Both the Land and Buildings Transaction Tax (Scotland) Bill and the Landfill Tax (Scotland) Bill have now received royal assent and their provisions will come into force next April.
As its policy memorandum states, the purpose of the Revenue Scotland and Tax Powers Bill is to make provision for a tax system to enable the collection and management of devolved taxes. To that end, it establishes revenue Scotland on a statutory basis and puts in place a statutory framework for the devolved taxes, setting out the relationship between the tax authority and taxpayers in Scotland, including the relevant powers, rights and duties.
The committee received a range of useful written and oral evidence from a variety of stakeholders and interested parties, and we received expert advice and analysis of the bill from our adviser, Professor Gavin McEwen. I put on the record the committee’s gratitude to all those who helped us to focus on certain key aspects of the bill, particularly in light of its often complex and technical nature.
I will now address some of the key themes that we focused on in our consideration and highlight in our report. It seems that tax avoidance is never far from the headlines these days, and in an attempt to combat avoidance the bill introduces a general anti-avoidance rule, or GAAR, as we heard from the cabinet secretary. It is intended to grant revenue Scotland broader powers to combat artificial tax arrangements than those that are provided for in existing UK legislation. Given the continuing pressure on public finances, not to mention the notion of fairness to the majority who pay their taxes, the committee welcomes the bill’s approach to tax avoidance.
We reject the position of those who wish to have artificial arrangements. However, as with all such matters, it soon became apparent that there was no straightforward consensus on how best to define artificial arrangements. Several professional bodies, including the Institute of Chartered Accountants of Scotland, suggested that a broadly drawn GAAR might result in uncertainty for businesses and other taxpayers, with the potential to deter investment in Scotland. Others, including the First-tier Tribunal (Tax) member and tax law lecturer Dr Heidi Poon, suggested that a more narrowly drawn, rules-based GAAR would encourage some people to search for loopholes, and they advocated instead a principles-based approach.
Having considered the evidence in detail, the committee was not persuaded that a narrowly drawn GAAR would result in more certainty for taxpayers, and as such we support the approach that is taken in the bill. Nevertheless, we remain mindful of the need for as much additional certainty as possible for taxpayers, and we considered a number of proposals that witnesses put forward to achieve that. ICAS, the Law Society of Scotland and the low incomes tax reform group all highlighted the need for detailed and extensive guidance that sets out the circumstances in which tax arrangements would be considered artificial.
The committee was persuaded of the benefits of that suggestion for taxpayer certainty, and we therefore recommended that revenue Scotland be required to consult widely on the draft guidance on the GAAR before it is published, and on substantive future revisions. The Government expressed sympathy with the thinking behind that recommendation, but it has some practical concerns, such as the circumstance in which changes need to be made at short notice following a court judgment. The cabinet secretary has suggested a possible alternative, by way of including guidance to revenue Scotland in anticipation of such a consultation.
The committee also noted that the bill does not contain provisions that give the GAAR priority over other legislative measures. In order to reinforce the overriding importance of the GAAR, the committee recommended that the cabinet secretary consider introducing such a rule. In his response, he stated that he considered such a rule to be unnecessary in relation to LBTT and the Scottish landfill tax but that it could be considered in the event of the Parliament gaining further tax powers.
No legislation that is intended to deter those who might attempt to avoid paying their taxes in full would be complete without the imposition of a penalty regime for non-compliance. The bill is intended to provide a broad statutory framework to enable the imposition of different penalties depending on the seriousness of the non-compliance and the tax to which it may relate.
Several witnesses raised concerns about the appropriate balance between primary and secondary legislation in relation to the bill’s penalty provisions. Although certain administrative arrangements can be adequately provided for in secondary legislation, we agreed with our witnesses that the primary legislation should contain more detail on penalties.
That view was reflected in the Delegated Powers and Law Reform Committee’s consideration of the bill. The committee’s report recommended that there should be greater clarity on the circumstances that could result in a penalty and the amounts that would apply, along with further detail on enforcement and the right to appeal.
We therefore welcome the cabinet secretary’s commitment to lodge amendments at stage 2 to include
“more detail and greater consistency in relation to penalties on the face of the Bill.”
I look forward to considering those amendments in the coming weeks.
On the subject of penalties, the Finance Committee was mindful that the bill’s primary purpose should be to encourage timely payment of taxes rather than to implement inefficient, and at times costly, bureaucratic arrangements. We heard that, on occasion, penalties for minor or accidental transgressions can cost more to collect than they are worth. As such, we recommended that penalties should be proportionate and should not create unnecessary administrative burdens for revenue Scotland. The cabinet secretary stated in his response that he believes that the amendments that he plans to lodge are consistent with that recommendation. No doubt, the committee will wish to discuss the amendments with him in due course.
The requirement for the tax authority to produce a charter that sets out the standards of behaviour and the values that are expected of revenue Scotland and the taxpayer was welcomed by our witnesses, although concerns were raised. It was pointed out that there was a lack of reciprocity in the bill as drafted, with taxpayers being “expected” to aspire to those standards and values whereas revenue Scotland would simply aspire to them. Some witnesses felt that that form of words implied that more was expected of the taxpayer than of revenue Scotland. We therefore welcome the cabinet secretary’s commitment to amend the bill at stage 2 to ensure that there is “reciprocity of obligations” in the charter.
The issue of the discretion that is granted to revenue Scotland with regard to how and when the charter should be reviewed and republished was also raised, and the committee welcomes the Government’s commitment to amend the bill to oblige revenue Scotland to consult when it updates and republishes the charter.
I turn to the committee’s consideration of the bill’s provisions in respect of establishing revenue Scotland as the tax authority responsible collecting devolved taxes. We heard no criticism of revenue Scotland’s establishment as a non-ministerial department, and the fact that ministers would be prohibited from directing it was welcomed. However, some witnesses questioned whether it would be appropriate for ministerial guidance to remain unpublished in circumstances in which ministers decided that its publication might prejudice revenue Scotland in exercising its functions.
The cabinet secretary assured us that publication of ministerial guidance would be the default position but that he wants to retain the ability to provide confidential guidance in certain circumstances. In order to achieve an appropriate balance, we recommended that, where the Government does not consider publication of its guidance to be appropriate, ministers should be required to write to the committee explaining the reasons for that decision. I am pleased that the cabinet secretary has given an undertaking to that effect.
The rationale underpinning the delegation of powers from revenue Scotland to Registers of Scotland and the Scottish Environment Protection Agency for LBTT and the landfill tax respectively was recognised by our witnesses, although some expressed the view that such delegation should not extend to all powers. The head of revenue Scotland’s view was that a non-statutory formal scheme of delegation, to be laid before Parliament for consideration before the bill takes full effect, would address those concerns. We look forward to considering the scheme in due course.
The bill provides for two tribunals—a first-tier tribunal and an upper tribunal—to hear appeals against decisions that are made by revenue Scotland. The first-tier tribunal will consist of up to three members, and the upper tribunal would have only a single member. Several witnesses expressed doubts about the appropriateness of that arrangement, and the committee welcomes the cabinet secretary’s undertaking to amend the bill to allow more than one member to sit on the upper tribunal when required.
The subject of legal restrictions on the right to appeal a decision of the upper-tier tax tribunal to the Court of Session was also raised. In evidence to the committee, the cabinet secretary stated that
“the appeal mechanism must be fair and must be seen to be fair”.—[Official Report, Finance Committee, 2 April 2014; c 3948.]
We are therefore pleased that he has reconsidered eligibility to appeal to the Court of Session in light of the recently passed Tribunals (Scotland) Act 2014.
Before a dispute reaches the tribunal stage, it is important that attempts are first made to resolve it at a less formal level. The Government suggested informal mediation as a way of achieving that, and our witnesses broadly welcomed that suggestion. However, the independence of a revenue Scotland mediator is of paramount importance, and we have invited the Government to provide further details on how it intends to achieve that. We note that the Government is working with stakeholders to identify options to address the matter, and we await with interest the outcome of those discussions.
I am conscious of time and the need to let other members join the debate, so I will draw my remarks to a close. In summary, the committee has assessed and carefully reflected on the evidence, and—as we state in our report—we support the general principles of the bill. Work remains to be done at stage 2, when we will further consider issues around tribunals and penalties, among other matters.
Given the likelihood that many of the amendments will be of a complex and technical nature, we welcome the cabinet secretary’s undertaking to furnish us with the complete set in good time before stage 2. We also appreciate the efforts of the bill team in that regard.
Looking further ahead, the committee looks forward to considering secondary legislation relating to devolved taxes in the coming months. As members would expect, the Finance Committee will continue to closely monitor implementation and delivery in relation to those taxes as they become embedded in the Parliament’s annual budget scrutiny process.
I look forward to hearing from other members.
14:45