Questions have been raised this morning about whether I have seen the latest comments in Private Eye on the relationship between Vodafone and HM Revenue & Customs. The short answer is,I have, and I'm guessing that people are asking for my interpretation.
Let me be clear about two things. The first is that I have not discussed this issue withRichard Brookes at Private Eye, who is, I'm sure, the person responsible for this story. I know Richard, we do discuss issues, but we have not discussed this one.
The second is that nothing I am saying is a criticism of Vodafone. They make clear that they do avoid tax, just as they make clear that they think that this is legally acceptable and part of their duty to their shareholders. I disagree with them about that, but this is not the point in question. The issue being discussed is not how Vodafone managed its affairs, but how they were managed by HM Revenue & Customs.
We now know that the only official statement we are likely to get, at least at this point of time on this issue is the claim by HMRC that the £6 billion tax liability Private Eye says has been foregone is an “urban myth”.
The Private Eye’s response could not be more robust. It has firmly reiterated its claim. In my opinion, and I stress that this is only my opinion, and based purely upon the evidence in Private Eye, there is only one reason for them doing this, and that is that they are very confident that they are right based upon very high-level sources, and probably documentation,that they must have in their possession.
Everything about their statement suggests that this is the case. I know Private Eye is used to being sued, and I know it would be difficult for HMRC to litigate this case, but that does not change my opinion. I am now quite confident that Private Eye is saying that it has clear and unambiguous evidence that a tax liability of up to £6 billion has been waived as a consequence of the issue under dispute and the other issues that have, apparently, been resolved with Vodafone at the same time. And I'm equally confident based on the form of wording that they used that they have documentation that suggests that this arose as a consequence of the intervention of Dave Hartnett and that in the process he overrode objections from tax officials previously involved in the case by imposing upon the negotiation new participants who were always likely to reach a deal.
His reason for doing that is open to speculation, and I have no doubt we will never know the real answer. Nor do I see any reason why Vodafone should supply it.
But there is a critical question that does remain, and that is whether HM Revenue & Customs has been subject to regulatory capture at the very highest level. The possibility has to exist. Look at the non-executive directors of HMRC. They include people with backgrounds at Tesco, HBOS, Lloyds TSB and Deloitte and PWC. Barclays have certainly been represented in the past. With these backgroundsis an environment which is pro- tax, pro-government, pro-compliance and anti-avoidance and hostile, when appropriate, to tax abuse, offshore or business interests likely? Respectfully, I suggest that it is very unlikely. And in that circumstance Dave Hartnett has done no more than play to the crowd that is supervising his activities.
The trouble is, it is the wrong crowd, and a crowd without any apparent balance at all.
And therein lies the problem. I’m not saying these particular people are at fault. But when they are appointed for representing a business culture — which they must be as their CVs emphasises the point, and then you note the allegations against HMRC and you note the fact that big business is the only part of society to enjoy tax cuts and the only interest represented on the board of HMRC and it’s reasonable to question the culture they represent and the culture that appointed them. And what is clear is that neither reflects society at large, and hat is worrying.
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@Richard
As I was one of the people who raised this in an earlier post today thanks for responding so promptly. You’ve confirmed my own reading of the latest details in PE. No doubt there’s a mole hunt going on in HMRC at this very moment.
I’d be less cautious about whether regulatory capture is a ‘possibility’ than you are. Looking at the make up of the non-exec directors (five out of six with a commercial background) I’d say it was a distinct probability. Furthermore, there’s been adequate evidence published in PE over the last year or so that ‘capture’ may well extend beyond the Board.
Richard,
Thanks for an interesting item. Having looked at the page on HMRC non-execs, I then looked at the Ethics and Responsibilities Committee http://www.hmrc.gov.uk/governance/tor-ethics.htm . I was particularly taken with this from the latest published minutes (26-May-10).
5.2 The Committee felt their current knowledge of impartiality, in particular political impartiality, was limited. They also noted a similar lack of knowledge on the processes that lie behind it.
An ethics committee which isn’t up to speed on impartiality? There’s something very wrong here, I feel.
I wonder also why the minutes of the July meeting have not been posted, and the September meeting which presumably (?) took place.
“The issue being discussed is not how Vodafone managed its affairs, but how they were managed by HM Revenue & Customs”
So shouldn’t you be encouraging people to be occupying the tax offices rather than Vodafone stores then?]
“The second is that nothing I am saying is a criticism of Vodafone.”
Saves on the lawyer’s fee I suppose 🙂
Hey Noel
I was one of the protesters who picketed and shut down Vodafone on Oxford Street a couple of weeks ago. I can tell you that amongst my fellow protesters the anger was mostly targeted at HMRC. Yet tactically it was more sensible to target Vodafone as it is more visible, has a presence all over the country, will draw more attention– and frankly is a lot easier to disrupt than the HMRC headquarters.
@Brian
Thanks for taking the time to look into that. And to be honest that’s a pretty amazing thing to report when you think through the implications. So what it appears we have here is an organisation where regulatory capture may well be a distinct probability(with all the potential ethical issues that might raise)but with very weak internal mechanisms to counter this!
Good article. I wasn’t aware of the non-execs at HMRC. How did this ever make sense?
“The Private Eye’s response could not be more robust.”
Well, it could. They could give details of the income imputed to the Luxembourg comapny and itemise the tax that had been paid on that income in Luxembourg or Germany.
Since the amount of income is widely reported as £18bn it loooks as though Private Eye has simply taken £18bn and multiplied that number by 30% and rounded up, conveniently ignoring the fact that any income remitted by way of dividend would have been subject to German Federal and Trade taxes at rates higher than the UK and any interest income would have been subject to Luxembourg taxataion, both allowable against the CFC liability, so in practice although we do not know the exact figures, if the £18 bn figure is coirrect, the £6bn figure is implausible.
@Alex
As Private Eye have made clear, the calculation includes all the other arrangements which were given clearance
I do not know the details – and nor do you – but someone did an estimate and quite clearly Private Eye have seen it
You persistently refer to one arrangement when quite clearly there were others as well
They make clear that they do avoid tax, just as they make clear that they think that this is legally acceptable and part of their duty to their shareholders. I disagree with them about that, but this is not the point in question.
You can disagree all you like but, in the UK and most other contries, company directors have duty under law to maximise returns for their owners (shareholders). So vodaphone are legally required to minimise their tax burden amongst other things.
@Chris
Vodafone is a UK company and UK company directors do not have a duty to maximise profit or minimise tax
They aren’t even required to act solely in the interest of shareholders
And there’s not a shadow of a doubt that they do no – try explaining their pay if you think they do
Try to get your facts right
@Richard
Interesting to see that Vodafone Group plc and Pennon Group plc were this year’s winners of PwC’s ‘Building Public Trust’ tax reporting awards.
Hooray – G & Ts all round