Private Eye has scored another extraordinary scoop following all the commotion in Britain (and other countries) about corporations like Starbucks, Google and Amazon using tax havens to avoid paying taxes.
In a recent hearing the Public Accounts Committee (PAC) asked Edward Troup, a top official from the UK's HMRC how many multinationals had been taken to court for tax avoidance. He listed several technical disputes concerning duties (such as Value Added Tax) involving GlaxoSmithKline, Axa, Carlsberg, and Pendragon, and a Pay As You Earn (PAYE) avoidance scheme involving PA Holdings. However, The Eye comments:
"The staggering truth established by the Eye — to which HMRC refuses to respond despite half a dozen requests — is that of the thousands of major corporation tax ruses set up since 2004, not a single one has been taken to a tribunal or court! All have been settled through “light touch” compromise agreements, often in breach of the department's official policy and at immense cost to taxpayers."
The real point that emerged is a simple one: not a single case of tackling transfer pricing was taken. Not a single case. The use of the word 'staggering' here is, for once, justified, and possibly even understated. (Read this article about the capture of tax policy making by the UK by multinational corporations, and weep.)
There are three main ways to turn your country into a tax haven, from the perspective of corporate taxation. One, cut your tax rates. Two, create (and encourage) tricky tax loopholes. Three, don't enforce your laws. This astonishing revelation by the Eye - among other things, revealing how a senior tax official misled a public inquiry - just confirms the third, leg, if ever such confirmation were needed.
NB: A longer version of this article is to be found on the TJN blog, here. Reproduced with permission.
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You don’t think there’s a chance that HMRC are deliberately trying to keep these cases out of the courts to avoid results like this one: http://uk.reuters.com/article/2012/11/13/uk-eu-court-idUKBRE8AC11J20121113 After all, several bits of the UK code have been referred to Europe as breaching Freedoms, and the TP legislation itself had to be rewritten not so long ago for fear that it would be struck down alongside the group relief and FII rules? The flipside to the secrecy of one off deals is that they don’t set a precedent for everyone to follow – and if the precedent was that UK’s TP rules were unlawful, rather than just ineffective, we’d really have a problem.
“Not a single case of tackling transfer pricing was taken” Utter nonsense, what about DSG Retail v HMRC. And there were others too..
DSG Retail was pre 2004!
It was not a transfer pricing case
It was a VAT case
The longer TJN blog contains some details that readers will need to know, particularly a PPS outlining some issues re timing ( otherwise you’ll have commenters coming in saying ‘hang on what about this case here?’ )
Is that the same GlaxoSmithKline that the US tax authorities took to the cleaners for claiming an allowable charge for the use of intellectual property/brand rights? And whats the betting that GSK were looking to have the intellectual property income somewhere other than the UK as well.
Timing? Pre 2004…
But you’re right….
Lile the 2nd bullet point:
Manchester United see record revenue as debt falls to £359.7m
– Growth comes from 10 new sponsorship deals
– £26.5m tax credit sees club avoid overall loss
Manchester United saw their total revenue rise to a record £76.3m in the financial first quarter thanks to increased sponsorship deals — though the club would have made an overall loss had it not been for a £26.5m tax credit received by registering its holding company in the tax-free haven of the Cayman Islands.
I’d add a fourth way in which you can turn you country into a tax haven, Richard, which from my (political science) perspectives is as important, if not more important, than the other three, particularly in a country with governmental, judicial and institutional structures such as we find in the UK. If you read Richard Brooks’ submission to the PAC it’s all there – corporate capture of the policy process.
In this instance we have a range of groups set up by the Treasury and HMRC, supposedly to formulate public policy (or policy advice, at the very least) – that is policy that is formulated with the best interests of the citizens of the UK in mind – which all contain senior representatives from a wide range of commercial interests with vested interests in particular and partial policy outcomes.
The outcome is inevitable, and is, as Richard Brooks points out, nothing short of an absolute scandal. Why? Because what we have here are two departments of state knowingly and willing participating in policy tmaking that intentionally distorts policy outcomes for the direct benefit of particular organisations and individuals at a COST to the wider population.
If you want to get to the root of why Osborne and Cameron and so on can bang on about how immoral and repugnant tax avoidance is without choking on their own words, look no further than here. They – and people like Gauke – know full well that as they close that door their (so called) public servants at the Treasury and HMRC are busying away with their corporate masters (for actually that is what the relationship has now become) creating public policy that effectively removes the foundations of the whole system. The result will be that within a very short period – and certainly by the time of the next election – tax policy for corporates (and the 1% generally no doubt) will be so lax that it will not be necessary to avoid or evade anything. And at that point government will be able to claim – and show – how effective their actions have been, and corporates will be able to claim – and show – how well behaved they are.
To quote a well known saying from Private Eye, which is where your blog started, ‘trebles all round!!’
Agreed, entirely
I have seen this happening in practice
The classless society ?
“Former Labour Minister Lord Myners asked the Government ‘whether invitations to bid for new rail franchises permit the introduction of a third passenger class.’
Earl Attlee indicated that they did, stating: “The current franchising system allows bidders to propose the introduction of a third passenger class as long as these proposals comply with the ticketing and settlement agreement and franchise agreement.”
I notice that the water companies appear to have slipped under your radar. I hope you will get round to them.
The globalisation of “workfare”…
http://www.tokyofoundation.org/en/articles/2012/dissecting-tax-schemes-of-third-force1#1114
Richard
a useful thing to ask for under “open Government” would be a list of the employees of either HMRC or HMT who have left “public service” (ha ha) in the last (say) 3 years, the projects they worked on & the implications thereof.
You might be shocked
This one scraped under the radar as well:
“Education Secretary Michael Gove told Parliament on Tuesday that his department had opened up a public consultation on plans, in his words, “to share extracts of data held in the National Pupil Database for a wider range of purposes than currently possible in order to maximise the value of this rich dataset.”
Chillingly, one such usage cited would involve creating a private sector market that would be able to offer “innovative tools and services which present anonymised versions of the data”.
http://www.theregister.co.uk/2012/11/08/national_pupil_database_regulation_overhaul_in_private_sector_data_grab/
With reference to my last post:
“The acquisition will enhance Capita’s vision to deliver an integrated database for children’s services departments which will hold a single record for each child from birth to adulthood”
and:
“The combined solution will mean that data can be entered on a child once and then viewed by all authorised personnel in any service, saving a great deal of time and eliminating the duplication of data entry”
As an HMRC member of staff I have to be careful what I say – but – the philosophy of the HMRC Large Business Service has for the last few years been one of “customer facilitation” – in other words assume that businesses want to get their tax right and help them do this and not challenge them by carrying out in depth examination of their business records on their premises. This is not the way the former HM Customs and Excise worked – we tended to examine records and transactions in depth in order to detect anomalies, but this approach seems to have been abandoned since we merged with the former Inland Revenue who seem to take a much more gentler stance.