Finance Bill

Public Bill Committee, 11 June 2020.

Andrew Rosindell (Conservative, Romford)

I remind Members to please respect social distancing guidance. As you are aware, tea and coffee are not permitted in Committee rooms. Please ensure mobile phones are turned off or switched to silent during the sitting. As I have said before, the Hansard reporters will be grateful if Members email their speaking notes to hansardnotes@parliament.uk.

Digital services tax: introduction

Andrew Rosindell (Conservative, Romford)

With this it will be convenient to discuss clauses 39 to 44 stand part.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Thank you, Mr Rosindell. I am grateful to all members of the Committee for joining us this morning; I am also grateful it is not too hot outside. It is a rare moment in Parliament when one gets to introduce a new tax—the digital services tax—on to the statute book. With the clauses grouped together, it is appropriate to spend some time in my opening remarks outlining the overall architecture of the tax and how it is designed to work; then we can pick up specific details in the clauses as we come to them.

Clauses 38 to 44 introduce legislation to enact the digital services tax, and they set the scope of this legislation. DST will levy a 2% charge on the revenues that groups receive from providing specific digital services to UK users. The specific services in scope of the charge are search engines, social media, and online marketplaces. I will explain later why those three services are in scope of the new tax. DST will apply only to groups with annual global revenues from services of more than £500 million. It will then be charged on the revenues only where they are attributable to UK users, and only on amounts above £25 million.

An exemption will exclude online financial services marketplaces from the definition of an online marketplace. Businesses making low profit margins on their in-scope activity will be able to pay the tax at a reduced rate, while loss makers will pay nothing; that will minimise the distortions that a tax on revenues can create. To further reduce those distortions, a relief for certain cross-border transactions is also included. It will reduce by half the revenues subject to DST where those revenues are derived from an online marketplace transaction between a UK user and a user from a jurisdiction that also levies a DST. As this is a new tax, there are also extensive provisions to ensure the framework of the tax works as intended. These draw on many existing tax concepts to reduce the burden of implementing the new tax for what we hope will be a limited time.

The digital services tax was announced at Budget 2018 as a response to changes brought about by the rapid development of our digital economy. That economy brings many benefits, but it has posed a significant challenge for international corporate tax rules. Under current rules, digital businesses can derive significant value from UK users, but in many cases they pay little UK tax because international corporate tax rules do not recognise the user-generated value when allocating the right to tax profits between jurisdictions, so undermining the fairness and sustainability of our tax system. It is therefore now widely accepted that the rules require updating.

The Government remain at the forefront of international efforts to secure a comprehensive long-term solution to the issue, and we are fully engaged in discussions with OECD and G20 partners. Although we welcome recent progress towards a global solution, there remain important and difficult issues to resolve, so the Government are acting now to address those widely held concerns in a fair and proportionate manner. DST is a temporary measure, until appropriate global reform is in place.

As a temporary measure, DST is targeted at those business models that rely most significantly on user-generated value and that place the greatest strain on current corporate tax rules. It is the Government’s judgement that these services are search engines, social media platforms and online marketplaces. Of course I recognise that a broad range of digital services could be said to derive value from their users, and I am aware that some hon. Members have called for the scope of DST to be extended to include services such as media streaming. However, the services in scope of this tax are those that rely most significantly on user participation in the creation of value: for example, while media streaming platforms may utilise user contributions in the form of reviews or recommendations, users of a social media platform often create the content that is shared across the platform, and users of an online marketplace provide the market liquidity required for the marketplace to function. Also, while we are engaged in OECD discussions about finding a long-term global solution and exploring the case for broader reform, we judge that it would not be appropriate to implement a temporary tax on a broader basis.

DST follows the recommendations of the OECD’s 2018 interim report. Targeting DST at those services that derive the greatest value from their users minimises the distortive consequences of a tax on revenues and minimises the risks of introducing a temporary measure before global reform is agreed. That will ensure that DST is proportionate, while still raising up to £2 billion over the next five years. That in addition to the UK taxes that digital businesses already pay and, as I have said, reflects the value they derive from UK users.

I will now summarise the clauses that form this part of the Bill—clauses 39 to 44. Clause 39 sets out that DST will apply to all revenues that arise in connection with in-scope digital service activity. That is deliberately a very broad test; it ensures that however these businesses make money from their in-scope activity, that revenue will be subject to the tax. The clause also sets out that revenues should be apportioned on a just and reasonable basis when they are not wholly in connection with an in-scope activity.

Once a group’s digital services revenues have been established, the next step is to determine how much of those revenues is attributable to UK users. Clauses 40 and 41 set out the five cases where revenues are attributable to UK users. The first three cases deal with the specific types of revenue that online marketplaces may receive. The first case concerns the revenues that a marketplace earns from facilitating transactions between users; this will include a marketplace’s commission, for example. These revenues are attributable to UK users whenever a UK user is a party to the transaction. It does not matter whether the UK user is the buyer or the seller, or which user paid the revenue; where there is a cross-border transaction between a UK user and a non-UK user, all of the marketplace’s revenue from that transaction is regarded as attributable to UK users, although this may be subject to cross-border relief.

The second case concerns revenues that arise in connection with accommodation and land in the UK—for example when a user books a holiday let on a marketplace. These revenues are attributable to UK users when the property is in the UK. Where the property is overseas, the revenue will only be UK digital services revenue when the purchaser is a UK user. Some marketplaces charge users to list individual items for sale; under the third case, those revenues will be treated as attributable to UK users whenever the user listing the item is a UK user.

The last two cases apply to social media services and internet search engines, as well as to online marketplaces. The fourth case deals with online advertising revenues. These revenues are attributable to UK users when the advertising was viewed by a UK user; the focus is on the viewer of the advertising, not on who paid for it. The fifth and final case is a catch-all, to include revenue that is not trapped by any of the other rules but that is received in connection with UK users. This will cover any other type of revenue earned by social media services and search engines—for example, subscription fees.

Clause 42 defines each of the services in scope of DST. The tax will be charged on the revenues that businesses earn from providing a social media platform, search engine or online marketplace to UK users. The definitions are designed to be targeted and as clear as possible. They have been carefully drafted after extensive consultation periods with business to ensure that they apply as intended. Alongside the three named services, some businesses facilitate online advertising on other websites. The clause ensures that revenues from that source would also be subject to DST when the advertising service derives a significant benefit from operating one of the three named services.

Clause 43 clarifies the meaning of “user” and “UK user” for the purposes of DST legislation. Clause 44 sets out the exclusion of online financial marketplaces from the definition of online marketplaces. The highly regulated nature of financial services limits their ability to engage with users in the ways that other marketplaces do. As such, the clause ensures that they are not subject to DST.

Together, clauses 38 to 44 set out the scope of DST. The digital services tax is a clear signal of the Government’s commitment to ensuring that tax rules reflect the development of our modern economy. Ultimately, as I have said, our strong preference is for a global solution, which will be the most comprehensive and enduring way to address concerns about the current corporate tax rules. Until such a solution is in place, however, DST will ensure that digital businesses pay UK tax that reflects the value they derive from UK users. I therefore commend the clauses to the Committee.

Bridget Phillipson (Labour, Houghton and Sunderland South)

It a pleasure to see you in the Chair, Mr Rosindell. Like the Minister, I will use this opportunity to lay out our broad views and concerns about the operation of the digital services tax. We will pick up some of the technical issues with the clauses as they emerge later.

We welcome the principle behind the introduction of a digital services tax. It is regrettable, if not unsurprising, that it has taken the Government so long to get to such a measure, given the wider inertia when it comes to making sure that multinational companies pay their fair share of tax. The gap between the profits that digital companies derive from UK users and how much they pay in tax is stark. That fact has been evident for some time and is recognised by Labour Members, which is why for years we have consistently pressed for a far more ambitious approach.

It is not right that, at a time when high street shops are struggling in an unprecedented way, the likes of Amazon have been allowed to pay a much lower tax rate than British bookstores and other businesses of a comparable nature. Our local high streets are incredibly important; they are the backbone of our local economies. Many family-run businesses have found this time incredibly difficult, but they also have many long-standing problems because of the way they have been undercut by some of these big players, which do not have the same overheads or level of corporate responsibility and do not make the same impact in our communities. During this crisis, many of our local businesses—our small businesses on the high street—have adapted to do all they can to make sure that vulnerable people receive deliveries and support, and that they are open as much as they can be within the guidelines. It is only right that we make sure that the bigger players with large profits make a contribution too.

There is still much unfairness built into the system. As constituency MPs, we only have to visit the businesses on our high streets that have been operating for many decades to appreciate the scale of disillusionment that many of those family-run firms feel about the lack of fairness in the system and the need for change. The economic crisis we are facing only strengthens the call for action because it has compounded the impact on our high streets, which have struggled and will continue to struggle. It is such a shame that, in many of our communities, affluent and perhaps less affluent, there are clothes shops that had their shutters down even before we felt the impact of the lockdown.

Vibrant local high streets are central to a sense of pride in the community and to making sure that we can support local jobs and businesses. We want to do everything we can to support that, but hand in hand with the pressures facing many small businesses during this time, there has been an unexpected boon for digital and tech giants, as we have all had to adapt to life in different and difficult circumstances during the lockdown. It is only right that we ensure that those with the broadest shoulders help to bear the cost of the recovery that we must now achieve as a country. It is more important than ever to make sure that those big players are taxed properly, reasonably and fairly.

There is no doubt that there is public appetite for stronger action to make sure that multinational companies pay their fair share. Polling carried out by Tax Justice UK in April revealed that 87% of those surveyed think that the Government should close tax loopholes for corporations and individuals. The measure that the Minister has set out is better than nothing, but it is nowhere near good enough in scope or scale. According to the Government’s own estimate, it is set to produce only £280 million this financial year, increasing to £465 million by 2023-24. In contrast, TaxWatch suggests that the UK is losing £1.3 billion in corporation tax from five of the biggest UK tech firms each year, thanks to complex financial structures that take profits offshore.

Let me give some examples of what that money might be used to support. Our NHS has been under unprecedented strain, and our NHS workers—our doctors, nurses, cleaners, porters and everyone else who has played a key role—have found it really challenging. We want to ensure that we have enough money to fund our vital public services. That is one aspect of the measures that the Government could be looking at, but considering the scale of the figures that TaxWatch and others have identified, it is clear that if we are to properly fund the vital frontline services on which we have all depended in this time of crisis, the Government will need to reconsider in due course whether the measure goes far enough.

The money could be used to support growth in our economy and provide more jobs to deal with regional imbalances. It could deal with the funding crisis in our NHS and could almost double school funding in the north-east of England, although I am sure other parts of the country would have a similar case to make in terms of need. It is not acceptable that the digital services tax would take several years to make less than half of that, given the unprecedent nature of the crisis that we are living through and the strain on our public finances from both the immediate response and the challenges the Government will face in easing lockdown restrictions and returning to some level of normal economic activity.

As the Chancellor said when he announced this measure, the tax will be narrowly targeted at the UK-generated revenue of specific digital platform business models, and the Minister today outlined further exactly what that will mean. It is carefully designed to ensure that the established tech giants, rather than our tech start-ups, shoulder the burden. We all want to support innovation and start-up companies right across the country, and enable them to create local jobs, work with our universities and bring in the new skills that many will need in the future.

The Office for Budget Responsibly, in its 2018 assessment of the Government’s costings methodology, said the tax would apply to about 30 groups. There have obviously been modifications to the tax since its announcement, so I would appreciate it if the Financial Secretary outlined whether an assessment has been made of the number of companies that he thinks will fall under the scope of the tax.

I would like the Financial Secretary also to address the OBR’s claim in its 2018 assessment that there is a high degree of uncertainty around the central estimates of the yield. As of this year, the OBR maintains that there is medium to low certainty regarding the yield. That is hardly reassuring, given that the gap between those companies’ profitability and what they pay in tax remains so large. One of the reasons why the yield projected under the Government’s costings methodology is difficult to calculate is that, in the OBR’s words, global revenues in scope that relate to the UK have to be obtained through external sources for which there is little relevant information available. Given these problems, it is hard to know why the Government are not pushing for country-by-country reporting where the uncertainty around those companies’ revenues is affecting our ability to determine how much tax they should be paying. That campaign has enjoyed broad cross-party support in the House, led primarily by my right hon. Friend the Member for Barking (Dame Margaret Hodge), who has done tremendous work in bringing public attention to what had been an under-recognised area.

Abena Oppong-Asare (Labour, Erith and Thamesmead)

I completely agree with my hon. Friend’s comments. Does she agree that large companies such as Amazon are unlikely to be substantially affected? The Bill aims to support start-up companies, but it does not go to the heart of addressing big digital companies that get away with not paying enough tax.

Bridget Phillipson (Labour, Houghton and Sunderland South)

My hon. Friend makes an important point. That is one of many concerns raised by stakeholders, and an issue that I will be raising further with the Financial Secretary during the course of my contribution. As the he outlined, the measure does not capture media streaming services either, and I intend to say a bit more about that in due course.

The broad campaigning support that we have seen right across the House on issues of tax transparency, led primarily by my right hon. Friend the Member for Barking but with considerable support from Government Back Benchers, demonstrates the appetite both within this House and outside for greater transparency in this area. Tremendous work has been done by the all-party parliamentary group and by the Public Accounts Committee, led previously by my right hon. Friend the Member for Barking and subsequently by my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), which has continued to press the need for greater transparency in this area. It wants the Government to act, but it also recognises the need for greater multilateral action. I know the Financial Secretary touched on that point and I will come back to it later.

The Opposition understand the difficulties with multilateral action, but we think that the Government should provide a greater degree of leadership in seeking to resolve the problem. Another reason why the yield as outlined might be so low is the rate at which it is being set: it is among the lowest in Europe. I invite the Financial Secretary to explain why the Government have adopted such a cautious approach when other countries are going further. How did he arrive at the figure? How did he and the Government determine the level of the tax? What assessment was made not just of the yield and the difficulties with determining it, but of whether it is an appropriate level? Have other stakeholders and groups made representations on the level at which the tax has been set?

The modest nature of the measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. The Minister may well be aware of the research by TaxWatch UK, which estimates that Facebook would face an increased tax bill of £39 million despite estimated UK venues of almost £2.3 billion. Google would pay slightly more: around £168 million, based on estimated UK revenues of £9.3 billion.

Beyond the small impact on the companies to which the tax applies, there is the question of which companies will not be affected by the tax. That comes to the point made by my hon. Friend the Member for Erith and Thamesmead. Many digital businesses such as Amazon, which blend their activities, will be unaffected by the measure outlined by the Minister; nor, as TaxWatch UK has illustrated, will it apply to Apple’s hardware business, Microsoft or Cisco Systems, none of which involve social media platforms, search engines or online market places.

As I said earlier, my right hon. Friend the Member for Barking has done so much work in this area. I am aware that she pressed the Financial Secretary earlier this year to extend the scope of the digital services tax to include streaming services such as Netflix, which are not included in the measure, and he set out some of the Government’s concerns about broadening its scope. I want to provide a bit of background on the operations of Netflix, on which many of us have come to rely in a much greater way during the lockdown period. Many online streaming services have no doubt seen a real boost at a time when we are all trying to find ways to spend many an hour and entertain our children in the absence of any form of proper childcare.

Netflix’s estimated revenues from UK subscribers was £860 million in 2018, based on analysis from TaxWatch UK, which provides an analysis of Netflix’s corporate structure showing that the company has implemented a similar tax avoidance structure to those used by many other multinational companies operating in the digital sphere. Revenues are not collected in the country where they are made; instead, customers are charged from an offshore company, and profits are then moved from the hub company to a tax haven through the use of an intra-company transaction. Netflix’s historically low profit margins mean that the scale of any tax avoidance will be much lower than that of many other well-known companies that employ similar tactics. TaxWatch UK has argued that it is relatively easy to calculate the revenue of Netflix in the UK: there are surveys of TV usage that tell us how many subscribers it has in the UK, and Netflix publishes data on average revenue per subscriber, which is something that I imagine has grown considerably during this time.

That returns us to the issue of fairness. Despite receiving support from Government, many high street businesses have struggled and will continue to struggle for a prolonged period, while other companies have potentially seen a big increase in their revenues during the crisis. The Opposition urge the Government to consider whether the measure is adequate. As argued by my right hon. Friend the Member for Barking, extending the scope of the tax could feasibly bring other streaming platforms, such as video game streaming platforms, under the ambit of the tax. That would improve its takings and ensure that all companies pay their fair share.

The pattern of profit shifting displayed by Netflix, which I just outlined, reflects practices adopted by others. It is clear that the current system for taxing streaming services is not working. The proposed measure would go at least some way to resolving this, but it is not adequate.

I am aware of the Financial Secretary’s response earlier this year to my right hon. Friend the Member for Barking, disputing the practicability of widening the scope of the tax, but I urge him to look again at the issue, or at the very least to consider other means at the Government’s disposal to ensure that all companies pay an appropriate amount of tax. We will discuss the scope and the yield later when debating Opposition amendments, but I urge him to consider how we can be confident that this measure is working as intended—not only whether it is deriving the income that we need in order to provide support for our frontline services at this difficult time for the country, but whether the digital services tax is operating as it should.

I will also highlight some of the technical issues relating to clauses 38 to 44. Clause 39 indicates that revenue should be apportioned on a just and reasonable basis when not wholly attributable to a digital services activity. Does the Minister accept that there may be a risk in taking businesses at their word here? There may well be some issues in how that is applied, and I would be grateful if he could offer some reassurance in this area. Asking businesses to apportion revenue on a just and reasonable basis may lead them to structure their operations or disaggregate their costs in a certain way to avoid higher liabilities. In the absence of public country-by-country reporting measures to create full transparency, oversight of this will be essential. Can the Minister confirm what will be done to ensure that this has been calculated in a fair and open manner?

A related point is capacity within HMRC. As we have all acknowledged in earlier discussions on the Bill, HMRC and Treasury staff are doing tremendous work at this difficult time for our country, and we all commend them for their dedication and hard work. I imagine it must be a challenging environment in which to work, responding quickly to changes in policy and with the need to support businesses and taxpayers alike, but given the challenges faced, can the Minister assure us that HMRC will have the resources and staffing it needs to make sure that this tax is being applied properly and that revenues are being secured? Some stakeholders have suggested putting in place a dedicated digital services tax team, and I wonder what consideration the Minister and officials have given to that.

Since the legislation was first announced and consulted on, several stakeholders expressed throughout the consultation period concerns around whether the definitions the Government use in these clauses are clear enough and watertight. For instance, there is uncertainty around whether online gambling platforms will fall under the scope of this tax, as set out by the Chartered Institute of Taxation. I appreciate that the legislation has been modified since it was first announced, but I would be grateful if the Minister could clarify the position.

On Clause 43, concerns have been expressed about the difficulty in identifying a “UK user”. The use of virtual private networks presents an obvious difficulty in this regard. The process of monitoring users may also raise concerns around GDPR compliance. I will be grateful if the Minister could set out whether that is the case, and whether there may be difficulties in this area.

I will now touch on the international context in which this measure has been put forward, drawing in part on the Minister’s remarks on the need for both UK action but also global action, as companies work across country boundaries and jurisdictions. The international tax system is fundamentally not fit for purpose: it has not kept pace with the changing nature of technology and many of the changes that we have seen in our economy and the global economy. It was modelled on the trade in goods, rather than services. The challenge of how we respond to the digitisation of the global economy continues, and goes far beyond this measure and other measures that the Government are considering, but the OECD has been pressing on the issue for years, as the Minister acknowledged.

It is regrettable that no multilateral consensus has yet been forged. Opposition Members are clear that a multilateral solution is the best possible outcome, but it requires leadership—something, it has to be said, that has been sorely lacking in recent years. I hope we will see much greater action from the Government in pressing the case multilaterally, demonstrating international leadership, so that we can see a fairer solution right across the board. In the absence of such a consensus, a unilateral approach was always inevitable. It remains, of course, a second-best option, and the Minister will know that it is not one that comes without risks. We have seen just this week the US trade representative launch an investigation into digital services taxes, including the UK’s. The Chartered Institute of Taxation has also highlighted the risks of provoking retaliation, which could affect businesses based in Britain, as we have seen in the US response to the French digital services tax, or of copycat measures, which may be less narrowly targeted.

Earlier this year, at the World Economic Forum, US Treasury Secretary Steve Mnuchin suggested that the US might retaliate with a tariff on UK car exports if the digital services tax discriminated against US multinationals. I know that the Government have previously said that they would not be deterred by such tactics, but I would be grateful if the Minister could reiterate here today that this continues to be the case. Perhaps he could also say a bit more about what we can expect to see in multilateral action. What meetings are planned, and what do the Government intend to do in leading the world in this area? I would also like to hear reassurance that the Government will not use this measure as a trading chip in any future trade negotiations with the US.

Anthony Browne (Conservative, South Cambridgeshire)

I am generally a low-tax Conservative. I prefer lower, simpler taxes, but I thoroughly welcome this new tax. It is clearly welcomed across the House. The public are frustrated at seeing these big technology companies and other multinational corporations not paying their fair share of tax.

I have a few observations and then one question for my right hon. Friend the Financial Secretary. It is absolutely welcome that he is co-ordinating globally on this. I have led tax talks with the OECD on things like common reporting standards, and they take a very long time, so it is welcome that he has come forward with a national measure aligned with what we expect from the international measures, and we are not waiting for the international measures to come into place.

I notice that the shadow Chief Secretary says that the measure has not gone far enough, but it is still one of the first in the world and it also breaks the mould in being a turnover tax, which the UK Government have always resisted. As globalisation continues apace, the arguments for turnover taxes as opposed to profit taxes get a lot stronger and we now have one in the UK on digital services. I suspect that in years to come there will be arguments made for expanding turnover taxes to other sectors.

The case was made that the tax is modest in terms of revenue, but all taxes start out modestly. When we look at the history of value added tax, stamp duty or income tax, they started out modestly and tended to increase as we saw what their impact was. The digital services tax is an entirely new tax on a sector where we do not really know the dynamics. The data has not been collected by the companies, so it is absolutely right that we see what the impact is before deciding in what way to extend it.

When I was chief executive of the British Bankers’ Association, I was involved in many discussions with the Treasury on new bank-specific taxes. With a new tax, it is always the case that we do not know what revenue we will get. There is always a high amount of uncertainty because people have not collected the data for that tax. It is inevitable that for the digital services tax there will be a degree of uncertainty, as has been pointed out.

My question for my right hon. Friend the Minister is about enforcement and implementation. The digital services companies will have to collect a lot of data that they might not have been already collecting. HMRC will be dependent on them for providing the data because it will not have direct access to all their internal accounts and that level of detail. I want to know what work is being done with HMRC to make sure that it can get the right data and have confidence that the companies are paying the amount of tax that they should be paying and not playing games, as they are sometimes wont to do.

Andrew Jones (Conservative, Harrogate and Knaresborough)

I am also not usually somebody who likes to find new ways to tax people in the UK. The digital services tax is totally new, but it is the right thing to do. The clauses detail the scope and the mechanisms for the tax and its collection. We even have a clause with an algebraic formula, which should certainly raise an eyebrow. [Laughter.]

The main thing to note is that the economy is changing fast and the tax is a part of that change. The Government’s response is to work internationally as we plot the course to a digital economy. Such economies are by definition international, so it is right to respond in a multinational way. I also know that it is very hard and takes a long time to achieve the objectives, so it is clearly right to proceed in the short term with this measure. Digital firms must pay their fair share.

It is increasingly hard for Governments to raise revenue from their traditional routes. The Government obviously have to raise revenue to fund the public services that we want. There is therefore an underlying, fundamental challenge for the Treasury. Work and consumption patterns change. I recognise that I possibly view this through the prism of somebody who has had responsibility for raising Government revenue—once a Treasury Minister, always a Treasury Minister—but this tax and the thinking behind it are the shape of things to come. Tax has to evolve to reflect the way the economy evolves.

The rise of the digital economy means different things for different companies. The opportunities for productivity and environmental gains are absolutely immense, so we must do all that we can to encourage the shift into a digital economy. Most people encounter it through social media search engines and online retail, which are the target areas for the tax. The growth of online retail has placed ever greater pressure on traditional high street retail businesses: a trend compounded, as colleagues have said, by the current crisis.

There have been concerns about the nature of competition and whether there has been a level playing field between online and offline: the argument between bricks and clicks. We should make every effort to level the playing field and the tax is a part of that. High streets have a role beyond their traditional economic role. They have a social role and bring people together. They create hubs for communities, but they also have to evolve to reflect the changing nature of competition, and a more level playing field in taxation will help give them the space to evolve.

I had some concerns that the tax may discourage digital start-ups; we have seen a good period for start-ups in the UK and I think that we have led Europe in this sector. However, I think those concerns have been dealt with by the threshold at which the tax becomes payable, which will only capture the very largest of businesses.

So, we have a very interesting new area for taxation, which I do not think any Government can enter into lightly. The Minister is an old friend—we have worked together for many years—and I commend him, because this is not easy stuff; it is pioneering for the UK and indeed for the world. But we have found a way forward that updates our taxation system and introduces more fairness to it, and through the operation of the new system we will learn how future taxation may work. So, as we go through further clauses in detail today, perhaps he could comment on how any learnings from this tax might influence and develop future taxation thinking.

Jesse Norman (Conservative, Hereford and South Herefordshire)

All I can say to my colleagues on the Government Benches who have made their speeches is,

“soft, what light through yonder window breaks? It is the east”—

and my hon. Friends the Members for South Cambridgeshire, and for Harrogate and Knaresborough. What could be finer? I thank them very much for their interventions. If I may, I will start by responding to those interventions and then come on to the very detailed thrust of commentary from the shadow Chief Secretary.

My hon. Friend the Member for South Cambridgeshire rightly made the point that taxes are, of their nature, potentially distortive, and revenue taxes, of their nature, in particular. It is therefore appropriate to proceed with a degree of caution in considering how to introduce a tax, and to acknowledge that. He also made the point that many taxes start modestly. I could not possibly comment on the future direction of this tax, but I will say that I do not think that £2 billion is a trivial sum of money to raise from a new tax. I think the tax has been set at an appropriate level, and officials and the Government believe that, too.

My hon. Friend also asked whether businesses affected by the tax will have to collect a vast array of new information, and whether that may be burdensome to them. This is one area where, on reflection, he may be able to take a degree of comfort, because we are only talking about very large businesses, and about businesses for whom tracking users and extracting revenue from them is what they do for a living. So, it is not our expectation that there should be any enormous additional informational burden; there may be a selection process of pulling information out, but not an enormous informational burden.

I will also point out that the approach taken is one of self-assessment, which is to say that we expect businesses that have UK user-generated content revenue to come forward and self-assess. In a way, that relates to the question put by the hon. Member for Houghton and Sunderland South about whether HMRC has enough resources. I am pleased to tell her that it already has a digital team in place, whose job is to monitor this process of self-assessment. And as with other taxes, I have no doubt that they will become increasingly expert in doing that and evaluating the submissions that are made; of course, submissions will vary in their quality and I am sure that evaluating them will be, in turn, an educative process for tax officials at HMRC.

My hon. Friend the Member for Harrogate and Knaresborough, a beloved former Treasury Minister, made a couple of important points. Of course, he is absolutely right that we are talking about a dynamic market or sector. All markets are intrinsically dynamic and we are talking about an intrinsically highly dynamic sector of activity, perhaps never more so than at this particular moment in our history, when we are seeking—internationally and nationally—to find a whole range of new solutions to support people and maintain the economy. So, it is a very dynamic sector.

My hon. Friend is also right to highlight—in a way entirely unscripted and unprepared with me—the “pioneering” nature of this tax. It is a new form of tax, which seeks to tax UK user-generated content. Therefore, it is an important démarche in our history to consider whether this is an appropriate way in which to tax. I believe it is, and I believe that Parliament will think it is, but we will of course continue to review and take feedback on it. I point out that there have been two sets of consultations on this already—an original, principal set and then a more technical one.

Having said that, I return to the wide-ranging speech made by the shadow Chief Secretary. All I can say is that, if this is what she does to legislation she likes, goodness knows what she does to legislation she does not like.

Bridget Phillipson (Labour, Houghton and Sunderland South)

We like to be thorough.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I appreciate that, of course. I am grateful to the hon. Lady for welcoming the principles behind this, as she is right to do. For the same reasons I described to my hon. Friends, I do not think it appropriate to think of this as in any sense delayed. We are at the forefront of a developing area of tax law. We have not thought it appropriate to wait for international procedures. I am sure that, on reflection, she would prefer that we not have waited, both because of the revenue generated for public services but also because we deem it important—I have no doubt that the Labour party feels the same way—to try to make progress in this important area, removing what we see as ineffective rules or improving the working of the rules within the tax code.

I think it is fair to say, without blowing the Government’s trumpet too hard, that whether it is the diverted profits tax, work on base erosion and profit-shifting, corporate interest restriction rules or, indeed, on private country-by-country reporting rules, the Government have been at the forefront of much of the most progressive tax changes of the past few years, which is entirely appropriate.

The hon. Lady raises the question about the relationship with high streets. No Member of Parliament does not feel the concern about the high street, because they go back to their constituencies every week and see the effects of change. It is important to be aware that this tax is about addressing changes, or the way in which the tax rules are not fully capturing the value that is being generated. The high street is a rapidly evolving entity, as has been pointed out. Many high street businesses—even quite small ones—have online businesses of their own, which are effective supplements to what they do. They will not be caught by this tax, because in many cases their activity will be too small. However, it is in those hybrid models, which are evolving, where I think much of the future of the high street may lie.

It is not by any means obvious that the effect of the pandemic has been solely to privilege the online versus the offline. Plenty of online businesses have been clobbered by the pandemic in a way that many offline businesses have as well.

Bell Ribeiro-Addy (Labour, Streatham)

The Minister raises a valid point about this tax generally creating more revenue. However, he mentions the pandemic, and I am clear that we are heading for one of the worst recessions in history. Does the Minister not think that we would do best to do what European countries are doing, with a much higher rate of tax? The £1.3 billion that we will potentially lose is no small fee. The public coffers need that money. Does he not agree?

Jesse Norman (Conservative, Hereford and South Herefordshire)

I thank the hon. Lady very much for her question. As I said, the estimate by the independent OBR is of £2 billion over a five-year period. Our estimate is certainly £2 billion over a five-year period. I do not think that is a trivial amount. As has been discussed, we of course recognise the importance of generating revenue, but we also think it important to introduce a tax that is sustainable and that lays a framework that can be effective while it is in operation. There are countries that have had higher taxes, and we have offsetting rules regarding the interaction with those taxes in order to create equity as between the different jurisdictions, so it is a perfectly fair question, but we have taken the view that 2% is an appropriate level for a new tax. As I said, it is a tax that we will be very happy to take off the statute book as and when the OECD process starts to yield effective results, which it may well do before too long.

Bell Ribeiro-Addy (Labour, Streatham)

What I cannot seem to understand is why—the Minister mentioned sustainability—if other countries in Europe see it as sustainable and we have no evidence to the contrary, we have decided that it is not sustainable to have a higher rate.

Jesse Norman (Conservative, Hereford and South Herefordshire)

That is, of course, a proper question to ask, but we have taken the view that this is a tax that we would like to take off the books in due course, when there is an OECD agreement. That agreement may take a variety of different forms; it may raise more tax or less. Different countries have different overall tax systems and seek to address different forms of corporate behaviour in deriving revenue. In the UK, there are plenty of businesses deriving revenue from user-generated content. Some of them will be over the thresholds that we are talking about, and those are the ones that are within the scope of the tax.

It is absolutely open to other parties to disagree about how they would put it, but the Government have taken the view that this is the appropriate level for a new tax—it is on revenue and, as I have said, is therefore potentially distortive. We have had feedback and consultations that reflect concerns on both sides of the issue.

Andrew Jones (Conservative, Harrogate and Knaresborough)

My right hon. Friend makes a valuable point about the multi-channel operations of many retailers. I came to Parliament from a business background that had a mixture of high street and online retailers. From a business perspective, the key thing is to reach customers in the way that is right for them. By choosing either the high street or online, businesses miss out. Customers are open to trading in whichever way is convenient for them, as this crisis has shown.

I want to make a comment about the taxation. Higher taxation rates do not necessarily mean higher tax collected. We also have to recognise that having a tax environment that is conducive to creating a business-friendly environment is a critical part of the economic growth that we have seen over the past few years. We should certainly be looking around the world to see how other countries operate their tax systems, but drawing comparisons with countries that are not creating wealth or jobs might not be the way forward.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I thank my hon. Friend for that comment. In a way, he leads me on to my next remarks in response to the hon. Member for Streatham. He is right. The dynamic market that we are seeking to tax is one where revenues are not absolutely predictable; they may be higher or lower than estimated. The tax therefore stands in contrast to a well-established tax such as VAT, because we can be much more certain about how much that tax will raise.

It is also important to understand that this is not a tax designed to penalise certain companies. The strength of our online sector in the UK has been a very important part of the response to coronavirus, as I have mentioned. There is no attempt to pick out companies and target them with the tax. There is a concern about failings in the international tax rules, and that is what the Government seek to address.

The hon. Member for Houghton and Sunderland South raised the issue of multilateral action and asked whether adequate leadership had been exercised. It has been recognised that the OECD has made some good progress in this area recently, which has been achieved with a lot of urging and support from this country. Ultimately, we all agree that international and corporate tax needs to be addressed in a global and inclusive way. That would be the Government’s strong preference, but we have not waited—I do not think the hon. Lady would want us to wait—because we think it is important to take a lead.

Meaning of “the threshold conditions”

Andrew Rosindell (Conservative, Romford)

With this it will be convenient to discuss clauses 46 to 50 stand part.

Jesse Norman (Conservative, Hereford and South Herefordshire)

We now come to clauses 45 to 50. The last discussion was quite a long one, but hopefully it was helpful in framing the overall legislation within which we can now discuss the more specific elements, so we may not need to dwell as long on these parts.

Clauses 45 to 50 set out how the digital services tax charge will be calculated. The Government have sought to ensure that the DST is proportionate and charged only to those businesses that are best able to generate significant value from their users. As such, it will apply only to groups with annual global revenues from the named services of over £500 million. DST will be charged only on those revenues where they are attributable to UK users and only on amounts above £25 million.

Clauses 45 and 46 set out the thresholds and the allowance, and they set the rate of the charge at 2%. A DST tax rate of 2%, as we have discussed, ensures that digital businesses will make a fair and proportionate contribution to our public finances. Clause 46 also sets out how each member of a group should calculate their DST liability.

The Government recognise that some businesses have concerns about levying a tax on revenues rather than profits. That is why our strong preference is for a long-term profits-based global solution. That can be implemented only following an international agreement, however, so although the DST applies to revenues, the alternative basis of charge will reduce the charge for businesses with low profit margins or losses on their chargeable UK activity. Clauses 47 and 48 therefore set out the alternative basis of the DST charge and how DST liability should be calculated on that basis.

Online marketplace transactions will occur between two users, and those users may be based in different jurisdictions. Where one of those users is a UK user, revenues attributable to the transaction will be subject to the UK DST. Where the other relevant jurisdiction also levies a DST, however, there is a risk that the revenues could be taxed twice. Clause 49 sets out the relief for certain cross-border transactions, minimising that risk by ensuring that, in such cases, only 50% of the relevant revenues will be subject to the UK DST. Finally, clause 50 sets out when DST payments are due and payable.

Together, the clauses mean that the DST charge is proportionate while ensuring that digital businesses pay a UK tax that reflects the value they derive from UK users. Overall, as I have noted, the tax is expected to raise up to £2 billion over the next five years in a proportionate and responsible way.

Bridget Phillipson (Labour, Houghton and Sunderland South)

As the Minister said, we have discussed at length the broader implications and the necessary measures set out in the clauses, but I have some technical issues relating to them.

On clause 46, the Institute of Chartered Accountants in England and Wales has said that,

“given the potential compliance burdens imposed by the DST, it is important to ensure that smaller digital businesses are not burdened by DST, so the inclusion of a £25m allowance looks reasonable but should be kept under review.”

On a similar but more general note, the Chartered Institute of Taxation has warned that some businesses will be undertaxed while others may be overtaxed. As we have said before, it is our position on the Opposition Benches that in these challenging times, those with the broadest shoulders should bear more of the load. Can the Minister confirm that he will keep the measure under review to ensure that companies, particularly smaller companies, do not pay more than their larger counterparts, to avoid the distortions that he talked about emerging all the time?

There are perhaps more substantial concerns around clauses 47 and 48 on the so-called safe harbour provision. As HMRC has stated, that is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a lower operating margin from providing in-scope activities to UK users. Its inclusion is obviously well-intentioned, but some assurances will be welcome. It is clear that multinational companies are often adept at structuring their operations in a way that reduces their tax liabilities. Are there safeguards in place to ensure that the safe harbour provision is not used for such a purpose?

Clause 48, for instance, contains a list of excluded expenses that cannot be deducted from a company’s net profit, which goes on to form the basis of the alternative charge. The list, however, does not include royalties, and I am grateful to TaxWatch UK for drawing attention, through the research that it has done, to the implications that that might have, because royalties are at the heart of tax avoidance practices perpetrated by some digital tech companies. It describes how most of those companies’ profits are attributable to various types of intellectual property that they have developed.

By artificially locating the intermediate and ultimate legal ownership of the intellectual property in avoidance-facilitating jurisdictions and tax havens, those companies can avoid tax on UK royalties, and ultimately reduce their taxable profits in the UK. Why, therefore, are royalties not included on the list of excluded expenses? Surely the Minister would accept that that is a potential failure to adequately tackle the use of royalties to reduce tax liabilities, and might further incentivise the use of the safe harbour provision by larger tech companies, which will in turn be able to reduce their taxable profits through their practices with regard to royalties.

More broadly on the safe harbour provisions, the Institute of Chartered Accountants in England and Wales has also said that in spite of those, it is still concerned that low-margin businesses could face a very high rate of tax on UK-allocated profits. Will the Minister address those concerns?

On clause 49, the Chartered Institute of Taxation has highlighted that the interaction with other national tax regimes, including broadly similar but subtly different unilateral taxes in other countries, will still mean some double taxation, which the Minister talked about in our earlier debate. It describes this as a rough and ready way of reducing such instances by reducing the revenue chargeable by 50% if it arises from a transaction where a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the DST. Does the Minister agree with its assessment? What analysis has been done in that area? Has consideration been given to other possible approaches to reduce the risk of double taxation?

Jesse Norman (Conservative, Hereford and South Herefordshire)

I thank the hon. Lady for her questions. She asks whether the £25 million threshold has the effect of clobbering small businesses. Our view is that the purpose and effect of the thresholds is to levy the tax on the businesses that are best able to afford it, and that to have a global revenue base of £500 million and revenue attributable to UK users above the £25 million threshold is in itself a basis that excludes a vast number of small start-ups—which might turn out to be wildly successful and effective unicorns. We do not believe that the threshold will inhibit growth. If this is a direction in which tax will be going over time, as I rather think it is and as colleagues have suggested, an awareness of how tax will bear on future revenues and profitability is in itself an important part of any business’s market development.

The hon. Lady raised a concern about the safe harbour alternative charge arrangements. That is designed to ensure that the DST is not punitive for businesses with low profit margins or losses, and I think that is appropriate. At the margin, there is a risk that some businesses might try to reconfigure their activities to qualify for that, but I think it will be relatively clear to the Revenue from self-assessment when a business that is intrinsically high-margin is disguising that or is, essentially, seeking to utilise the alternative charge unfairly. It is worth saying that the alternative calculation applies only to in-scope UK activity, so businesses will not be able to reduce profit margins by using out-of-scope or non-UK activity. That is an important safeguard.

The hon. Lady asked about royalties. The tax is designed to work based on the consolidated figures of groups as groups. The concern about royalty payments is that, typically, royalties are used within groups to move revenues around, so, from a gross standpoint, they tend not to fall within the scope of the revenue charge, and they should not. Of course, from a tax-principle perspective, there are perfectly legitimate royalty uses and payments that one would want to continue to allow in any case. The alternative charge takes into account only expenses in the consolidated accounts, and is not therefore principally touched by the concern about intra-group royalties, for the reasons that I have described.

Meaning of “the responsible member”

Siobhain McDonagh (Labour, Mitcham and Morden)

With this it will be convenient to discuss the following:

Clauses 52 to 55 stand part.

That schedule 7 be the Seventh schedule to the Bill.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Clauses 51 to 55 come under the broad heading of a duty to submit returns in relation to the digital services tax. Having established that a group has DST revenues above the thresholds, it is appropriate for a group member, the responsible member, to provide Her Majesty’s Revenue and Customs with the necessary information to assess the tax. That is a sensible way of requiring groups to administer the tax. They need to submit a return to Her Majesty’s Revenue and Customs only when there is a potential liability, and they can stop doing so when it is clear that there will not be a future liability.

The group will be required to continue to submit a single return for each accounting period until an officer of HMRC provides a direction for the group to stop. The direction to stop will be given only when it appears that the threshold conditions will not be met. Put simply, the responsible member will be the point of contact between HMRC and the rest of the group. The effect is to make administering the new tax easier for the groups that will be liable for DST and for HMRC. It means that only a single return for HMRC will need to be produced when a group assesses its DST liability.

Clause 51 sets out which members of the group can be the responsible member and what can prevent a company from being a responsible member. Those are sensible precautions to reduce the burden of the tax as much as possible, recognising that it is intended to be a temporary tax. As we have already noted in Committee, groups are dynamic with members joining and leaving all the time. The best choice as the responsible member for a group at one stage may no longer be the best choice later. It is therefore necessary for groups to have the ability to change the responsible member, but where that happens, it is important that nothing is lost by the change of company, which is achieved by clause 52.

Clause 53 sets out the duty for a group to notify HMRC when it has met the DST threshold conditions set out in clause 45. Groups will have 90 days from the end of the accounting period in which they meet the threshold conditions to make the notification. It is important to say that we have listened to businesses in requiring notification after the period to which the notification relates, which gives groups the opportunity to collect the fullest information possible before making contact with HMRC to notify it of any liability.

As I have mentioned, groups are organic and details will change. Clause 54 sets out the duty for a group to notify HMRC when there is a change to the details registered under clause 53. Finally, clause 55 sets out the obligation of the responsible member to submit a return of information to HMRC.

The clause also introduces schedule 7, which provides further details about the obligations of the group and HMRC in relation to the return and ensures by that means that the figures and the return are complete and accurate. As the tax is new, a new set of rules is required to ensure that HMRC has the powers necessary to ensure that the correct amount of tax is paid by those from whom it is due. The new rules borrow and draw from existing concepts that will be familiar to many tax practitioners. The schedule does not grant HMRC any further powers in relation to the tax that do not already apply to other existing taxes. It grants companies the protections from those powers that they would expect from a fair and balanced tax administration. With that in mind, I commend the clauses and the schedule to the Committee.

Bridget Phillipson (Labour, Houghton and Sunderland South)

We have no real issue with the clauses, as they are understandable in the context of the overall measures proposed.

I will draw the Minister’s attention to some technical concerns raised by the Institute of Chartered Accountants in England and Wales, which I hope he can address. In September 2019, it wrote:

“Given the complexities which a business could encounter in identifying and quantifying DST revenues, we are concerned that notification within 90 days of the accounting period is unhelpful. It would make sense to tie this notification into the deadline for filing accounts—6 months for a plc or 9 months otherwise”.

The institute also states that there should not be a need to notify HMRC in advance of the payment deadline, as

“businesses will require more time to review their accounting records, analyse and quantify revenues to decide whether they are”

required to pay under the tax. It recognises that such obligations would not pose a problem for larger digital companies, but would be more problematic for marginal cases requiring “advice and review”, so

“the notification deadline should be aligned with the payment date.”

Regardless of whether we believe that the measures go far enough, or whether the tax is set at an appropriate rate, we believe that its implementation and administration should be fair, to give businesses—in particular those that fall on the margins of the scope of the measure—adequate time to provide accurate calculations of what they should be paying. I invite the Minister to respond to those points to provide some clarification.

Robin Millar (Conservative, Aberconwy)

As much as we have heard excellent contributions on matters of delivery and on technical matters, which are far beyond my knowledge of accounting and such, it strikes me that, as we are talking about the introduction of a new tax, this is the moment at which we should reflect on its meaning and on the purposes behind it.

The phrase that caught my eye is in clauses 53 and 54 —“Duty to”. My sense is that tax should not be, or should not only be, a catch-up exercise—chasing after developments in industry and the disruption brought to different sectors. Nor should it be about how much money we gather, although that is clearly of keen and close interest to us. It is also about the privilege of membership of a community and of participation in the UK economy. I find it interesting that it falls to a Conservative Government to introduce a tax such as this, which I consider to be progressive in its nature and intent.

In support of that, I pray in aid consideration of the principle of permanent residence, for example. Permanent residence was traditionally attached to the ability to trade in a nation, and tax therefore followed. If not trading in—that is, without that permanent residence—someone would be trading with, so coming under a different regime. Now, we have disruption in the digital economy, which means that we are trading in even though there is no permanent residence.

I also point to the development in the understanding of value over the years. At one point, value was measured in amounts of gold, so the question was one of setting a price, or offering gold in return for something; that was in essence a measurement of weight. The free trade argument slugged that one out with the mercantilist over many years, but the free trade argument won because it made the case effectively that the value of gold could be expressed in terms of the labour required to extract it. Discussions of value therefore moved from a physical object to the notion of labour.

As the Financial Secretary to the Treasury mentioned earlier, we are now talking about user-generated value. The notion of value itself has changed, and there are many debates about what value is and how it is best measured and captured. I suggest that they are extremely relevant to a discussion of tax, especially the introduction of a new one.

To look at tax solely in terms of being punitive, a “fair share” or a certain quantum, is to miss the point. Returning to the issue of leadership that was mentioned this morning, tax properly administered is surely more than a statement of how much money we can collect. It is more a statement of what we are trying to become—tax used as an instrument of government. What kind of society do we wish to become? It is not even, as might be suggested, a statement of how well we can co-ordinate with other nations. For this Government—I am interested in whether the Minister agrees with me—it is a statement of leadership, of what we are trying to become as a nation and, in particular, how we are trying to capture value through the proper encouragement of those industries as they participate in our economy.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Let me start with the interesting remarks made by my hon. Friend the Member for Aberconwy. I think he is absolutely right to notice and bring to public attention the question of the basis of tax. He is absolutely correct to call upon an idea of tax as a privilege and obligation associated with membership of a community, and to highlight that that notion of tax, which in some sense has always been implicit in the idea of tax, is being drawn upon in this wider sense of a UK user contribution. He is absolutely right about that.

All government derives from the consent of the governed, as the cliché goes; but in order to give that consent, the governed must feel not merely that the tax is fair and equitable in its own right, but that it springs from a conception of government that fundamentally puts the wellbeing of society at its heart. In that sense, it is about not just an economic or fiscal change, nor necessarily who we want to become, but, as my hon. Friend said, who we are. It will come to no surprise to members of the Committee that I think Edmund Burke—one of my great heroes—put this well when he spoke about a nation as a moral idea. That is why the nation has historically been the basis of taxation: the nation provides the consent and, therefore, the guarantee of future taxation, which can underlie effective long-term public spending.

Going slightly beyond that point, it is notable that when crisis hits a country, that country and its Government must draw on that moral capital in pulling the alarm cable and using the power of taxation to secure future borrowing or future public spending that may be required to address the crisis. There is a very deep way in which my hon. Friend is getting to the centre of a very important fact about human life in democratic society, so I thank him for that.

On the more mundane and practical, but none the less vital points that the hon. Member for Houghton and Sunderland South made about notification periods, I will simply say this: these are businesses that keep this data in real time. Of course, it is by no means only UK companies that are caught by this tax. The whole point of a UK user contribution is to capture companies’ revenue sources that might be derived from UK users and from that sense of community my hon. Friend the Member for Aberconwy mentioned, but without being resident as such in a formal tax sense in this country.

The data is immediate. The tax does not merely apply to UK companies. It does apply from the end of an accounting period—90 days after the end of an accounting period. We think that is a proportionate, appropriate and internationally recognised way of levying this tax.

Meaning of “group”, “parent” etc

Siobhain McDonagh (Labour, Mitcham and Morden)

With this it will be convenient to discuss clauses 57 to 59 stand part.

Jesse Norman (Conservative, Hereford and South Herefordshire)

This group of clauses is again of a rather technical character and deals with some of the more detailed technical requirements of the new tax.

Clause 56 sets out the definitions of the terms “group” and “parent”, which are used to define the companies and revenues that will be taxable for the purposes of the digital services tax. It should be read along with clause 57, which makes it clear that the definition of “group” will be the same as that used for accountancy purposes. The choice of using accountancy definitions to define the group is, again, to reduce the burden of this new tax and to make it as straightforward and comprehensible as possible. Wherever possible, the Government are seeking to minimise the burden of administering the tax by using concepts that already exist and are in common use, if for other purposes.

Clause 58 sets out the conditions that determine if a group has remained the same in different time periods. That will be relevant when members of a group change through acquisition, disposal or otherwise over time. Like the changes to the responsible member, these everyday business transactions of companies joining and leaving groups should not prevent the tax operating correctly and this clause ensures that these changes do not prevent the tax from applying.

Finally, clause 59 sets out the treatment of two or more entities that are treated as stapled to each other and are subsidiaries of a “deemed parent”. This is a technical measure designed to enable the tax to work as intended in the widest possible circumstances. I therefore commend these clauses to the Committee.

Bridget Phillipson (Labour, Houghton and Sunderland South)

These clauses are technical in nature and we have no questions to ask of the Minister.

Siobhain McDonagh (Labour, Mitcham and Morden)

I cannot imagine that the Minister wants to sum up.

Jesse Norman (Conservative, Hereford and South Herefordshire)

No, I am entirely content with the summary that has been given by the hon. Lady.

Accounting periods and meaning of “a group’s accounts”

Siobhain McDonagh (Labour, Mitcham and Morden)

With this it will be convenient to discuss clauses 61 to 63 stand part.

Jesse Norman (Conservative, Hereford and South Herefordshire)

These clauses, which are again of a thoroughly technical nature, provide more details on some of the aspects we have been discussing already in relation to the digital services tax.

Clause 60 sets the time period over which a group will account for revenues from relevant business activities for DST. This will usually be the period of account of the parent company of the group, which reduces the administrative burden as far as possible for these groups. They will be able to use figures they collect for other purposes wherever possible.

Clause 61 sets out how revenues and expenditure will be apportioned when a group’s period of account does not coincide with an accounting period. For example, many groups make up their accounts to 31 December each year. For 2020, their accounts will be for the 12 months to 31 December. However, for DST, their accounting period will only be nine months, from 1 April 2020 to 31 December. There is a mismatch in periods, and this clause enables the accounting figures to be used for DST by taking the correct proportion of those accounting figures.

Clause 62 sets out what is meant by

“revenues arising, or expenses recognised, in a period”

for the purposes of the DST legislation. Both of those terms mean the figures recognised in accordance with the applicable accounting standards for that period. Again, this demonstrates that the Government are seeking to minimise the burden of administration as much as possible by using figures that already exist for other purposes. Finally for this group, clause 63 sets out the definition of various terms relating to accounting standards for the purposes of the legislation. I commend these clauses to the Committee.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Once again, these clauses are technical in nature, and we have no further comments for the Minister in this area.

Anti-avoidance

Siobhain McDonagh (Labour, Mitcham and Morden)

With this it will be convenient to discuss the following:

Clause 65 stand part.

That schedule 8 be the Eighth schedule to the Bill.

Clauses 66 to 69 stand part.

That schedule 9 be the Ninth schedule to the Bill.

Clause 71 stand part.

Jesse Norman (Conservative, Hereford and South Herefordshire)

These clauses and schedules, again technical in nature, are also essential to the effective working of the digital services tax. Clause 64 sets out anti-avoidance provisions for the tax, and I make clear that the digital services tax has not been introduced to counteract avoidance of other taxes by digital groups. It is not about targeting particular businesses; it is a temporary measure designed to address failings in international tax rules. This clause provides HMRC with the power to counteract arrangements that may be designed or used to reduce the amount of DST that a group may have to pay. There are also safeguards within the clause that ensure the counteraction provisions do not apply when the tax advantage obtained was within the spirit of the rules.

Clause 65 sets out the process by which HMRC can collect unpaid DST liabilities from other members of the same group. This is particularly relevant to DST, as the companies liable to the tax may not be resident in the UK. Therefore, to assist HMRC in collecting unpaid debts, it will be possible for it to issue a notice to other members within a group it intends to collect the debt from.

Schedule 8 is introduced by clause 65, and provides further detail about how the notices operate. The combined effect of clause 65 and schedule 8 is to ensure that unpaid debts are collected wherever possible.

Clauses 66 and 67 set out at which rate, and when, interest will be due or required on DST payments that are made early or late, as the case may be. This will mirror the rates and timings found in corporation tax, and will therefore be familiar to many practitioners.

Clause 68 sets out that any DST liability is recoverable as a debt due to the Crown, the effect of which is to ensure that HMRC can collect any amount of DST that goes unpaid.

Clause 69 simply introduces schedule 9, which sets out provisions for minor consequential amendments in other enactments that are required as a result of the introduction of the DST. Primarily, these relate to interest rates, penalties and other tax administration processes.

Clause 71 sets out the meaning of various key terms used in the Bill relating to DST, and I commend the clauses and schedules to the Committee.

Bridget Phillipson (Labour, Houghton and Sunderland South)

We have no substantial issue with these clauses, and obviously we welcome the inclusion of an anti-avoidance provision. As has been evident throughout the course of the discussions in Committee on this section of the Bill, it is a complex area, and we know that many large digital companies use intricate methods with considerable skill in order to reduce their tax liability. I mentioned earlier that some stakeholders have referred to the need for extra capacity at HMRC to make sure that this tax is properly administered and its impact properly accounted for. How confident is the Minister that anti-avoidance strategies will be adequately detected when the overall difficulties in administering the tax are taken into consideration?

Moreover, the Government’s website states that HMRC must counteract such arrangements by making such adjustments as are just and reasonable. The Minister touched on this in some of our earlier discussions, but I would be grateful if he could elaborate on exactly what a just and reasonable adjustment for tax avoidance arrangements entails. As I have already set out earlier today and in other debates we have had, the scale of tax avoidance practices by digital multinational enterprises is large and the methods that they adopt are intricate. The Government’s record so far in this area does not inspire a great deal of confidence on the Opposition Benches, and I would be grateful if the Minister could allay some of our concerns in this area.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I am grateful to the hon. Lady for raising those questions.

The first question she raised was about extra capacity. I think we touched on this already, but it is worth just saying that HMRC already has a digital services team in place. The tax requires, in the first instance, companies to come forward with a process of self-assessment, which HMRC can then assess and view. From that point of view, this is a tax that is designed to minimise administrative burdens, not merely on the groups being taxed but on HMRC itself.

It is also worth saying that one of the extraordinary aspects of the past few months has been that HMRC has been able to show itself remarkably flexible in the way it has operated, and this might be a moment to pay due tribute in respect of that. Although it is an enormous organisation, it has been very flexible in several different areas. The first was in reconfiguring its business to be able to deal with staff absence in the face of coronavirus, which has been extremely effective. The second has been in being able to configure its services in order to match the evolving demand. A classic example would be that many services that were being handled by telephone interactions are increasingly being handled by text interactions or chats. Many services that were being handled through office phone interactions are being handled through phone interactions at home.

HMRC has been very flexible in that regard. Almost the most salient aspect is that it has been able to bring a succession of schemes into play, such as the furlough scheme, the self-employment scheme and the statutory sickness pay scheme. That flexibility of organisation has allowed it to move incredibly quickly to put those schemes in place and thereby support the lives and livelihoods of millions of people. If someone had asked me at the beginning of year whether I would be publicly accountable for an organisation that would end up supporting the lives and livelihoods of some 10 million to 11 million people, I would have been very surprised indeed, but that is what has happened. I pay great tribute to the officials and staff at HMRC, and of course the Treasury, for their public spirit and service.

The hon. Lady asked how confident I am about anti-avoidance. Of course, anti-avoidance is an ever shifting and evolving pattern, and it is right to raise that question. If the past is any guide to the future, there will prove to be aspects of avoidance that are not contemplated at the moment and against which we may have to take future care, but the Bill provides a very broad capacity for HMRC to counteract arrangements that are designed to reduce the amount of tax that the group may have to pay through the digital services tax.

This can apply to any type of arrangement that appears to have, or in fact has, a main purpose of achieving a tax advantage. An example might be that a group could attempt to reduce its DST liability by arranging with willing customers to provide valuable digital services for free and instead charge very high fees for an item of trivial value that the customer does not need. The effect of that would be, pretty plainly, only to reduce the amount of DST to be paid, and of course the group might argue that that revenue was unconnected to the digital service. The clause prevents such behaviour. Were such an arrangement to exist, the taxable revenue figure would be adjusted accordingly, to ensure that no tax was avoided. There are also safeguards, as we have discussed.

The tax, in general, is hard to avoid because it is based on a group’s revenues and on the location of the user, so although one cannot predict the future in any great capacity, the breadth of the legislation allows it to head off a lot of putative tax avoidance in advance.

There is a “just and reasonable” rule. Where it can be argued that an arrangement does not have the main purpose of avoiding the DST, it gives scope for HMRC to recognise that, and therefore not to catch it within enforcement proceedings. That is a fair and equitable adjustment process that respects the natural justice that we would always associate with a well-levied tax.

Review of DST

Bridget Phillipson (Labour, Houghton and Sunderland South)

I beg to move amendment 7, in clause 70, page 53, line 8, leave out “before the end of 2025” and insert “within a year of Royal Assent and annually thereafter”

This amendment would require the Government to report on the DST annually.

Siobhain McDonagh (Labour, Mitcham and Morden)

With this it will be convenient to discuss new clause 11—Digital Services Tax: review of effect on tax revenues—

(1) The Chancellor of the Exchequer must make an assessment of the net effect on tax revenues of the introduction of the Digital Services Tax and lay a report of that assessment before the House of Commons within six months of the passing of this Act.

(2) This review must also include an assessment of the revenue effect of the Digital Services Tax on tax payable by the owners and employees of Scottish Limited Partnerships.

This new clause would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Clause 70 would require the Treasury to conduct a review of the digital services tax before the end of 2025. Our amendment 7 would require a report to be provided annually. It has become clear from our debates in Committee today that the tax poses a number of different challenges to businesses and Government alike. That is why we have tabled an amendment that calls for a yearly report on the tax.

Earlier in our discussions, I highlighted that there is a substantial gap between the revenues of multinational digital companies and their tax liabilities, and that they are ultimately estimated to be underpaying on what is required. Even the Government’s modest predictions of what the tax will generate are in question. I appreciate that, as we discussed earlier and this morning, it can be difficult to arrive at such estimates with any degree of certainty. That said, the figures for the amounts that the Government intend the digital services tax to generate are quite modest.

I refer again to the OBR’s assessment of the Government’s costings methodology in 2018. It said:

“Every stage of this costing is uncertain. We have assigned uncertainty around data as ‘high’, uncertainty around behaviour as ‘medium-high’ and, given the complex multi-stage costing methodology, uncertainty around modelling as ‘very high’.”

Part of that is due, the OBR states, to behavioural responses, which could include

“reclassifying revenue currently in scope as being out of scope, particularly for groups with mixed business models; altering business models to generate new revenue streams that are out of scope; and profit shifting. The costing allows for attrition rising to 30 per cent by 2023-24.”

It is clear that the already limited takings of this tax could be reduced further by the practices of digital companies to reduce their liabilities. Yearly reporting would confirm whether such concerns are justified and would highlight what more the Government need to do to ensure that such companies pay a fair and appropriate amount of tax. A detailed yearly report would also help us to understand the distributional impact of this tax—whether, as the Chartered Institute of Taxation notes, it under-taxes businesses with high profit margins and over-taxes those with low profit margins.

The merits for regular reporting are also made clear in the Government’s response to their consultation in July of last year. They noted that respondents to the consultation believed that thresholds for the tax should be reviewed and potentially increased over time, given that the digital sector is characterised by rapid growth. Again, as we heard from Government Members, the pace of change in technology requires us to be fleet of foot in our response. Does the Minister not agree that the arguments put forward in his own Government’s consultation make the case for more regular reporting, and even a review of these measures?

Despite the strong justification for regular and transparent reporting, the Government have committed only to a review by 2025. We find it strange that they are unwilling to consider a more regular review of what is, to put it quite lightly, a contentious tax, even if one accepts the principles underlying it, as Opposition Members do.

As I have said throughout the debate, the times we are living through demand much more ambitious action. It is imperative that those with the broadest shoulders—including the digital giants, who are doing pretty well out of this crisis—bear a responsible amount of the burden. I am sure that the Minister would acknowledge that that reflects public sentiment on this issue, which has shifted over time; that is why the Government felt capable and confident about bringing forward this tax in the first place.

Perhaps the Government’s unwillingness to report regularly on the tax is a case of managing expectations, as highlighted by the Chartered Institute of Taxation, which says that the measure is not

“aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens”,

adding that

“it is unlikely to raise amounts that materially affect the country’s finances, particularly in the context of the amounts being spent on COVID-19 measures.”

Therein lies the importance of yearly reporting, so that we can see how much these companies pay in tax, and whether more needs to be done.

That brings us to some wider issues around tax transparency and the Government’s approach to supporting companies during this crisis. We appreciate that the Government had to respond with real speed in making sure that people stayed in work and that our companies remained afloat in order to emerge from this period. However, at the same time, there can be no excuse for the level of tax avoidance in the UK in recent years. The vast majority of businesses do the right thing, including the many on our high streets that are so well respected and are very much regarded as part of the community, providing a much broader service to the public. I think there will be a growing public expectation that businesses should see that there is fairness within the system.

That is why we have also been urging the Government, in the measures brought forward both here and more broadly, to consider issues around fair tax practices, environmental standards and preventing share buy-backs where pandemic-specific Government and public support is offered to particular industries. One need only look at the action taken by the Labour Government in Wales to understand that it is possible for the Government to bring forward additional measures to safeguard public money, so that we do not see abuse in this area and that we see fair and just tax practices.

We discussed international co-operation and the need for a multilateral response. The Minister will be aware that my hon. Friend the Member for Liverpool, Walton (Dan Carden), who is also a member of our Front-Bench team, has raised with him in parliamentary questions some issues around building support at an international level for comprehensive and effective reform of the taxation of multinationals, instead of advocating partial patch-up measures targeting only the very large, highly digitalised companies, while continuing to adopt unilateral measures such as the diverted profits tax.

The issue around tax transparency specifically is that the UK will not allow the OECD to publish aggregate country-by-country data. I am aware that the Minister said in response to my hon. Friend that that was because of technical deficiencies within the system. I would be grateful if he said more about that. We all want to understand any efforts being made by some of these multinationals to avoid paying their fair share, and we all want to make sure, at this time of national crisis, that our public services can rely on the funding they need to get through this time.

If the takings of the tax turn out to be as limited as some might fear, it would of course further the argument that we need to implement more wholesale and ambitious measures to tax multinational digital enterprises. That is the approach that the Opposition will continue to call for.

I also want to highlight a concern raised by many stakeholders, including the Chartered Institute of Taxation, that there is no sunset clause in the legislation. Does the lack of such a clause suggest that the Government are willing to maintain this measure indefinitely, despite its imperfections; or will they continue to keep it under review? If the latter is the case, it strengthens the argument for annual reporting.

Finally, the new clause tabled by the SNP appears constructive. In many ways, it is similar to our amendment on assessing the effect of the tax, although perhaps within a timeframe within which its impact will not have been fully felt. Although we are sympathetic to the proposal, I should be grateful to hear a bit more about the aspect of the new clause that relates to Scottish limited partnerships.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I very much appreciate the hon. Lady’s comments. I will speak to the amendment and to clause 70, as well as to the SNP’s new clause 11.

Clause 70 requires the Government to review the DST and submit such a review to Parliament in 2025. It is a Government priority to secure an appropriate global solution to the corporate tax challenges posed by the digital economy, as we have discussed. As we have also said, once such a solution is in place, the DST will be removed.

Should the DST remain in place in 2025, the review will consider whether it continues to meet its objectives and whether international reform means that it is no longer required. However, it remains our strong preference to agree and implement an appropriate global solution, and to remove the DST as soon as possible.

The hon. Lady raised a point about the absence of a sunset clause. The 2025 review allows a context in which the Government can have an in-the-round consideration of whether this tax—were it, unexpectedly, still on the statute book—was doing its job and if it is, how it could be improved, and if it is not, where it could be tweaked to further advantage.

The amendment would require the Government to produce a review of DST annually rather than in 2025. It is not clear what the hon. Lady means by a review, but there are already very substantial processes in place. HMRC regularly reports on the taxes that it is responsible for collecting and DST will be no exception to that. It will be possible for parliamentarians and the public to scrutinise what tax has been collected by this measure. It is a new tax, so there may be some variety or it may come in higher or lower than expectation.

A review in 2025 as a backstop ensures that, should the DST remain in place at that point, its continuing relevance can be considered against the relevant circumstances at the time. However, the Government keep tax policy under continuous review through the annual budget process and, as I have said, it is our strong preference to agree and implement an appropriate global solution.

Bell Ribeiro-Addy (Labour, Streatham)

The Minister said that tax policy was constantly under review and that if things changed, so would the legislation. What is the logic against an annual review? Is that not more flexible than waiting until 2025?

Jesse Norman (Conservative, Hereford and South Herefordshire)

A review in the formal sense is a substantial undertaking. It is something that is done periodically to assess the viability or effectiveness of taxes. Given the amount of scrutiny that exists on existing tax, and given the fact that this is a new tax, that scrutiny will be carefully exercised. No doubt it will be scrutinised in Parliament as well, through the usual channels.

The case for a review comes when there has been a period of time in which one can establish and look at the track record and effectiveness of the tax. As I have said, however, we do not expect it to be on the statute book, because processes are under way internationally through the OECD that we expect to bring about a global solution that will be satisfactory to us and to the other countries involved.

Bell Ribeiro-Addy (Labour, Streatham)

I am trying to understand what the Government’s understanding of temporary is. How long is temporary—five years? The Minister has said that it is a temporary measure. I understand what he is saying about a review being a substantial undertaking, but if the measure is meant to be temporary, do the Government have set guidelines about what they think temporary is?

Jesse Norman (Conservative, Hereford and South Herefordshire)

It is not often that I am invited to engage in philosophical speculation on the nature of time. Temporary, as far as I am aware, does not have a definition in law. We are framing the measure in the context of currently existing practices and discussions within the OECD. We expect those to come to fruition in the next five years.

As a long stop date, we have left a review in 2025 in place, but of course the Treasury may decide to vary that, or indeed the Government may decide to take it off the statute book, if such a process is forthcoming. The hon. Lady will be aware that taxes have a tendency to mutate. When the income tax was introduced by William Pitt, it was allegedly temporary, but it was temporary only for a while and then came back. It is a good point, however.

I will turn to a couple of wider points mentioned by the hon. Member for Houghton and Sunderland South. She talked about tax avoidance, and she will be aware that, as I have touched on, the Government have done a great deal to tackle and address tax avoidance; there are several such measures in the Bill, which I thank the Opposition Front-Bench team for supporting. Indeed, it is worth noting that the tax gap has continued to fall, which reflects the excellent work of successive Administrations. That is over and above the passage of a variety of measures designed to cut down on tax avoidance and evasion and, of course, an anti-promoters strategy, which is currently the subject of consultation with the public and which we hope to bring to fruition later this year. A series of initiatives is already under way, in addition to much previous work in that area.

On the issue of country-by-country reporting, the hon. Lady will be aware that we already, with the strong encouragement and support of the Government and our predecessors, have private country-by-country reporting, which was an important move forward. The difficulty is that public country-by-country reporting requires a measure of international consensus. If it does not have that, it runs the risk of setting all kinds of incentives that might actually have the effect of undermining the policy and the transparency that we move to, so it is an evolving position in this country, as in the OECD. We hope that the general move towards more integrated global solutions and greater transparency is one that we can reach in all those areas.

The SNP new clause 11, which would require the Government to report to the House within six months of the Act passing—

Siobhain McDonagh (Labour, Mitcham and Morden)

Order. I am sorry to interrupt, but unfortunately I did not see Stephen Flynn indicate that he wanted to speak. Would the Minister mind if I brought him in first?

Jesse Norman (Conservative, Hereford and South Herefordshire)

I am more than happy to bide my time, Ms McDonagh.

Stephen Flynn (Scottish National Party, Aberdeen South)

Thank you, Ms McDonagh, and I thank the Minister for allowing me the opportunity to speak to new clause 11, of which there are two parts. The first relates directly to the digital services tax and the second relates to Scottish limited partnerships in relation to the DST. I shall come to that in due course, to address, I hope, the concerns of the hon. Member for Houghton and Sunderland South.

With direct reference to the new clause and DST, the Minister has taken great pains to stress that this is a new tax, and because of that we need to take things slowly. However, I feel there will still be a strong element of cynicism in the public domain about how effective the tax will be, which his why we have tabled new clause 11. Such cynicism would certainly be justified. Earlier we heard about Amazon as an example of a large multinational corporation that benefited from the lack of direct taxation. For instance, last year I believe it paid £220 million in direct taxation in the United Kingdom, despite revenues in excess of about £11 billion. That is neither sustainable nor fair.

As to fairness, we heard at great length earlier about online retail’s impact on high streets across the United Kingdom. We need not go far to see that many shop fronts are now derelict because of the change in consumer habits. I suggest that those habits are unlikely to change, particularly for people in the younger generations who have become accustomed to sitting in the comfort of their home ordering what they want, and getting it delivered in a day or two.

That being the case, we need to create an element of fairness, which will allow revenue to be gained and income put back into the system. I imagine Members can think of many avenues for spending that revenue, but perhaps it could be spent to provide local authorities with the finance they require to invest in city centres and transform them into something better. The issues relating to DST have perhaps never been as relevant as they are now, given the prevalence of online retailing.

We also need to be mindful during the pandemic of the fact that many companies in Scotland and the United Kingdom face an extremely bleak future, and will still have to pay their fair share, as they have always done. It is unacceptable for us to be in such a situation. That is why I welcome the measure, although it could perhaps have been dealt with in a way that sought to bring in more revenue. Many companies will be in extremely challenging circumstances, through no fault of their own, and we must have a system that provides fairness, as they would expect.

Netflix was discussed earlier. I understand, as do Members on both sides of the Committee, that it might not have the same financial burden of payment as Amazon. I did not ever think I would use this phrase in the Houses of Parliament, but rather than “Netflix and chill” the expression should surely be “Netflix pay your bill.” The reality is that it has coined it and has not had to pay back. No fair-minded person can support that.

I appreciate the Minister’s comments and understand his position: we need to see where the OECD is coming from in its approach. Ultimately we need a global, sustainable position on online taxation; everyone recognises that, but the Government have been slow in getting to the point where they are now, and they could have gone further. The new clause allows them to reflect on where they will be. As I have said, public cynicism will continue to be rife.

That brings me to the second element of the new clause, which relates to Scottish limited partnerships. As all those present are aware, the future of SLPs has been contentious. My colleagues in the Scottish National party have on numerous occasions suggested to the UK Government that changes need to be made, and that SLPs need to be brought under control. After all, they are not taxable in the UK if none of their members is resident there. There is a concern—a justifiable concern—that SLPs may be used to avoid DST. That is the crux of where we are coming from and it is an extremely reasonable concern, given the propensity of SLPs to be used for tax evasion in the past.

I do not wish to suggest that Amazon or the like will follow the pathways that many of the organised crime groups have in trying to funnel money through SLPs, because that is obviously not the same argument to be having, but the reality is that SLPs and the framework that they provide would allow for avoidance to take place, and we should all want to do everything that we possibly can to limit that.

Up to now, I think it was reasonable to say that the Government’s record on SLPs has not been good enough, to put it mildly and candidly. I hope that a recognition of our proposal in new clause 11 with regard to SLPs will be taken on board, out of a commitment to end the sorry practice of those partnerships.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I thank the hon. Gentleman for his contribution to the debate on this clause and for the points he has made.

It is worth pointing out a couple of things. First, I have talked a little about the Government’s record on issues of avoidance. The hon. Gentleman talked about cynicism. What is interesting is that the public are perhaps more discerning than he thinks, and I do not think that there is cynicism about this issue. In fact, although I have not looked at any polling on this issue, I think the public are generally highly supportive of this measure. It is not a tax on retail; it is a tax on user-generated content. However, the understanding that there was a problem in the application of international tax rules and that it needed to be addressed is widespread, and I think there is a recognition—for those who would get their heads around this tax—that this measure is part of a response to that problem, as indeed is the wider OECD programme.

Stephen Flynn (Scottish National Party, Aberdeen South)

I perhaps did not convey it correctly, but I think the cynicism will derive from the fact that the public will not regard the levels that are being put in place as sufficient to bring in the revenue that they should. These companies have benefited exponentially in recent years, and the figures that the Government expect in terms of revenue pale into insignificance compared with the revenue that these companies ultimately bring in. I think that is where the cynicism will arise.

Jesse Norman (Conservative, Hereford and South Herefordshire)

There are two points here. One is the question of what the right level is. As we have discussed, this tax is designed to raise what by any other standard would be a pretty substantial amount of revenue— £2 billion over five years—and at the same time to establish a category of taxation that, in and of itself, is an important category. We have talked about some of the wider philosophical implications of that with my hon. Friend the Member for Aberconwy as well, so I think there is recognition of it.

Of course, it is also worth saying that, in relation to Scottish limited partnerships, the Government have recognised the problem, we have consulted and considered, and we are framing a legislative response to it. So there is also recognition of that problem.

The effect of the new clause would be to require the Government to report to the House, within six months of the Bill’s passing into law, the effect of the DST on tax revenues, and in particular the effect on the tax payable by the owners and employees of Scottish limited partnerships. Of course, this is a tax on groups, not a tax on individuals, whether those individuals are employees or owners; therefore, that is where the tax will fall.

In addition, DST payments will not be required until after the end of the relevant accounting period for each liable group, and thus payments will not be required until 2021. So the report that the hon. Gentleman describes would not contain any useful information. The DST’s reporting deadlines mean that very few groups would have needed to register and no groups would have been required to send in their return by that point. The report would not provide useful information about DST receipts.

We have talked about the importance of reporting and reviewing, but the effect of the new clause would be to pass a requirement to report with very little information and with very little purpose to it. I therefore commend clause 70 to the Committee and urge it to reject amendment 7 and new clause 11.

Bridget Phillipson (Labour, Houghton and Sunderland South)

I would like to press amendment 7 to a vote.

Written evidence reported to the House