The theme of the first day here at Oxford was tax avoidance. Although an international conference the focus was on the UK. The new relationship between HMRC and large business was at the core of discussion. As a result key words were trust, transparency, real time disclosure and cooperation.
The aim of HMRC is simple. If large businesses want to work openly and disclose the transactions with tax risk inherent within them to HMRC as they happen they will get the rulings they need on their tax effect in reasonable time scale to ensure they can work with a high degree of certainty. For these people the days of having 15 years of tax assessments still open and subject to negotiation will be history. They may also see less of the Revenue at times that do not suit their convenience. 10 to 20% of the FTSE 100 are expected to be low risk. The Revenue would like that to reach 40%. The reaction has apparently been good, coupled with a request that the Revenue do not get too distant. They like the relationship. From those in the room it seemed likely that Aviva either are or would wish to be in this category. They made clear that they will not do artificial planning: when forced to do so on stamp duty because the whole market is they only did so with the greatest of reluctance. That was a breath of fresh air, although I am aware that they do operate offshore.
For those who are high risk the relationship will be quite different. They will see a lot of the Revenue, whether they want to or not. The Revenue will seek cooperation, and will expect to get it, whether willingly or not. Have no doubt about it: Dave Hartnett is a tough operator who came to his job through the Enquiry branch, the toughest department in the Revenue. I am quite convinced he means what he says. If business goes for this scheme, and cooperates, they will win. For those who don't play ball (and he didn't say this because he did not need to) I think life is going to be tough.
How will the Revenue decide the difference? Risk assessment is one basis. As Jon Symonds, still with Astra Zenecca at the moment said though, transfer pricing in pharmaceuticals is always going to be high risk. He was, therefore, I think a little too cynical of the scheme. Others suggested the Revenue had a simple duty to presume that big tax bills were high risk, by definition. Dave Hartnett was emphatic. That is not true. Of course cash is an issue, but the core of this is about the relationship that the company chooses to create with HMRC. If there is trust and openness and an absence of game playing even complex issues can be resolved in real time working. Call it good corporate governance as the deciding factor, if you will.
I believe him. I believe that the benefits for all sides will be high in time saved, tax collected, and the ability to focus on more important issues.
Some did not agree. One US observer said "I can't imagine the notion of trust in the US tax system."
A Canadian said: "I don't want my tax authorities to be trusting. I want them to be sceptical and smart so they can tell the difference between a tax avoider and tax evader."
A UK finance director told an anecdote about buying companies. In this case he started with the assumption that you should "trust and verify" but with experience he had come to the point where he now believed you just verify. He thought the Revenue would do the same. He's right. In some cases they will. But an alternative basis of working for others is a model worth pursuing.
What would be really useful would be if the companies did, or were even required to publish their Revenue risk rating in their annual accounts. That would be very valuable information indeed.
As amusing was another reporting consequence of this. One tax director mused on whether he only wanted a year or two's tax assessments open at any time. If that were the case how could he smooth his tax charge by manipulating the tax reserve for liabilities arising in past years? Might he want to be higher risk just to have this opportunity available to him? He might have made one of the most honest submissions of the day.