HMRC has issued a 'fact sheet' on why they are good at dealing with multinational corporations.
There is a problem with it. Most of it is made up. So, without further ado, here let me look at the claims and what's wrong with them:
Since April 2010, through an intense focus on compliance, HMRC has:
- secured more than £100 billion of compliance revenues from all sources — money that would have been lost without HMRC's intervention; £38 billion of this was from large business compliance work
- reduced the Corporation Tax ‘gap' — the tax which is due but is not paid — from 9.3% (2010 to 2011) to 6.7% (2013 to 2014) of tax liabilities
- won more than 80% of tax avoidance cases in tax tribunals
- secured almost £3.2 billion in additional tax from challenging transfer pricing arrangements of multinational companies
Where to start? First, in 2014 The National Audit Office said this on the claimed compliance yield:
We also consider that HMRC should have been more transparent in reporting its compliance yield and describing what it included. In past years it has not made it clear enough that only some of the yields are in-year revenue benefits, or that there are uncertainties in the data. Unlike other areas of its reporting, such as on the tax gap, HMRC has not produced sufficient detail describing its methodology and approach.
And even so, they got it wrong. There is more on this here.
The tax gap is inherently difficult to estimate and HMRC acknowledges that no estimate of the tax gap can be definitive and that its estimates carry a degree of uncertainty.
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introduced the Diverted Profits Tax (DPT). This measure came into effect in April 2015 to address the contrived diversion of profits out of the country, so that multinationals pay tax on profits that would otherwise escape UK tax. DPT is designed to change companies' behaviour so they pay more corporation tax on their UK profits rather than risk paying a higher rate of DPT. It is anticipated to yield £1.35 billion between 2015 and 2019
The slight problem is it was intended to apply to Google. It has not.
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played a leading role in the OECD-G20 project to reform the international corporate tax system, to address aggressive tax planning and close loopholes
Coat tailed and window dressed is how I would put it from seeing HMRC in action on the ground in Paris. Never once did I see a lead.
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reinvested £800 million in HMRC for additional work to tackle non-compliance in the tax system
Oh come on: this was window dressing cuts reversals. No one was deceived.
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introduced the General Anti-Abuse Rule (GAAR) to tackle abusive tax avoidance schemes that might otherwise succeed under existing legislation. The GAAR is expected to protect £235 million in revenues before the year 2017 to 2018
It has never been used. £235 million could be zero for all we know: stop lying,
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given HMRC the power to collect disputed tax upfront through Accelerated Payment Notices, removing the benefit of dragging out disputes. HMRC has collected more than £2 billion from avoidance scheme users using this power
That was not aimed at multinationals. And it has not solved a single dispute as yet.
In 2016, the government has continued to toughen its approach to big business tax compliance, including proposals in Finance Bill 2016 to:
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introduce a legal requirement for large businesses to publish an annual tax strategy relating to UK activities
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introduce a new Special Measures approach, targeted at the very small number of large businesses with an ongoing history of aggressive tax planning, which present a significant and continuing risk to the Exchequer
Let's be blunt, the second of these measures will, like the GAAR and DPT, probably not be used.
And as for the first, it's feeble in comparison with what is needed, and ONLY addresses UK issues when the concern is in multinational activity.
All in all, the claims are complete nonsense.
I really do wish we had a tax authority that would tell the truth about what the issues are.
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Our friends working in HMRC can confirm that its high success rate at Tribunals is achieved through a fear of taking forward any cases where there is any chance of losing. The Department concedes at prior dispute resolution stages. Officers are criticised if cases take a long time, and the easiest way to avoid this is by going easy on any case that gets bigger or more complex than expected.
HMRC can’t tell the truth while it is committed to closing most of its offices and abandoning ts presence in large areas of the country. It is getting rid of its trained staff, who are thoroughly demoralised by the Government’s treacherous reneging on their severance rights precisely at the moment it is threatening their jobs. They have been told the Department expects them to be still economically active after leaving – many will achieve this working for the firms that promote tax avoidance!
Utterly absurd, isn’t it?
Part of the problem is taxpayer confidentiality – we can’t see what’s going on behind the scenes. However if tax cases actually get to court we, or the media, can sit in the gallery, listen to the evidence and hear witnesses being cross-examined. I do wonder what would happen if the largest tax disputes – say involving companies in the Large Business Group – were opened up to Freedom of Information Act requests. Then we could see for ourselves how well HMRC is performing and there would be no need for them issuing press releases that no-one really believes.