Hansard

Iain Gray began his speech by quoting Einstein, to the effect that

“The hardest thing in the world to understand is the income tax.”

To be perfectly honest, and at the risk of being expelled from the Finance Committee, I think that the hardest thing in the world to understand is the Revenue Scotland and Tax Powers Bill. In view of that, I thank all those who helped me and, no doubt, others to understand better—namely, the adviser in particular, the clerks, the witnesses, the bill team and the cabinet secretary himself.

I also thank the cabinet secretary for taking on board so many of the committee’s recommendations in his stage 2 amendments and, of course, in further amendments today. I should thank him particularly for the amendment in which he picked up a point that I made in committee. Referring to artificiality in the GAAR, I asked why the reference to “reasonable business conduct” in section 59 should not be extended to include personal conduct. I welcome the amendment that the cabinet secretary lodged to deal with that issue.

The word “reasonable” has haunted our discussions. I even found myself at one point saying that the UK double reasonableness test was quite reasonable. In the end, I am quite happy to defer to the Government in that regard.

On the general anti-avoidance rule, there were some concerns that the bill had been drawn too broadly and that the language that was used in defining what constitutes a reasonable action was too vague. Part 5 of the bill outlines that any activity that has the obtaining of a tax advantage as the main purpose, or one of the main purposes, of the arrangement may be deemed unlawful. I believe, however, that it is right to draw the rule quite widely as, historically—and specifically in the case of HMRC—the use of a more targeted or narrow approach has led to the emergence of loopholes that can be abused by businesses. Having the principles of the GAAR enshrined in the bill will, I hope, mitigate the need for any targeted rules for tax avoidance in future.

Further to that, although I recognise that the double reasonableness test may be construed as being unnecessarily complicated, its absence from this new legislation means that we must make absolutely certain that channels are made available to challenge any decision in a timely and fair manner. Therefore, a vigorous approach to tax avoidance must be balanced by a fair appeals system. I raised that issue at stage 1 in the committee with the cabinet secretary, and the committee recommended that he reconsider the restrictive rule governing appeals in the Court of Session and the number of members of the upper tax tribunal for appeals. I would welcome reassurance from the cabinet secretary, in his wind-up speech, about the fairness of the appeals system.

Another issue of fairness concerns the contrast between the advice that is offered by lawyers and accountants and to what extent it should be privileged. I believe that what is and is not privileged advice should apply equally to all advisers, whether or not they are lawyers. I would welcome a statement of the Government’s most up-to-date thinking on that matter.

Finally on fairness, equality between taxpayers and revenue Scotland is also important. Part 2 of the bill addresses the establishment of revenue Scotland and provides for its general functions and responsibilities as we take forward the devolution process. Looking at the final draft, it is reassuring to see that a number of the recommendations that were made at the committee stage have been taken on board by the cabinet secretary with regards to that process. That includes putting taxpayers and revenue Scotland on an even footing in the expectations that are placed upon them in the charter. That was not the case in previous stages of the bill. The change of language to

“standards of behaviour and values which revenue Scotland is expected to adhere to”,

rather than “aspire to”, will not only reassure taxpayers but firmly cement the duties of the new body on the face of the bill.

Section 10(3A) of the bill should also be welcome as it offers the assurance that the charter will be drafted and subsequently redrafted only after revenue Scotland consults such persons as it considers appropriate. That is good news, as the charter should not be skewed towards the interests of revenue Scotland but, rather, should represent the best practice for the widest number of stakeholders. I would, however, welcome a little more in the way of reassurance that revenue Scotland will engage with as many stakeholders as is practically possible, making it absolutely clear to Parliament who has been involved and for what reason.

With regard to the delegation to Registers of Scotland and the Scottish Environment Protection Agency of duties relating to land and buildings transaction tax and landfill tax respectively, I welcome the pledge to publish information concerning the nature of that delegation and to lay it before Parliament, and the fact that revenue Scotland will still be ultimately responsible for carrying out delegated functions. Those powers may be delegated as and when revenue Scotland sees fit. Although I support the theory behind that, I was somewhat concerned by some of the evidence on the balance of responsibilities and the pressures that that may bring. The Faculty of Advocates was keen to point out that certain powers, such as the power to levy a penalty or to make an assessment, are inherently the concern of the taxing authority, and that revenue Scotland should not be given carte blanche to delegate at will. Powers must be delegated according to what works best where. Some responsibilities are best kept within the remit of revenue Scotland.

The tax system that a country adopts goes fundamentally to the heart of what sort of society we wish to create. I believe that, within the framework of devolution, it is possible to achieve the best outcomes for Scotland. In co-operating so well, the Finance Committee and the cabinet secretary have provided Parliament with an effective foundation stone for fiscal devolution. The bill that is before us, with its enshrined charter of responsibilities, will encourage a relationship of respect between the taxpayer and the authority, based on transparency and accountability. I congratulate all members who have been involved with this process and hope that, in future years, the same approach will be applied. I support the bill and thank the Government for bringing forward this landmark legislation.