, Phil
Clark, Mrs Helen (Peterborough) Hopkins, Kelvin
Clark, Paul (Gillingham) Howarth, Rt Hon Alan (Newport E)
Clarke, Rt Hon Tom (Coatbridge) Hughes, Kevin (Doncaster N)
Clarke, Tony (Northampton S) Hughes, Simon (Southwark N)
Clwyd, Ann Hurst, Alan
Coaker, Vernon Hutton, Rt Hon John
Coffey, Ms Ann Iddon, Dr Brian
Cohen, Harry Illsley, Eric
Coleman, Iain Irranca-Davies, Huw
Connarty, Michael Jackson, Helen (Hillsborough)
Cook, Rt Hon Robin (Livingston) Jenkins, Brian
Corbyn, Jeremy Jones, Kevan (N Durham)
Corston, Jean Jones, Lynne (Selly Oak)
Cousins, Jim Joyce, Eric
Cranston, Ross Kaufman, Rt Hon Gerald
Cruddas, Jon Keeble, Ms Sally
Cryer, John (Hornchurch) Keetch, Paul
Cunningham, Jim (Cov'try S) Kelly, Ruth
Davey, Edward (Kingston) Kemp, Fraser
Davey, Valerie (Bristol W) Khabra, Piara S
David, Wayne Kidney, David
Davidson, Ian King, Ms Oona (Bethnal Green)
Davies, Rt Hon Denzil (Llanelli) Knight, Jim (S Dorset)
Davis, Rt Hon Terry Ladyman, Dr Stephen
(B'ham Hodge H) Lamb, Norman
Dean, Mrs Janet Lammy, David
Dhanda, Parmjit Lawrence, Mrs Jackie
Dismore, Andrew Laws, David
Donohoe, Brian H Laxton, Bob
Doughty, Sue Lazarowicz, Mark
Dowd, Jim Lepper, David
Drew, David Leslie, Christopher
Drown, Ms Julia Levitt, Tom
Eagle, Angela (Wallasey) Linton, Martin
Lloyd, Tony Rooney, Terry
Love, Andrew Ross, Ernie
McAvoy, Thomas Roy, Frank
McCabe, Stephen Russell, Bob (Colchester)
McDonagh, Siobhain Ryan, Joan
MacDonald, Calum Salmond, Alex
McFall, John Salter, Martin
McGuire, Mrs Anne Sawford, Phil
McIsaac, Shona Simpson, Alan (Nottingham S)
McKechin, Ann Singh, Marsha
Mackinlay, Andrew Skinner, Dennis
McNulty, Tony Smith, Angela (Basildon)
Mactaggart, Fiona Smith, Rt Hon Chris (Islington S)
McWalter, Tony Smith Jacqui (Redditch)
McWilliam, John Smith, John (Glamorgan)
Mahon, Mrs Alice Smith, Sir Robert (W Ab'd'ns)
Mallaber, Judy Soley, Clive
Mandelson, Rt Hon Peter Southworth, Helen
Marshall, David (Shettleston) Squire, Rachel
Marshall, Jim (Leicester S) Stevenson, George
Marshall-Andrews, Robert Stinchcombe, Paul
Martlew, Eric Stoate, Dr Howard
Meale, Alan Stringer, Graham
Merron, Gillian Stunell, Andrew
Michael, Rt Hon Alun Sutcliffe, Gerry
Miliband, David Taylor, David (NW Leics)
Moffatt, Laura Thomas, Gareth R (Harrow W)
Mole, Chris Thomas, Simon (Ceredigion)
Moonie, Dr Lewis Timms, Stephen
Moran, Margaret Todd, Mark
Mountford, Kali Touhig, Don
Murphy, Jim (Eastwood) Trickett, Jon
O'Brien, Bill (Normanton) Turner, Dennis (Wolverh'ton SE)
O'Brien, Mike (N Warks) Turner, Dr Desmond (Kemptown)
O'Hara, Edward Turner, Neil (Wigan)
Olner, Bill Twigg, Stephen (Enfield)
Palmer, Dr Nick Tynan, Bill
Pearson, Ian Vis, Dr Rudi
Pike, Peter Watson, Tom
Plaskitt, James Weir, Michael
Pond, Chris White, Brian
Pound, Stephen Whitehead, Dr Alan
Prentice, Ms Bridget (Lewisham E) Williams, Hywel (Caernarfon)
Prentice, Gordon (Pendle) Willis, Phil
Price, Adam Willis, Michael
Prosser, Gwyn Winnick, David
Purchase, Ken Winterton, Ms Rosie (Doncaster C)
Purnell, James Wishart, Pete
Quinn, Lawrie Woodward, Shaun
Rammell, Bill Woolas, Phil
Rapson, Syd Wright, David (Telford)
Reed, Andy (Loughborough) Wright, Tony (Cannock)
Reid, Alan (Argyll & Bute) Wyatt, Derek
Reid, Rt Hon Dr John (Hamilton N) Younger-Ross, Richard
Robertson, Angus (Moray)
Robertson, John Tellers for the Noes:
(Glasgow Anniesland) Dan Norris and
Roche, Mrs Barbara Mr. Nick Ainger.

Question accordingly negatived.

Schedule 38 agreed to.

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