Tax Evasion (Hansard, 3 February 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)
My Lords, Her Majesty's Government believe that international co-operation to promote transparency and exchange of information is 552 the most effective way of tackling cross-border tax evasion. We welcome the progress that our overseas territories and the Crown Dependencies have made in committing to international standards and we will continue to promote the adoption of the highest standards in all financial centres.

§ Lord Barnett
My Lords, I thank the Minister for that reply. However, is he aware that there are perfectly reputable accountants who set up tax avoidance schemes which are then abused by taxpayers and used for evasion purposes? The Minister mentioned the question of co-operation. Can he confirm that the OECD is trying to ensure that there is a rule drawn up for all countries where there are tax havens? Without such a ruling, no single country would agree to co-operate with the OECD. I understand that a number of countries are not co-operating. What exactly is the UK Government doing about that?

§ Lord McIntosh of Haringey
My Lords, regarding the first question of the noble Lord, Lord Barnett, I would have thought that one of the professional responsibilities of perfectly reputable accountants would be to see that their clients do not use their advice for tax evasion.
Regarding his second question, I agree that it is necessary for us to support the OECD's pursuit of all financial centres to ensure that they adopt the highest possible standards. Most recently we have succeeded in ensuring the highest possible standards in the Crown Dependencies. The issue of overseas territories is being pursued by the European Union with a good deal of success, but we need to continue to pursue many other financial centres. We totally support the OECD in doing that.

§ Baroness Noakes
My Lords, what estimate do the Government make of the tax loss each year from tax evasion through offshore financial centres? Will he say how much that has been reduced by government policies over the past seven years?

§ Lord McIntosh of Haringey
My Lords, that might be the classic unknowable statistic. Tax evasion is tax that is unpaid by breaking the law. If we had statistics on law breaking we could stop that. By definition, estimates of tax avoidance may exist, but that was not the question asked by the noble Baroness, Lady Noakes. Yes, we are making progress, but it is inevitably slow. First, it has been through the EU savings directive; and all but three countries in the EU now agree to exchange of information, which is our preferred method. Those countries—namely, Belgium, Luxembourg and Austria—which still maintain withholding taxes, will have to increase them. All of that puts pressure on the next group of countries, including, most importantly, Switzerland; and that, in turn, puts pressure on those outside countries which are also resisting. It is a long and difficult task, but as we make step-by-step progress it becomes more difficult to use offshore tax havens.

§ Lord Peston
My Lords, does the existence of tax havens mean that what the rest of us would regard as "tax evasion" is described as "tax avoidance"? I thought that was the point of my noble friend's Question. Is it not the case that whereas ordinary British people work extremely hard and end up paying the maximum rate of tax, other people earn infinitely more and end up paying lower rates of tax? Do not the Government—not just accountants—have a responsibility to act as vigorously as they can to deal with that?

§ Lord McIntosh of Haringey
My Lords, I thought that I answered a question like that in some detail a couple of weeks ago in the House. I agree that it is in all our interests that we should pursue tax avoidance and tax evasion. Lower rates of tax in themselves cannot be pursued. We are not looking for harmonisation of either corporation tax or income tax. But through the European Union and OECD we pursue the use of those lower tax rates by offshore financial centres to facilitate tax avoidance.

§ Lord Marsh
My Lords, why should the Minister seek to make a moral argument that says that the Inland Revenue can use all of its powers and legal advice to obtain the maximum amount of tax from the taxpayer, while the taxpayer is criticised for doing no more than seeking the best advice that he can afford to ensure that he pays the minimum amount within the law? That is spoiling a perfectly happy relationship between those people and the Inland Revenue.

§ Lord McIntosh of Haringey
My Lords, I have already made clear that we cannot pursue differential rates of taxation in different centres. It is when those rates are used to avoid taxes due to this country that we are obligated to pursue the matter—in that I agree with the noble Lord, Lord Peston. That is why we have supported the savings directive and, particularly, its disclosure provisions, which will help to ensure that people pay tax in the tax regime where they are supposed to pay it.

§ Lord Phillips of Sudbury
My Lords, perhaps the noble Lord, Lord Marsh, displays an untypical streak of naivety in his comments regarding tax evasion. The noble Lord, Lord Barnett—

Noble Lords
Avoidance!

§ Lord Phillips of Sudbury
My Lords, all right—"avoidance" or "evasion"; it is a very—

Noble Lords
Oh!

§ Lord Phillips of Sudbury
My Lords, those of us who have practised in the field, whether as accountants or solicitors, might be a little more sceptical.

Noble Lords
Question!

§ Lord Phillips of Sudbury
My Lords, my question relates to the report of the House of Commons Public Accounts Committee on tackling tax fraud, which was published three weeks' ago. It pointed out that the Inland Revenue would like to have the same power as the United States Internal Revenue Service to issue information notices to banks, asking them if a customer has an overseas account. Would the Government contemplate giving our Inland Revenue the same powers, because they would be effective?

§ Lord McIntosh of Haringey
My Lords, I shall not comment on the first point made by the noble Lord, Lord Phillips—called by the noble Lord, Lord Barnett, "the fine line" between tax evasion and tax avoidance. For me one is illegal and the other is legal and that is not a fine line at all.
Regarding the second point, I acknowledge the valuable report of the Public Accounts Committee. In turn, it recognised that in the 2003 Budget we introduced new compliance and enforcement initiatives to enable us to deal with offshore problems. The committee agreed that any further steps should await confirmation of the success or otherwise of the initiatives that were introduced last year. We are certainly prepared to go further if that proves necessary.

§ Lord Barnett
My Lords, I am delighted that my noble friend recognises the fine line between tax avoidance and tax evasion occasionally. However, in his earlier reply he appeared to place responsibility on perfectly reputable accountants who have devised perfectly legal tax avoidance schemes that are misused by taxpayers. That is what I was referring to and I hope that that was what he had in mind.

§ Lord McIntosh of Haringey
My Lords, the phrase "fine line" was used by the noble Lord, Lord Barnett. I see no fine line between illegality and legality. It is different under different legal jurisdictions, but it is there and it ought to be adhered to.
My point in relation to the first supplementary question was that professional advisers, be they lawyers or accountants, have a responsibility to ensure that clients who take their advice do not transgress the line between avoidance and evasion. If he is saying that others who have no professional relationship to a client are doing that, clearly professional advisers cannot intervene.