HMRC, by some strange coincidence, published a briefing last week called 'Taxing the profits of multinational businesses'. There's a copy here. It's truly appalling.
This is the best they can say:
Everyone — businesses as well as individuals — should pay their fair share of tax as intended by Parliament.
OK, I buy that.
The vast majority of individuals and businesses do pay the right amount of tax at the right time.
Except of course the 50% of self employed people who they say don't.
And then there's an average of 14% of VAt not paid. But let's move on:
HMRC strives to maintain a level playing field for businesses by tackling the minority who try to dodge tax.
Let me mention Vodafone, Google, Apple, Amazon, Starbucks and more. Forgotten them already HMRC?
HMRC is alive to the risk that multinationals may try to structure their affairs so that profits from economic activity carried on in the UK are not taxed here.
We hadn't noticed.
There are tax rules designed to combat tax avoidance by multinationals
Might we have that in the past ese please? There were suc rules. But Controlled Foreign Company rules are being gutted, foreign dividends are no longer taxed, MNCs are being encouraged to take their Treasury functions out of the UK, and more. What rules there were are being flattened.
HMRC deploys specialist tax professionals to ensure that multinationals comply with the rules.
But woe betide if they try to hard. One of the best is now suspended.
And then they go into a technical diversion. It's the standard trick of the tax avoider: say it's all down to the rules. HMRC do! Look at their conclusion:
International tax law is complex and HMRC works closely with tax authorities across the world to promote the adoption and consistent operation of tax rules that result in a fair and joined-up tax system.
Is that why the UK has done so much to block the work of the UN tax committee - because I can assure you, it has.
And then they add:
HMRC seeks to develop open and co-operative relationships with multinational businesses.
Might I mention Vodafone, again?
But this one is the key paragraph:
Globalisation means that multinationals have the opportunity to structure their business to take advantage of beneficial tax rules in different countries. Provided that this results in profits being taxed in line with where genuine economic activity is carried on, this does not amount to tax avoidance.
So Google billing UK sales from Ireland when they're sold by people in the UK reflects wgere genuine economic activity takes place, does it? Or Amazon billing sales from UK warehouses from Luxembourg does the same? What do HMRC think we are? Gullible, or just stupid?
No, they explain it like this:
UK's corporation tax system mean that the UK has an internationally-competitive corporate tax system, which is designed to attract and retain economic activity here.
No it isn't. It's designed to give foreign businesses trading here an unfair and wholly unjustified competitive advantage over UK based businesses, because as the Starbucks case proves, that's what it's doing. But hang on, they seek to justify this:
Some countries which aim to attract multinational businesses have tax policies that are harmful to others.
Ah, the difference is that in our case we attract multinationals by harming ourselves. Now I get it!
And then they add:
Identifying how much corporation tax is paid [is hard]. Company accounts include references to tax liabilities, but it is not generally possible to identify from the accounts how much UK corporation tax has been paid. This is because of the differences between the way in which profits are calculated for the accounts and the way that they are calculated for tax purposes.
They've been rolling this argument out for years - ever since I wrote The Missing Billions in 2008. And it's wrong. Of course what they say here is true in any one year:
So although an apparently low tax rate in a company's accounts might indicate tax avoidance, it could also be the case that the business has acted entirely properly, by making use of specific tax reliefs and incentives designed, for example, to encourage capital investment or research and development.
But that's precisely why I and those I advise look at a company's record over time. Then any aberrations for these reasons should disappear and something like a true rate should be found, as it is.
So, what to make of this extraordinary apology for failure? First, you'd think KPMG had written it as an excuse for just following the rules to the limit and coming up with unfortunate consequences But then, with a former KPMG senior partner chairing HMRC what else would we expect? We are in the absurd situation that the tax abuse profession is now controlling HMRC.
Second, what's staggering is HMRC offer no solutions. How about suggesting tax returns be put on record? Or how about supporting country-by-country reporting? Then we'd know what tax was paid where. And how about saying they're going to Ministers to ask for changes that will stop the abuse of the likes of Google? And what of saying that the changes that are being made to CFCs and so on will all make it harder to stop avoidance? What even of a suggestion that UK based companies should have a lower tax rate since they're the ones likely to be paying? And what about saying many more well trained staff would help a lot and they're stopping sacking them by the thousand?
No, there's none of this. There are just excuses for inaction, ineffectiveness, and inability to collect tax.
We really do need new politicians in charge with the will to collect tax. But what we know is that's the last thing the Coalition want as they want to cut tax as an excuse to cut the state. And it looks awfully like HMRC are a willing agent in that process.
It's a staggering message of the capture of the state by tax avoiders sitting on the Board of HMRC to make sure it cannot deliver tax justice. Which is precisely why the rest of us need to do so.
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Dear Mr Angry, I’m glad this blog is widely read – I’ve done my little bit by posting on Facebook – but it needs to go viral.
Thanks!
‘It’s a staggering message of the capture of the state by tax avoiders sitting on the Board of HMRC to make sure it cannot deliver tax justice. Which is precisely why the rest of us need to do so.’
It’s a staggering message, indeed, Richard, and your disection of this excuse for practical policy is excellent. But as Aditya Chakrabortty illustrated in The Guardian yesterday, when Cameron and Clegg have finished we’ll have a public sector even smaller than the US, so it’ll be even worse.
And if anyone wants to see where this rapid Americanisation of our public services and democracy is going to take us they should take the time to read this. Truly the capture of the state and democracy:
http://www.guardian.co.uk/commentisfree/2012/oct/16/presidential-debate-issues?intcmp=239
Hi Richard
Seems like this is becoming a hot topic at last. It seems that MNCs reduce their taxes in 3 main ways
1 Transfer pricing
2 Payment of Royalties
3 Inter-group loans
In an ideal world, how do you think these can be overcome to ensure that the correct amount of tax is paid in the correct country. I understand that by-country reporting will help but what can be done about these individual items. I think it will be very difficult..and that is before we consider the role of tax havens etc
Will try to do later
But we start with an EU wide common consolidated corporate tax base
Which appears to agree that the current UK tax system may not meet your agreement and that companies are playing by the rules
I am not arguing otherwise re the tax system
But I am also arguing companies are playing round the rules – which is what avoidance is
You missed off the operative method in the Starbucks instance and many others. Pretending your sales are made out of Dublin and taking advantage of their “harmful tax competition” that allows Ireland to steal our tax by letting Starbucks et al keep a bigger share, purely for maintaing an office there.
Don’t worry the big 4 are happy to advise on this “tax planning” and sign off on it for audit purposes. What could possibly be wrong?
Why more is made of this I do not know. I would have a team of snoopers and cyber experts staking out Dublin to see what really goes down there and where the strings are truly being pulled from. A few raids on american companies and some prosecutions of officers found to be evading tax would be a useful sign that HMRC know what they are doing.
Sorry I forget they do know what they are doing, selling the UK exchequer down the river, presumably on the ideological instructions of their political masters who are getting a kick back from business somewhere along the line now their expenses are marginally less easy to abuse.
Perhaps I’m being too harsh on our leaders. Now that the home sec has had the b***s to show that the US UK extradition treaty is not all one way perhaps its time Osborne shows he has some too and does the same with Ireland for tax purposes. Or is the Irish scam an illicit way of propping up that EU controlled government that already owes us megbucks in bail out monies. It all comes back to the banks!
Not related to corporation tax avoidance, but J.K. Rowling was on Monday’s episode of the Daily Show with Jon Stewart and spoke very eloquently about her moral responsibility to pay tax. She spoke about how she was on benefits for several years when first writing Harry Potter and said that’s why she now thinks it important to, in her own words, “stay and pay” rather than relocate to Monaco. I’ve no idea as to the full ins and outs of her accounts, of course, but she seemed sincere and she demonstrates that it is within the power of individuals to recognise the responsibilities that come with their privileges and do the right thing.
Please could you provide a reference for the 50% of self-employed people who say they don’t pay the right amount of tax at the right time?
Look at last year’ tax gap report – and earlier years – where the Revenue consistentl report around this rate of error in self employed accounts
Thank you for this Richard-its brilliant
We the people should all stop paying our tax until these multinationals and tax avoiders pay theirs- they might do something about it then
Marek
http://www.myfairlondon.org.uk
The problem is that many of us can’t stop paying taxes even if we want to, because millions of us are taxed at source via PAYE. Big corporations, the self employed and the 1% are not subject to such a regime so can all avoid and evade tax if they want to.
There was a contributor on LBC this morning from Barnes Roffe who said that nothing more needs to be done by HMRC to chase down corporation tax dodgers as Transfer Pricing legislation is “draconian” and just needs to be enforced.
I don’t know enough about Transfer Pricing laws to know if this is wilful mendacity or not so I’d guess 99.99% of listeners wouldn’t either.
To some degree I would agree with the contributor
But there is no investment in HMRC and having the people needed to do this
I think better risk assessment tools e.g. CBC are essential – but nothing orks without well trained people
That requires money, but the yield is enormous
Aren’t all these “UK tax avoided” stories just a consequence of the EU?
They created a Single Market where companies that trade in Europe are required to plop down a base somewhere and then pay tax there?
It’s not even avoidance – it’s a demand that the EU makes of the way you do business in the Single Market?
If they plopped their base down in London instead, wouldn’t they then be “avoiding tax” in every other European country in which they traded, by your rationale?
Hey Ivor, way to go trying to repeat what Worstall pretends he knows what he’s talking about.
I think you’re entering the conversation a little late.
If “expensesgate” showed one thing, it is that the “ruling classes” are immune to shame or guilt.
Ruled by millionaires, opposition by millionaires and bed shared by millionaires.
They are so obviously not going to do much to rock their own boat.
Looks like the boat-rocking will have to come from those not passengers in the same boat…