I am grateful to Jolyon Maugham for noticing an issue in one of the many publications put out by HMRC this week; the plethora presumably being intentional to make sure that as many as possible were not read.
Jolyon noticed that in their new publication entitled ‘Taxing the profits of companies that are not resident in the UK' HMRC have gone to extraordinary lengths to say that Google, Facebook and man others are not tax avoiders by stating that:
Having a UK website does not mean that a non-resident company has either a fixed place of business in the UK or a dependent agent in the UK. All of the trading activity could be taking place outside the UK.
Most multinational businesses are not single companies, but a group of companies, only some of which will be operating in the UK.
For example, sometimes a company from outside the UK sells to UK customers via the internet. Another group company in the UK provides warehousing, distribution or other services and support to the selling company. Where this takes place, the UK service company will be taxed only on the profits of its own business, ie the services it provides to the selling company.
This is not tax avoidance: it is simply the way that Corporation Tax works, ie it applies to individual companies.
Let's be blunt: such an arrangement is only adopted for one reason, and that is to avoid tax. There is not another motive on earth that can or might justify such an obscure structure, despite which HMRC say this is not tax avoidance. It is instead 'simply the way that Corporation Tax works'. This blatant ignoring of the facts is compounded by this claim:
Most major economies operate Corporation Tax in the same way as the UK, so UK resident companies are treated in a similar way in other countries.
That's just not true: the USA does not operate corporation tax in this way and we all know that and so to pretend that US companies are not getting a preference as a result of this structuring is just a blatant lie. Frankly such a lie is bad enough, and worthy of demanding ministerial resignations and staff sackings, but the sting really is in that last line of the first quote where it is said that:
This is not tax avoidance: it is simply the way that Corporation Tax works
This comment is quite absurd. For the record HMRC say in their 2015 version of their tax gap report that tax avoidance is:
Avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter — but not the spirit — of the law.
But as Jolyon points out, and as I agree, that definition is utterly at odds with the new definition of what is not tax avoidance when the new definition of what is not tax avoidance now effectively says that whatever interpretation can be applied to the law, irrespective of motive or artificiality, just is how corporation tax now works and, as a consequence to be accepted. This effectively defines avoidance out of existence.
Worse, this claim is not true. This revives The Duke of Westminster case as well as Ayrshire Pullman and even Partington which were the foundation stones of UK tax abuse for so many tears until Graham Aaranson, I and a few others hoped we had consigned them to history via the Guidance Notes to the General Anti-Abuse Rule, which specifically say that they have no role in modern UK tax law (pages 5 and 25). Except now HMRC seem to say they have.
So let's make three things clear. HMRC's comments here are wrong because they are contrary to the GAAR guidance, which has the force of law.
Second, they're wrong because their own guidance on tax avoidance says they are.
And third, in offering them now HMRC needs to make clear a) why it has done so b) what pressure was brought to bear on them to do so c) state why they think their tax gap measure has any credibility remaining after doing so when they are now the only people in the country who think that the activity of companies like Google are tax compliant.
And if the Board cannot get adequate explanation as to why this has happened the whole top management of HMRC needs to be removed. Lying about tax is unacceptable, especially when done by a tax authority, and that is what is happening here.
NB I have deliberately tagged this blog under the corruption category: I think this action is corporately corrupt although I am not sugesting any person has gained as a result
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I sincerely hope that the PAC calls them in on this.
“NB I have deliberately tagged this blog under the corruption category: I think this action is corporately corrupt although I am not sugesting any person has gained as a result”
What is ‘corporately corrupt’? Either HMRC (or individuals within it) have received a benefit, or they have dealt with Google etc. at arm’s length and in good faith.
Which one?
You seem to want it both ways – to suggest there has been something dodgy, and then say you’re not suggesting it.
It seems to me you are suggesting dodgy dealings, but I would be grateful if you could clarify.
Corporately corrupt means that the organisation has been corrupted
I am not suggesting the individuals have gained
Really not hard to understand I would suggest
I understand the difference between ‘corporate corruption’ and ‘individual corruption’.
Under the first one, it is the organisation itself which gets some benefit from giving preferential dealing.
Under the second one it is the individual who gets the benefit — a bung, promise of a nice job, whatever. Yes, we can see how that happens, but you’re not alleging that with HMRC and Google.
But for a lot of public bodies, the first one (corporate corruption) is pretty rare, at least in its dealing with the private sector. Most public bodies such as local authorities and HMRC don’t have competitiors and are not fighting for survival, growth etc. in the same way as the private sector.
Any of this kind of activity, if it happens, would be with elected officials, central government, trying to get more money, influence etc.
But I can’t think how or why it would happen with HMRC in its dealings with the private sector. What’s in it for the HMRC, other than the risk of a good kicking (which they’re getting)?
You’ve said you think this is what has happened. Could you please elaborate?
If you are using the word ‘corruption’ in the sense Dave Hansell has suggested, then I you should make that clear. Most people would infer the other meaning.
I did not say corporate corruption
I think I said corporately corrupt I.e. the organisation has been corrupted as to its purpose
But-but! Corporate capture!
And future plans for when that door revolves again!
I suspect the difference here is down to differing definitions as to what constitutes corruption.
There is the narrow definition that corruption is about bribery and brown envelopes stuffed with money or gifts etc and there exists a wider definition which recognises that corruption also involves corruption of purpose, which the evidence (not merely from this posting) clearly indicates is the case with HMRC.
It is the legalisation of practices such as tax avoidance (practices that are seen as ethically and morally corrupt by the majority of people in a society), which creates the underlying basis and legitimacy for much wider corrupt, broken and flawed political and economic systems.
If we are to improve those systems, the rot must be cut out and destroyed, and replaced by ethically and morally acceptable practices and laws agreed by the majority in society.
Those individuals that support and condone such legally corrupt practices are part of the problem, because they fall back on a particular law as justification for an activity which it is not without the moral and ethical support of society as a whole.
The law can be used for good or bad, just as any other method of social control can be used to help create peace or cause violence. But law is no better than a sword in the hands of people who’s intentions are to use it for their own selfish gain.
“There is not another motive on earth that can or might justify such an obscure structure”.
What is obscure about a foreign company setting up a UK subsidiary to distribute its products in the UK?
Having two companies would separate the trading risks of each from the other. A simple business justification.
I am sure that tax planning plays a part in how MNCs arrange their affairs but to suggest that such a simple and straight-forward piece of business planning is ‘obscure’ is wild exaggeration.
That is nothe structure I refer to
Please do not create excetionally weak defences for something not alleged
Your comment was made directly after your quoting of HMRC’s extract which referred to just such a structure.
What structure are you referring to as it is not at all clear from your blog.
Try Google’s
Slightly off topic, but recently watched a Panorama on Police Corruption at the Met. What I found most depressing, was the senior figure at the end explaining that it was too expensive to prosecute corrupt officers (a significant 6-figure sum per conviction). It was far cheaper to simply invite the officer to resign. What he didn’t seem to have realised was that this was totally altering the risk/reward balance for corruption. Or that the criminals had realised that it was far easier and cheaper than a contract, for criminals to frame unduly diligent honest officers as corrupt.
I guess that in HMRC’s eyes getting a market trader for £100 is the same as getting a multinational for £100m. And far less trouble.
I saw that and share your view
I was really annoyed
Private Eye (no. 1412, p.39) recently had an article on corporation tax that started: ‘How has Britain been stuck for so long with a corporate tax system that leaves half the largest companies in the country – all hugely profitable – paying no corporation tax?’
The answer was soon forthcoming: ‘…these very companies dominate the process of making the tax laws that govern them and have done so for ages.’
The article went on to outline the membership and activities of two groups specifically set up to facilitate this process of capture, control and influence: the “business tax forum”, which as PE noted is co-chaired by the HMRC business tax boss and the tax director of General Electric in the UK (Will Morris), who the article notes, was presented with an award by the government in 2012 for ‘championing ever better customer understanding within HMRC.’ This forum also features Vodafone’s tax director and representatives from two other tax avoiding companies, HSBC and Diageo.
Then we have the “business forum on tax and competitiveness” chaired by that champion of lax tax, financial secretary David Gauke, and also including yet more senior people from GE, this time the Chief Executive, plus representative from Vodafone (yet again), Shell and so on.
The PE report notes that recent minutes from one of the forums records that: ‘A senior HMRC official “emphisised the need to ensure business were in touch providing information to help HMRC get it right at key stages of their work…Business replied that recent stakeholder events they had attended had been ‘excellent’. The UK approach reflected a very sophisticated understanding of business”.’
So I think there you have the explanation for HMRC redefinition of avoidance as just a feature of the way corporation tax works: it’s a product of that ‘very sophisticated understanding’.
On a related note, I see the government have just published the report into FoI and their response and continuing commitment to transparency. So I guess HMRC coming clean on something that many of us have suspected/known, but they’ve been afraid/reluctant to admit – that there’s one approach to taxation for big business and another for the rest of us – is probably inspired by this new age of transparency.
Thanks Ivan
Corporately corrupt, as I suggested
A succinct summary of how the purpose of a public sector corporate body has been corrupted. Even rocket scientists would understand it.
“”Most major economies operate Corporation Tax in the same way as the UK, so UK resident companies are treated in a similar way in other countries.”
That’s just not true: the USA does not operate corporation tax in this way”
HMRC’s point does not mention the USA. It says ‘most’ major economies operate CT in the same way. Most do. You are accusing HMRC of lying. They are not. You are miss-representing what they are saying.
Since we now the abuse in question is almost solely USA based j zm misrepresenting nothing and I stand by my accusation
In the context if is 100% justified
Richard, are you using a new app called “Typocreator”. This week your typos have surpassed all others for originality, so I think we should be told. (in this comment you nearly managed jizm ;-))
It’s over use of an iPad as I am moving about too much
Increases chance of typos many fold
And much harder to spot
That and too much haste to fit anything to do with the blog into odd moments in the day…
I am now convinced that HMRC have been taken over by an Alien Economic Cult!
https://www.youtube.com/watch?v=WFnSxeDfENk
either hat or a a criminal one!
https://www.youtube.com/watch?v=eRen-qxBPc0
With the large amount of corporate involvement within all departments of government, I consider that we may now have a malignant public service operated not on behalf of The People but on behalf of corporate crooks.
http://boingboing.net/2014/01/11/total-corruption-organised-cr.html
Unfortunately the same phenomena of capture exists across much, if not all, the third and voluntary sector and many NGO’s.
What chance do we have of anything being done about this blatent rip of of funds, which would help the vast majority of UK citizens when the chancellors own family firm with a turnover of 35m a year has’nt paid corporation tax since 2008-2009.