HMRC have obviously issued a press briefing that is breathlessly reported as follows by the FT:
HM Revenue & Customs raked in £1.1bn from challenging the pricing of multinational companies' internal deals in 2013-14 – more than twice as much as in the previous year.
Much follows on the impact of additional staff, and more.
But there's a problem. This comes from a press briefing issued by HMRC in April 2013:
HMRC's transfer pricing investigations have generated more than £4 billon in extra tax revenues over the last four years.
Given the timing of its issue this presumably covers the tax year 2012-13.
And if I divide more than £4bn by four I come to the unsurprising number of more than £1bn.
And the £1.1bn collected in 2013-14 is not double £1bn, however it is looked at. In fact, it looks remarkably like the same number, meaning the new resources HMRC have put to use have apparently achieved no net gains at all.
So, either the April 2013 briefing was wrong. Or an average was used because performance was dire in 2012-13. Or the latest claim is wildly inaccurate. Or all of these claims are plucked by desperate people out of thin air.
But however it is looked at, nothing about this claim rings true.
And that's dire when we so urgently need to have confidence in HMRC restored.
But it does make my case for there being an Office for Tax Responsibility to check such claims and to make sure HMRC are held to account for them.
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Because they are paid a lot of money to be in denial of the truth. These days you can buy anything if you have the money – especially people who are prepared to tell lies.
What about the comment that hmrc already knew about most of the luxleaks info and that there was no tax loss to the uk in any of it?
What about it?
Well given the level of press coverage and moral outrage I’m just a bit surprised it didn’t make it onto your blog piece at all. Not even to disprove it
Perhaps it is true and dosent fit your narrative?
What are you talking about?
Well maybe I’m being stupid but you have only picked up half of the ft story you posted a link to. The PAC attacked PWc and shire over the luxleaks stuff and yet hmrc are now saying they have looked at all the docs bar 10 of them. (Query why they haven’t looked at those 10 frankly ) and concluded that no uk tax was lost and that they knew about it anyway.
Are you suggesting this isn’t worthy of comment? I have to say I’m quite shocked given the press coverage of the PAC. The man on the clapham omnibus might ask whether the PAC have a clue what they are doing in light of this comment. Alternatively you might think hmrc don’t have a clue. I come to this blog to get the expert view on this sort of thing but you haven’t commented on it despite the fact if seems hugely important
Under existing law the arrangements may well have been legal
That is why I put a lot of effort into seeking to amend the law, including via the OECD BEPS process
So if was all a lot of fuss about nothing then? No tax loss to the uk?
Yes of course there was a loss of tax
The issue was that reform is needed to recover it
And a willingness by HMRC to challenge abuse
It depends on whether you take HMRC’s word for it or not. Leaving aside their previous records re multinationals and the fact that they don’t consider transfer mispricing and related abuses disclosed by the Luxleaks as “tax avoidance” in the first place (hence their non-inclusion in the Tax Gap figures and the GAAR), the PAC session on Shire and PWC regarding the Luxleaks contradicts HMRC’s claim that there was no loss to the UK. The problem is that there is no real mechanism to compel a corrupt or incompetent tax authority to do its job. So whether we believe them or not, there’s precious little we can do about it other than campaign for more transparency to stop this hiding behind taxpayer confidentiality when it suits them.
This is why we need an Office for Tax Responsibility
Richard,
Regarding the statement in the press briefing issued by HMRC in April 2013 that “HMRC’s transfer pricing investigations have generated more than £4 billon in extra tax revenues over the last four years”, does that refer just to the 4 sweetheart deals that yielded £4.5 between them?
http://www.theguardian.com/politics/2013/apr/29/sweetheart-tax-deals
Furthermore, given what we found out about these four deals (in addition to the Goldman Sachs one) thanks to the whistleblower, Private Eye, and the PAC helped by expert analysts like you, how do the public go about finding out the opportunity costs of these much-trumpeted “successes” when HMRC won’t disclose the underlying information?
The allegation on one deal alone (Vodafone) was that anything between £1.5 billion (based on Vodafone’s provisions for half the taxable period) to £6 billion (based on Private Eye’s figures) was forgone. So when the FT reports that HMRC “raked in £1.1bn” how do we know how much wasn’t “raked in”?
As you say, who knows?
The first press release refers to tax collected during a 4 year period relating to an unknown number of tax years. The second press release refers to tax collected relating to two different specific tax years.
So?
If I started to get tough on transfer pricing in 2009 and looked at everything I could enquire into it would include earlier years still within the enquiry window. Consequently in the 4 years I was active I would collect tax relating to more than just 4 tax years, allowing for discovery I might collect tax for something more like 8 tax years.
In the first 2-3 years I would pick the lowest hanging fruit and some of that might yield large amounts. By the time I got to year 4 the companies would either have changed their ways or be making their strategies more robust and difficult to challenge. As a consequence the amount I collected for the same effort in 2012/13 would be quite a lot less and £0.5 billion appears to be the HMRC’s number.
I might not want the political fallout of admitting that rates of collection for each tax year were falling, but if I doubled my efforts I would want to announce this with great fanfare, but this time comparing just single tax years.
No, let’s be candid: the HMRC claim was just wrong
The £1.1bn figure relates to transfer pricing of large businesses only. The £4bn figure was for all transfer pricing enquiries.
As the article says:
“In the year to 2014, the amount of extra tax secured from transfer-pricing inquiries aimed at large businesses more than tripled from £251m to £831m, while the amount raised by local compliance teams increased from £253m to £306m. A year earlier, HMRC’s transfer-pricing inquiries collected more tax from smaller businesses than multinationals.”
On the surface it’s surprising that transfer pricing enquiries raise as much from SMEs as large businesses. However you can be quite large and still an SME – 250 employees and £30m gross turnover – and, as is often observed, SMEs account for 90%+ of business activity. Also, my experience is that large businesses will generally agree advance transfer pricing/thin capitalisation agreements up-front with HMRC; smaller companies often do not. Whatever one thinks of these agreements, they make actual transfer pricing enquiries of large companies unusual.
Even if what you say is true – and I doubt your interpretation, very much – the HMRC story is still grossly misleading
The press release on the HMRC website links to the statistics, here – https://www.gov.uk/government/publications/transfer-pricing-statistics-2013-to-2014/transfer-pricing-statistics-2013-to-2014
2007-8 £519 million
2008-9 £1,595 million
2009-10 £1,039 million
2010-11 £436 million
2011-12 £1,095 million
2012-13 £504 million
2013-14 £1,137 million
So 2013-14 is about double 2012-13, but only because 2012-13 is about half the previous year, and a third of 2008-9.
It looks to me like the April 2013 figures relate to the four years 2008-9 to 2011-12 inclusive, and do not include 2012-13.
I had not seen that press release at the time
Disingenuous is the polite interpretation of the claim made then
And odd to note that the best year was before cuts really bit
If you drill down, the yield from Local Compliance gradually increases from £25m to £300m. The yield from Large Business Service gyrates wildly: £494m – £1,564m – £973m – £273m – £944m – £251m – £831m.
It takes around 2 to 3 years to revolve a transfer pricing enquiry, which might include several previous years of open computations, so it is hard to draw conclusions, other than this year being much better than last year is just coincidence. For large businesses, they have done better in three other years since 2007-8.
Single settlements can make a very large difference. The figure for 2009-10 may be so large because AstraZeneca agreed to pay £505m to HMRC that year.
http://www.telegraph.co.uk/finance/newsbysector/epic/azn/7297182/AstraZeneca-to-pay-UK-505m-to-settle-tax-dispute.html
For comparison, GSK agreed to pay $3.1 billion to the IRS in 2006, and also give up a $1.8 billion reclaim. http://www.nbcnews.com/id/14785879/ns/business-us_business/t/irs-settles-biggest-tax-dispute-history/
The IFS estimates the total yield from UK corporation tax in 2014-15 at about £40 billion.
So?
What HMRC said was still wrong
I think the inability to tell the truth, or at least be clear about what they are saying comes right from the top of government as it is a widespread practice in modern British politics. Personally I blame the influence of PR agents who manipulate the truth to put the best possible slant in press releases, but scratch below the surface and the whole thing begins to fall apart.
Danny Alexander of HM Treasury was on QT last night and made a profound claim that he is very proud of the role the LD’s have played in the coalition government where as a result everyone is better off. But that quickly fell apart when the other panel members pointed out that 77,000 people in Glasgow were using food banks. It just leaves me bereffed and wondering do politicians actually believe some of the things they say? Quite frankly it is insulting.
I was originally against the idea of an office for budget responsibility and thought just another quango. But Richard makes a very good case for it in earlier blogs I have just read. If set up properly, kept independent from HMRC and HM Treasury, accountable to PAC, with wide reaching powers to access the information it needs, absolutely no input from the big 4 I could see it having real benefits.
With an agenda of measuring and monitoring the tax gap, breaking it down into each category of tax to come up with a total tax gap across the board, I think it’s a great idea. I was shocked when I learned that neither HMRC nor HM Treasury do not measure or track the effectiveness of the tax reliefs introduced, so we have no way of knowing whether or not they actually work and this is a function that could also be taken up by the office of budget responsibility.
Best guess is that those numbers were not produced to inform someone who wanted to do a stringent analysis, but was a statement composed in order to communicate the good feeling of “We are getting results” to the general public. And in that game anything goes except blatant lies. Unfortunately.