Time for corporation tax returns to go on line

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There’s a fascinating editorial in the FT today. It says:

The need for austerity has forced the government to increase the burden on British taxpayers. At such times, the public must have confidence in the fairness of the tax system. Not only should tax justice be done; it should be seen to be done.

Some of us have said that for some time. Good to see they’ve signed up.

They continue, having reviewed the Parliamentary Accounts Committee report:

While HMRC accepts that it could tighten governance – for instance, dividing the negotiation and separation of settlements, and bringing in an independent assessor to look at deals – there is a case for going further. There are good reasons why everyone should not be able to pick through every individual’s tax returns, but it is weaker in the case of companies (where there is also a greater case for scrutiny given the heftier clout such corporations wield).

Given the complexity of tax, public disclosure of returns may be an ineffective tool. A better way forward might be to require all settlements over a certain threshold to be blessed by a judge before becoming effective. This would preserve flexibility for the taxman, while making sure that the public interest is not left outside the room when deals are cut.

Note they only say that public disclosure of tax returns ‘may be’ an ineffective tool. The possibility that it may also be an effective tool has by default been admitted by the FT as a consequence.

I tweeted that suggestion last night. My friend and colleague Prem Sikka has long argued for it. I think such disclosure a corollary of the right to limited liability – which demands transparency in exchange for the privileges granted.

Without diminishing the suggestion made by the FT of a judge led reviews, I think tax returns on line should happen.

More than that, I think companies should also, as I suggest in the Code of Conduct I have republished today, be required to disclose their tax planning explicitly and all their accounting entries for tax. That would really change the scene, and much for the better. Why so? Because most tax planning is not in the interest of shareholder’s as it misallocates resources within corporations to their detriment. It’s actually designed to trigger executive share bonus schemes – and those are now severely discredited. So the tax planning that drives them should be exposed.