The Public Accounts Committee is interrogating HMRC this afternoon, as I've already noted. Principle witness for HMRC is Edward Troup, Tax Assurance Commissioner and second Permanent Secretary and so heir to Dave Hartnett.
As the government web site says of Troup:
Edward Troup began his career as a tax lawyer, working with law firm Simmons & Simmons, until joining HM Treasury as a special adviser on tax, between 1995 and 1997. Edward returned to Simmons & Simmons in 1997, before rejoining the Treasury in 2004 as Director of Business and Indirect Tax.
and:
HMRC's Tax Assurance Commissioner and second Permanent Secretary reports directly to the Chief Executive and is responsible for shaping tax policy and strategy, is the Head of Profession for Tax, and oversees and provides assurance of large tax settlements.
Now I do not in principle completely oppose people from outside HMRC coming into its management, although there must be moderation. What worries me is when those who are imported into HMRC's management appear to have an ethos that does not accord with that which would be expected from HMRC management. There is some evidence to suggest that's the case with Edward Troup. This coms from an article he wrote for the FT in 1999:
Tax law does not codify some Platonic set of tax-raising principles. Taxation is legalised extortion and is valid only to the extent of the law. Tax avoidance is not paying less tax than you ‘should'. Tax avoidance is paying less tax than Parliament would have wanted. Avoidance is where Parliament got it wrong, or didn't foresee all possible combinations of circumstance. The problem of tax avoidance is reduced to the problem of finding an answer to the question of what parliament intended and making sure that this is complied with. I would not pretend this is a simple task. But recognising this as the issue and dealing with it equitably and constitutionally would be a significant step on the way to tackling avoidance effectively.
So does this come from the same article:
The pitfall that recent governments have fallen into is to challenge the tax planners on their home turf. Successively more complex sets of rules have been created, which in turn provide opportunities for exploitation. A simpler tax system, with fewer reliefs, exemptions and discontinuities would, in the long term, frustrate most of the tax avoiders' ploys .
And this, when referring explicitly to a potential general anti-avoidance principle:
Merely saying that steps taken for tax avoidance motives can be ignored or rewritten takes the analysis no further. It is merely a pious statement that that parliamentary intention should not be frustrated. But such a general anti-avoidance provision would not be ineffective. It would, of necessity, have to give the revenue authorities the discretion to invoke, or not to invoke, its operation. The taxpayer would be laid at the mercy of the bureaucrat.
And these do not appear to be views he has distanced himself from. They were quoted in a 2013 briefing to parliament on a general anti-avoidance rule without steps being taken to say he had changed his mind in the meantime.
So let's reflect on that for a moment. Here we have the head of tax policy arguing like the Institute for Economic Affairs against the complexity in legislation needed to beat tax abuse and to collect tax from modern commercial transactions.
And here we have a head of tax policy arguing HMRC should not have the power to invoke the use of anti-avoidance legislation to support the will of parliament and who thinks 'bureaucrats' cannot make such decisions, undermining the whole logic of having a tax authority in the first place.
And a person responsible for tax settlements who sees and argues for the commercial logic and benefit to tax avoidance.
Perhaps the PAC would like to question Mr Troup on these views today and ask the question whether such attitudes are consistent with the position he now holds or undermine it. I know where I stand.
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If he did say taxation is legalised extortion, then I think this suggests that he has little respect for a legitimate democratically elected government. What happened to this is the price paid for the benefit of living in a civilised society?
What an earth is someone like that doing in HMRC?
No wonder HMRC appears to be ineffective and useless at tackling aggressive tax avoidance by major corporations.
Surely HMRC has the obligation to collect the tax, but it is Parliament which has the right to impose those taxes?
I would be very worried if tax law were determined by HMRC (or rather, I am worried when Parliament passes things at HMRC’s behest, and would be more worried if it happened more often).
HMRC’s definition of tax avoidance is essentially “not paying tax that Parliament intended should be paid”, and so I agree entirely that the trick is working out what Parliament intended. Ideally Parliament would be clearer about it.
Saying that tax law should be simpler is absolutely right. Film partnerships, for example, would not be a problem if there were no film tax relief – it would be much better to incentivise people for doing things directly, rather than through the tax system. If tax were paid on accounting profit, then all one would have to do is make sure people report the correct profit. As tax depends on what flavour the profit is there is more scope for uncertainty, doubt, and abuse. The whole income versus capital debate would go away if both were taxed the same way, and the recent partnership anti-avoidance consultation is only required because CT rates and IT rates are so different.
He is also right that saying one can ignore steps taken for avoidance purposes, as this just begs the question. One needs to answer the question of what avoidance is before any progress can be made.
And his comment about the mercy of bureaucrats is exactly why the GAAR has the Advisory panel, is it not? The idea, as I understand it, is that HMRC has to be free to invoke the GAAR when to wants to, but to avoid abuse this power has to be constrained by clear guidance. So he seems to be exactly in line with Aaronson and PArliament on that front.
95% of all tax law is passed at HMRC behest
That’s the way legislation happens in the UK – and cannot do so in any other way
Why pretend otherwise?
And as for the GAAR panel – that’s designed to wholly neuter the GAAR – and is – as he so obviously wished – with the result that democracy is undermined
Richard
I’m sure that you are pretty much correct when you say that 95% of all tax law is passed at HMRC’s behest – in that HMRC makes proposals to ministers, which find their way into finance bills and ultimately become finance acts. HMRC then administers that law. That is as it should be. That’s very different from saying that HMRC should “determine” tax law. That is a matter for the judiciary and ultimately for Parliament again if the law needs changing.
I wouldn’t trust HMRC to determine matters.
Regards
I am not saying they should do that
Troup is wrong to suggest anyone said otherwise – absurdly so – that’s always been the court’s job
His claim was ludicrous
An awful lot of tax law comes not from HMRC. Anything with a relief in it, for one thing.
I would also challenge the idea that much of it ought to come from HMRC. HMRC ought to apply the law, and should be as entitled as any other stakeholder to ask Parliament to change it where it causes a problem in application, but they should have no say in policy.
Segregation of duties is important: at the very least it should be a separate arm of government that formulates policy (currently the Treasury does much of it), and ideally there would be more input from outside government.
OK
Who else does the detail stuff?
No-one else does at the moment, as it’s all kept within government.
My opinion is that the legislative process should be slowed down a lot. There is rarely any urgent need to get new tax measures in place, other than political grandstanding. For detail changes, there should be a mechanism whereby industry and professional bodies should be able to recommend changes which are then put into draft legislation, along with policy changes as decided by Parliament at a high level. That whole lot can then be scrutinised in detail by HMRC, Treasury and outside bodies, until a final version is a greed that no-one is too unhappy with (I don’t expect everyone to agree). That final version can then go to Parliament to confirm that it does achieve policy objectives.