Hansard

The Revenue Scotland and Tax Powers Bill has two main purposes. First, it will establish revenue Scotland as the tax authority responsible for the collection and management of the two devolved taxes—the land and buildings transaction tax and the Scottish landfill tax—when they come into operation on 1 April 2015. The first two tax-specific acts are, of course, already on the statute book.

Secondly, the bill sets out in one place the statutory framework within which revenue Scotland will operate. That includes revenue Scotland’s constitution; the relationship between the taxpayer and the tax authority; revenue Scotland’s investigation and enforcement powers; and the new two-tier Scottish tax tribunals that will hear appeals against decisions that revenue Scotland has taken. It also includes a robust and distinctive approach to tackling tax avoidance, which I will say more about in a moment.

I am grateful for the very detailed and thorough scrutiny that the Finance Committee undertook at stages 1 and 2. Many of the amendments to the bill that have been agreed to at stages 2 and 3 reflect recommendations from the Finance Committee and the Delegated Powers and Law Reform Committee. The bill has been significantly improved during its parliamentary passage as a result. I put on record my thanks to both committees for the work that they have done.

We took the opportunity to lodge at stage 3 a significant number of minor and technical amendments that are designed to improve the clarity and consistency of the bill and the interface between the overarching framework and the first two tax-specific acts. I believe that those final amendments provide greater clarity, coherence and consistency across the full package of devolved tax legislation.

I would like to take a few moments to highlight some of the distinctive aspects of the new framework for the collection and management of devolved taxes.

Part 2 of the bill provides for the establishment of revenue Scotland as an office-holder in the Scottish Administration. That means that it will be directly accountable to the Parliament, not ministers. The bill sets out revenue Scotland’s statutory functions, with an emphasis on providing a service to taxpayers and their agents, and not just on collecting the devolved taxes.

The bill also places a duty on revenue Scotland to prepare and publish a charter that sets out the standards of behaviour and values that will be expected of taxpayers and which taxpayers can expect of revenue Scotland. Revenue Scotland is required to consult on the terms of the charter. That will provide a genuine opportunity for input from stakeholders and the wider public on the nature of the relationship between the taxpayer and the tax authority.

Part 4 establishes the Scottish tax tribunals, which will comprise a first tier and an upper tier under the leadership of a president. As colleagues will recall, the Parliament recently passed the Tribunals (Scotland) Act 2014, which paves the way for the establishment of the new unified Scottish tribunals. The intention is that, early in 2017, the tax tribunals will become part of the Scottish tribunals. However, arrangements need to be in place to hear appeals about the devolved taxes from 1 April 2015, so we need to establish self-standing tax tribunals for an interim period until the new unified arrangements are fully operational.

Part 5 sets out a general anti-avoidance rule, or GAAR. I am sure that I have support across the chamber for establishing a Scottish general anti-avoidance rule that takes the most robust approach possible to tax avoidance in relation to any devolved taxes. Artificial tax avoidance arrangements are unacceptable, and part 5 provides powers for revenue Scotland to take effective counteraction against any such schemes.

The bill provides two separate definitions of “artificiality”—condition A and condition B—to ensure that our approach is as wide ranging and comprehensive as possible. Condition A allows revenue Scotland to take counteraction where a tax avoidance arrangement is not a reasonable course of action, having regard to the principles and policy objectives on which the relevant tax legislation is based and to whether the arrangement is intended to exploit any shortcomings in that legislation. That will allow revenue Scotland, the Scottish tax tribunals and the courts to look at the spirit and intention of tax legislation, and not just the strict letter of the law. I believe that that purposive approach to legislation, supported by clear guidance from revenue Scotland to which the courts and tribunals must have regard, will make it possible to defeat ingenious but artificial and contrived avoidance schemes far more effectively than has previously been the case.

Condition B allows revenue Scotland to take counteraction against tax avoidance arrangements that lack either economic or commercial substance. It also sets out a number of examples that might indicate that an arrangement lacks economic or commercial substance—for example, if it is carried out in a manner that would not normally be employed in reasonable business conduct or consists of transactions that are circular in nature.

The amendments agreed to by Parliament at stage 3 further reinforce that approach by making it clear that the test relating to a lack of economic or commercial substance applies to transactions between individuals as well as to commercial transactions between companies. I am grateful to Malcolm Chisholm for raising that point at stage 2.

The approach that we have adopted to tackling tax avoidance is based on straightforward, commonsense tests that ordinary taxpayers would understand and endorse. I envisage that we would extend very much the same robust approach that we have adopted to tax avoidance in the bill if we were to take the opportunity to become responsible for other taxes.

Throughout the bill we have tried to strike a fair balance between the taxpayer on the one hand and the tax authority on the other. With that in mind, the bill ensures that taxpayers will have various opportunities to challenge decisions that are taken by revenue Scotland without having to resort to expensive legal action. First, they will be able to ask revenue Scotland to carry out an internal review, which will be undertaken by a person not associated with the original decision. If that does not resolve the dispute, revenue Scotland and the taxpayer will be able to enter into independent, third-party mediation if both parties agree to do so. Secondly, there will be a right of access to the new, two-tier Scottish tax tribunals and, ultimately, on a point of law, to the Court of Session. Those arrangements are robust and credible and will provide Scottish taxpayers with confidence in the administration of devolved taxes.

Part 8 sets out a penalties regime. In response to recommendations from both the Finance Committee and the Delegated Powers and Law Reform Committee, we lodged amendments at stages 2 and 3 to set out the detail of the penalties regime in full, including all penalty amounts. At the same time, the bill provides the flexibility for changes to the penalties regime to be made by order subject to the affirmative procedure, should that prove necessary in the light of experience.

The bill’s implementation will involve putting in place a significant amount of subordinate legislation by 1 April 2015, which is when revenue Scotland will come into being. Later this year, I intend to publish a consultation paper accompanied by drafts of all the subordinate legislation that needs to be in place by 1 April 2015. That will provide a full opportunity for consultation with interested parties well before the draft orders are laid before Parliament early in the new year. We have already published consultation papers setting out the proposed subordinate legislation for the land and buildings transaction tax and the Scottish landfill tax.

Although we are assuming responsibility for the collection and management of only a small portion of taxation, this is a new and exciting opportunity for the Scottish Parliament. Throughout the process there has been extensive consultation with the tax and legal professions as well as other stakeholders. The tax consultation forum and the devolved tax collaborative that we established have been closely involved throughout the process. We will maintain that open and consultative approach as we move towards the implementation of the devolved taxes on 1 April 2015.

I thank the Finance Committee once again for the very positive and constructive approach that it has taken throughout the bill’s parliamentary passage. The bill as passed is much the better for it. It provides a robust framework for the collection and management of the first two devolved taxes when they come into force on 1 April 2015. It also provides a solid foundation on which we can build in the event of this Parliament becoming responsible for a wider range of taxes.

I move,

That the Parliament agrees that the Revenue Scotland and Tax Powers Bill be passed.