Tax Avoidance (Hansard, 26 May 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)
My Lords, one of the clearest definitions of tax avoidance was suggested by the noble and learned Lord, Lord Howe of Aberavon, in the Tax Law Review Committee in 1997. He defined it as, action taken to reduce or defer tax liabilities in a way that Parliament plainly did not intend or could not possibly have intended had the matter been put to it". 1325 While the expression "abusive tax avoidance" is one used by the United States, Australia and Canada, the phrase does not appear anywhere in the UK tax code. The joint initiative recently announced by the Government is to build on rules obliging promoters of avoidance schemes to disclose them to their revenue authorities, with emphasis on those that have an international dimension.

§ Lord Wallace of Saltaire
My Lords, I thank the Minister for that clarification. I had not picked up on the fact that, although the United States, Canada and Australia use that term, Her Majesty's Government do not. Would he confirm that there is an important line between legal tax avoidance and illegal tax evasion? Talk about abusive tax avoidance seems to blur the line, unless one intends to make abusive tax avoidance illegal.
Will the Minister confirm, too, that this marks another step in the internationalisation of anti-tax avoidance policies? We have had the Financial Action Task Force on offshore financial centres and other such areas. Her Majesty's Government are in some ways following the United States in international actions on harmonisation of tax policy of one form or another, while resisting, as a matter of sovereignty, the closer co-operation among tax authorities within the European Union.

§ Lord McIntosh of Haringey
My Lords, the noble Lord, Lord Wallace, is right to make the distinction between tax avoidance, which is legal, and tax evasion, which is illegal. As to whether we are following the United States, that is a rather different question. This is a four-country initiative and, for the next two years, it happens to he located in Washington DC. This Government are very firmly in favour of it, as can be seen from Clauses 290 to 302 of the Finance Bill currently before the House of Commons. I hope that it has the support of the noble Lord, Lord Wallace. It is important that we should stop the far too prevalent abuse—I shall not use the word "abusive", but I nearly did—when very highly paid lawyers and accountants find ways to deprive the Revenue of moneys that Parliament would wish to go to the Revenue and to us.

§ Lord Sheldon
My Lords, is my noble friend aware that the sub-committee of this House dealing with the Finance Bill is examining this very question and spending quite a lot of time on it? Tax avoidance schemes that are deliberately designed to use loopholes that they find and establish are a problem. Will my noble friend accept that there is a case for trying to co-ordinate with other countries some of the activities that we are undertaking in this country?

§ Lord McIntosh of Haringey
Yes, my Lords. I am aware of the work of your Lordships' committee and I can confirm what the noble Lord, Lord Sheldon, said about the need to co-ordinate activities, starting with those that have an international dimension. Clearly, one of the most obvious ways of avoiding tax is to hide 1326 behind a different tax jurisdiction. It is in the common interests of the four countries that I have named to act together to try to diminish that.

§ Lord Hodgson of Astley Abbotts
My Lords, would the Minister like to tell the House whether any conversations have taken place with the Government of Switzerland, who have a rather different view of tax evasion and tax avoidance?

§ Lord McIntosh of Haringey
My Lords, I am not going to express a view about Swiss law on tax evasion and tax avoidance any more than yesterday I was prepared to be an expert on Belgian law. Certainly, there have been discussions with the Government of Switzerland, particularly on the issue of disclosure as an alternative to a withholding tax. I understand that those discussions are going rather well.

§ Baroness Noakes
My Lords, is the Minister aware that in those EU countries where the dividing line between tax avoidance and tax evasion has become blurred, one of the effects has been to make tax evasion more socially acceptable? Will he say what the Government will do to avoid falling into that trap?

§ Lord McIntosh of Haringey
My Lords, I do not think that I can agree with that assertion. In effect, the noble Baroness, Lady Noakes, is saying that some European countries do not have adequate tax laws. It is not my position to confirm or deny that. Certainly, as far as we are concerned, the distinction between tax avoidance and tax evasion is perfectly clear.

§ Lord Wallace of Saltaire
My Lords, can the Minister explain why these four countries are a white Anglo-Saxon group? Would it not have been more appropriate to do this on a G7 basis or with the same group of countries that are involved in the Financial Action Task Force?

§ Lord McIntosh of Haringey
My Lords, that may well be the case in the future. We have just started with four countries that happen to have a common interest, and that is particularly so between the United States and this country where very substantial resources devoted to tax avoidance use the international dimension. If this works, and I hope it does—I hope the whole House hopes that it does—there is no reason why it should not be extended beyond the four countries that have started it.

§ Baroness Strange
My Lords, would the Minister agree that if there were fewer taxes to avoid, there would be less tax evasion? It would save the Government having people rushing round, trying to find out what is being avoided.

§ Lord McIntosh of Haringey
No, my Lords, I would not agree. The public services in this country, which are rightly provided for by tax revenue, need to be preserved 1327 and enhanced. If the price to be paid for that is clever people trying to avoid taxes, then it is our duty to try to overcome that.

§ Lord Ezra
My Lords, as this discussion has developed, I am getting more and more concerned about the distinction between tax avoidance and tax evasion. Would the Minister confirm that citizens should not be liable for any more tax than legally required and that they are entitled to order their affairs so that their tax liability is minimised. If they resort to illegal means to order their affairs, then, of course, that makes them liable. Can we be quite clear on this issue?

§ Lord McIntosh of Haringey
My Lords, of course, we are clear. As I have said more than once this afternoon, there is a firm dividing line between evasion and avoidance. The thrust of the work being carried out by the four countries, and the thrust of the clauses in the Finance Bill, is not to make illegal that which is legal but to encourage and, indeed, oblige promoters of avoidance schemes to disclose them to their revenue authorities. In other words, it is to strengthen the hand of the Revenue in anticipating schemes that affect it in a way—to quote the noble and learned Lord, Lord Howe, again— that Parliament plainly did not intend or could not possibly have intended had the matter been put to it".

§ Lord Marlesford
My Lords, does the Minister agree that there was something in what the noble Baroness, Lady Strange, said and that the lower tax rates are, the less incentive there is for evasion or avoidance? In that context, I welcome the very interesting Written Answer he gave me yesterday on tax rates in all EU countries, which showed that the top tax rate in the UK compares extremely favourably with many other EU countries. I congratulate the Government for maintaining the 40 per cent rate introduced by my noble friend Lord Lawson in 1988 and remind the House that if the 98 per cent tax rate, which was in force when my noble friend Lady Thatcher was elected, were still in force, even adjusting for inflation, it would cut in, from his own Answer, at £86,000 a year.

§ Lord McIntosh of Haringey
My Lords, I do not always read in detail the Answers that I give to Written Questions, but on this occasion I did, with considerable fascination. I agree with the noble Lord, Lord Marlesford, that it was very interesting. It was a bit difficult to interpret as the thresholds operate against different levels of top tax rates. It took me some time to understand it, but it does not lead me to support the contention of the noble Baroness, Lady Strange. There are people who will try to avoid taxes for perfectly legal reasons and who will try to circumvent the wishes of Parliament at whatever level of taxation Parliament sets.

§ Lord Mackie of Benshie
My Lords, the Minister keeps telling us the difference between evasion and avoidance. Does the Inland Revenue see any difference between them?

§ Lord McIntosh of Haringey
Yes, my Lords, it prosecutes evasion when it finds it and it seeks to circumvent—if I may use the word in both directions—avoidance when it finds it.