PWC's report for the World Bank, on which I have already commented, included the following observation:
A particularly worrying consequence is that with the sheer volume of tax legislation no one individual can possibly read all of it; and so the days of a tax director being confident of spanning all the relevant parts of the tax code seem to have all but disappeared. Similarly, at least as regards advising large to medium.size corporates, the ability of a single tax adviser to span all the relevant tax legislation is circumscribed, hence the increasing relevance of specialists and sub-specialists.
Well, I thought about this, and did a quick company search. That was of a UK bank - Royal Bank of Scotland Group PLC. For your benefit, the annual return form is available here. Look at this list of companies in which that bank has an interest of more than 10%. To save you counting, give or take there are between 1900 and 2000 of them (I extrapolated, so I'll allow a margin for error).
Let's get serious here. I guarantee you no one in RBS knows the name of all of them. No one in RBS has read the accounts of all of them. The audit partner who signs the accounts (it's Deloittes by the way, but it doesn't change the message) will not have read them all, let alone have heard of them all. Nor will the directors who sign off the group report. No one in RBS's central tax department will read all their tax returns. Why can I be so sure? Well the accounts probably come to 28,500 pages a year (at 15 pages a set on average, which is not hard to achieve) and the tax returns plus computations will be somewhat longer, I expect.
But did anyone require RBS (or any other large quoted company of this sort) to create this complexity? No, of course they did not. They chose to create it. And they can manage it, quite routinely. Without reading it all, even though they're legally responsible for it.
So can we have less of this nonsense about complexity please? The complaints are bogus. Big business can handle complexity. It thrives on it. As this evidence proves.
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Spot on, Richard. You might also add that most of the international complexity in the books of RBS group or similar is also a direct result of their choices, rather than any imposition upon them. And of course there hasn’t been the corporate support for international harmonisation that the apparent concern with complexity would suggest.
Where this does bite is among SMEs, both in general and for those attempting to operate internationally – but the industry bodies that we hear from are exactly those that are either uninterested in, or just poor at representing these firms – despite their accounting for more than half of the employment across Europe.
Maybe Tax Research LLP should reach out to the SME bodies that do exist and see if there’s interest in your suggestion for simplification of their tax affairs; if it had a higher profile, we might see where others actually stand on complexity.
It is interesting to see what the Conservative Party’s tax reform commission had to say about complexity, in its report published last month. The commission advocated that a future Conservative government should consider introducing a general anti-avoidance rule. I am talking here about tax avoidance as it is now more widely understood (that is, activity that clearly seeks to undermine the purpose of the legislation — eg. the remuneration of directors by means of platinum sponge instead of cash) and not ordinary tax planning. The commission said a pattern was developing:
“First, the government introduces specific legislation aimed at preventing avoidance in a specific area. This can, according to the Institute of Chartered Accountants in England and Wales, be “overly complicated and poorly drafted” resulting in a range of further loopholes and gaps.
“Secondly, further changes (often introduced at short notice) are then needed to ‘iron out many of the problems that arise in practice’. These can lead to further problems. Certain key sectors of the economy, such as oil, leasing and insurance, have also developed tax codes which are extremely complex. In contrast “other highly developed countries have tax systems that work perfectly well with a tax code and Finance Acts that are much shorter than those in the UK.”
These statements were, according to the report, based on evidence from accountants. More revealing is the graphic at page 76 entitled ‘Making tax law — why complexity keeps growing’, based on the commission’s own research:
Start: Budget announcement or consultation on “modernisation of tax law” in a chosen area. Finance Bill published — often very detailed and complex legislation with relatively little scrutiny. Rarely drafted by true expert in specific tax area.
Within one month: Big 4, law firms and business identify areas of unintended negative impact.
Within 2-6 months: Big 4, law firms and banks identify several loopholes in new rules. Product to reduce tax liability if first sold and implemented (although disclosure of such schemes now required by Disclosure of Tax Avoidance Schemes regime).
Within 6 months to 2 years: Sale of products to reduce tax liability proliferates. Anti-avoidance legislation effectively turned on its head by advisers to benefit those in the opposite circumstances.
Within 2-3 years: HMRC challenges the tax planning, though often slowly (cases can take 3 to 10 years to settle) — accentuating uncertainty further. Government amends law issuing only a press release ahead of enacting new rules.
Within 2-5 years: New amended law comes into force. The new anti-avoidance rules now often block “innocent” transactions and have increased compliance burden.
The impression is given here that it is almost always new tax legislation that starts the ball rolling. But there is, of course, “new” avoidance that seeks to undermine existing law. Avoidance itself breeds complexity.
All that PwC’s report seems to have say on this is a rather weak acknowledgement that “the Government may consider tax advisers (and perhaps business) as responsible by virtue of tax avoidance for much recent legislation”. It goes on to complain of “layer upon layer” of anti-avoidance rules. It could have gone on to make the case for a general anti-avoidance rule but, of course, it did not.
[…] I’ve long argued the Big Four are shameless in their pursuit of aggressive tax avoidance, a theme Richard Murphy uses to put over his views on a recent PwC report. Andrew Goodall makes an excellent point: The impression is given here that it is almost always new tax legislation that starts the ball rolling. But there is, of course, “new” avoidance that seeks to undermine existing law. Avoidance itself breeds complexity. […]