Private Eye has been digging into the affairs of multinational corporations again. And what it's now dug up is quite a shocker. We will let the article speak for itself:
Three years ago parliament’s public accounts committee was critical of the taxman’s failure to extract penalties from tax dodging multinationals after learning that it penalised companies dealt with by it large business service “in only 19 cases, totalling £15 million”. This was around 0.6% of under-declared tax and HMRC promised to try harder in future.
Figures obtained by the Eye under freedom of information laws show the position is now dramatically worse. In 2009/10 just 6 penalties were charged totaling £442,000 or less; and as this financial year draws to a close “fewer than five” penalties have been charged for just £322,000. These figures represent less than 0.01% of tax under-declared. The rate for smaller businesses is about two hundred times this figure.
Treasury select committee chairman Andrew Tyrie said last week that HMRC was "close to being a failing institution" in light of other cock-ups. When it comes to taxing big business, it's already there."
This is, quite frankly absolutely pathetic. And this, let's not forget, follows news of proposals for what one commentator rightly called "the biggest and crudest corporate tax cut in living memory" for the UK.
Oh, and there is more in the latest edition of the Eye. We hope they don't mind us quoting them at length again: there is a huge public interest issue at stake here:
"On his now infamous trip to a meaningless three day conference in Mumbai in December, HMRC tax boss Dave Hartnett stopped off in New Delhi to meet senior Indian Treasury and Revenue officials. One purpose, the Eye understands, was to lobby on behalf of Vodafone over a disputed £1.6bn tax bill that has no bearing on the company’s UK tax position.So since HMRC has no stake in the matter, why was the tax boss lobbying? HMRC claimed that laws covering the confidentiality of its “functions” prevent it commenting, proving that it considers lobbying abroad for the same big companies who back home are given sweetheart tax deals (Eyes passim), to be a part of its job.
The Foreign Office, meanwhile, has intervened on behalf of Tullow Oil in a similar tax argument following an acquisition in Uganda, the Daily Telegraph reported recently. Both Tullow’s and Vodafone’s tax bills arise because developing countries tax gains on sales of shares in their countries and come after the buyers with a bill if necessary.
This is generally recognised as a legitimate way for poor countries to raise much needed tax and preventing them doing so could prove costly. In Tullow’s case Uganda would be around £175m worse off, over twice the £80m annual UK aid to the country. And Vodafone’s £1.6bn Indian tax bill is around six years’ worth of Britain’s £280m aid to the country."
Yet more disgrace. Worth taking to the streets for.
NB reposted from Tax Justice Network with permission
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Do you have any views on why HMRC takes such a “softly, softly” approach with taxation of large corporates?
Also, legitimate capital gains taxation in other countries seems way beyond HMRC’s remit – and taxation is nothing to do with the FCO at all. Again, any ideas why they are interfering?
My (cynical) view would be that HMRC (and FCO) are afraid that if they don’t play softball these companies will domicile themselves elsewhere and UK will lose even more tax. They’re doing them favours to keep their business.
You’ve blogged previously this week about HMRC, Richard, and it’s failures. So I too read the stories in the new PE with interest, and, I have to say, increasing disgust. What it appears we now have are two things operating simultaneously.
First, we have a failing organisation, largely due to the hollowing out of the institution by successive staffing cuts and other organsational change initiatives (including IT systems, of course) such that core skills and experience have now been lost to such an extent that the people that remain are simply left to firefight. This at a time when people and specialist skills would be at a premium within HMRC because of the difference they could make in increasing the amount of tax collected and reducing the extent of avoidance and evasion at a time when this country needs every penny it can get.
Lets not beat about the bush here and say that this represents 1. a disgraceful failure of senior management; 2. a complete failure of the policies foisted on HMRC by the Treasury; and 3. the exposure of a succession of the ministers responsible (i.e. Brown, Darling and now Osborne) as, at best, disinterested bystanders, and at worst incompetent politicians if they have endorsed the creation of this mess. The key question here is though, whether, the current situation represents a series of managerial and policy failures or a deliberate strategy.
This brings in the second issue which is in my opinion more sinister and damaging in the medium term, and taken with the above represents I think, a direct – but largely hidden – effort to seriously nueter HMRC. This is the degree of regulatory capture of its Board allied with leadership by a person who appears to be ideologically opposed to supporting what most of us take to be the core activities of HMRC. In short, HMRC is being undermined from both inside and out (or course, this line of causality can also be traced back to Brown, Darling and now Osborne).
It is no wonder that HMRC staff are so demoralised given the scenario outlined above. The sad thing is that I see no political will to actually do anything about it. Indeed I suspect that the underlying aim here is now to allow the situation to become so bad that there will be a major review of HMRC and that what will emerge from that will be a ‘rump’ organisation, the argument being that that’s all that’s needed to police the ‘simplified’ and low corporate tax UK that we are already steaming towards. In that sense the eviseration of HMRC will represent the biggest scalp for neo-liberals and their cheerleaders in the media and accountancy.
Let’s slow down a second, I think you’re jumping to the wrong conclusions with this private eye report. The Eye is also misrepresenting the numbers to whip up rage. Let’s actually zero in on what’s being compared and discussed:
#1: “in only 19 cases, totalling £15 million”. This was around 0.6% of under-declared tax and HMRC promised to try harder in future.”
–> CONSIDER – what does ‘under-declared’ tax mean?? does it mean by the 19 offending companies? or by All taxpayers? This is VERY important to know! Because if it’s ‘under declared’ by ALL tax payers, then the number is a red herring that’s meaningless when compared to the penalty levied against these 19 specific big companies.
–> CONSIDER – the penalties themselves were about £800K per infraction. It’s important to know how ‘offside’ these companies were when they received these penalties? was it a case of a company owed 200K and it was penalized to the tune of 800K? 19 times over? or is it another scenario? The eye is trying to make us believe that they were penalized 800K, and that 800K represents 0.6% of what they should have paid. That’s probably a misrepresentation by the eye, as they don’t specify what ‘under declared’ tax means. Consider their next quote:
“In 2009/10 just 6 penalties were charged totaling £442,000 or less; and as this financial year draws to a close “fewer than five” penalties have been charged for just £322,000. These figures represent less than 0.01% of tax under-declared. ”
–> CONSIDER: again, the comparison to the ‘total tax under-declared’. Is the eye suggesting the 332K is 0.01% of the tax that these ‘fewer than 5’ companies should have paid? Seems to me a bit rich to suggest that.
ANOTHER SCENARIO:
The article identifies that these are penalties that are applied by the HRMC’s “large business service” division. So we’re talking about a division inside HRMC that deals with big companies, not ma and pa companies.
From my experience, “penalties” are allocated to things like late payments, to misrepresentations, or to blatant evasion tactics.
So now ask yourself, what ‘big company’ pays things late to the HRMC? With all their lawyers and accountants on staff, why take the risk of having to pay a penalty, just pay things on time.
So in short, I read this Eye story not as ‘bad news’ but as good news, that the number of penalties has gone down, because the division that’s dealing with big companies has cracked the whip, and where 19 companies were off-side 3 years ago, fewer than 5 dragged their feet this year and paid everything on time.
NOW I KNOW WHAT YOU’RE THINKING:
what about all the tax avoidance that these big companies undertake through their offshore structures? well yes, I don’t agree with the tax avoidance, but as we all know, it’s not illegal, and tax avoidance doesn’t lead to a ‘penalty’, provided all the documents like transfer pricing etc etc are in place.
SO IN CONCLUSION:
This private eye article STINKS. It’s whipping up anger over the WRONG reasons. It’s sensationalizing the tax avoidance issue by trying to point a finger at an inconsequential metric in the collection of tax. In doing so it’s doing a disservice to the real debate of tax avoidance that we need to have. And the more inarticulate and amateurish our argument against tax avoidance is (by pointing at the wrong metric and screaming murder), the more the other side gets stronger and makes us target the WRONG enemy (ie. attacking HMRC).
PS:
Consider this quote form the Eye again:
““fewer than five” penalties have been charged for just £322,000. These figures represent less than 0.01% of tax under-declared. ””
So work backwards:
£332K = 0.01% of ‘tax under declared’.
so:
£3.32 Billion = 100% of ‘tax under declared’
Which begs the question, what is ‘tax under declared’? Last I checked income is declared, but tax is assessed and collected, not ‘declared’. Is the Eye saying that those 5 companies underdeclared 3.32 billion in income? Or that they had a £3.32 billion tax bill for which they only paid £332K?
Even all the banks and Vodafone sweetheart negotiations we all know that the latter scenario is impossible. But everything is possible in make believe land when Private Eye prints handwaving numbers and the pundits who don’t stop to read the details run with the conclusion.
C’mon, you can do better than this as an argument against tax avoidance.
@Frances Coppola
Your view is cynical and wrong.
There is no ‘softly softly’ strategy at HMRC. There’s just a ‘dumby dumby’ strategy. That is to say, the HMRC are undermanned, underfunded, and the best lawyers and accountants go to the city so they can make mega bucks.
Why would a good lawyer miss out on a chance to make loadsofdough?
So the result is that HMRC is staffed with mediocre C+ students, who are always 2 steps behind the latest scheme that the smart A+ students working in the city have cooked up.
And when it comes to litigation, it’s just cost benefit. A big company can lock down HMRC for years in litigation, the cost of which can sky rocket rapidly, so many of the deals are a recognition of the ‘opportunity loss’ that the C+ students would have to encur.
Re-domiciling isn’t a big concern for various other operational reasons.
@Frances Coppola
I really do not think it HMRC’s job to take a slack approach to the law to keep UK corporations here
It’s the job of parliament to set laws that do that if they wish
But HMRC’s job is to apply the law- as they do to the rest of us
Otherwise we have one law for the rich and one for everyone else – and that’s the antithesis of democracy, after which the state begins to crumble
@fred G
I’m really not quite sure what problem you’re having. The ratios are specific. Remember, HMRC publish their data on the tax gap based on their investigation work. They estimate 16% of corporation tax is not declared – based on that investigation work – most by large companies (although my work shows they simply fail to investigate losses of £16 bn from small companies). So under declared tax of £3.32 billion is entirely possible – and only a small part of my estimate of the tax gap which (reasonably and rightly) extrapolates such errors
So your huff is just bluff
And for the record – tax is not assessed. We live in an age of self assessment – so it is declared
In other words – it seems very likely you have no idea what you’re talking about
The Eye have the advantage of a trained tax inspector being on the case
And using official data does help the Eye’s case
You’re just saying ‘II don’t believe it”
Well, perhaps you should
@Ivan Horrocks
I have to agree – let’s not Labour off this
Brown got this horribly wrong – and has to take much of the blame
Darling had no time to do anything but deal with a crisis
Brown started this, by choice
And we’re paying the price
@fred G
The answer is simple then – let’s buy the best brains back
The yield would be enormous
Don’t you agree?
Even if we pay hundreds of thousands to each one it has to be worth it
@Richard Murphy
Richard –
My mistake about ‘assessed’ vs declared, I don’t live in the UK anymore and the terminology in the USA is different, so I apologize. But that’s a small part of the argument. Please focus on these points:
* the article talks about ‘penalties’ – there are NO penalties for legal tax avoidance. you know this. so penalties only apply to late payments and evasion etc.
* the “0.01%” and “0.6%” numbers quoted by the Eye are misleading and false. the article is about ‘penalties’ but the 0.01% and 0.6% are about avoidance. again mixing the two issues.
* in your response, you’ve highlighted that the tax gap is an estimate. so the 0.01% again is well an estimate.
The Net Result? To the untrained reader, the Eye is arguing that the HMRC collected 300K, when it should have collected 3 billion and change.
Your counter – yes they should have collected 16 billion. But that’s not true is it? because again you’re talking ‘should have’ as in, if avoidance was illegal, then they ‘should have’ collected 16 billion. but avoidance isn’t illegal, and penalties are NOT assessed on avoidance, so again, the eye article is pointing the blame at HMRC incorrectly, and you’re jumping on the bandwagon!
@Richard Murphy
I agree. HMRC should hire people back. And pay them big bonuses on performance. And not be ashamed to give them commission plans and aggressive advancement opportunities.
Naturally this will be met by a big PR onslaught by big business.