One of the many tax publications I read is the newsletter of law firm Pinsent Mason. In the latest edition chartered accountant heather Self, who is a partner there, says in the editorial:
In his 2002 Budget speech, Gordon Brown introduced the substantial shareholdings exemption (SSE), which had the clear policy objective of enabling UK-based trading groups to restructure and reinvest without being hindered by tax charges.
SSE is, of course, not relevant to the Vodafone sale of its Verizon interests,since that is a disposal by a Netherlands company of a US shareholding. However, Vodafone has confirmed that SSE would have applied to a direct disposal by the UK, and it is therefore nonsense to claim that UK tax has been ‘avoided' on this deal.
And she adds:
This is so self-evident to any tax specialist that it would not be worth commenting on, were it not for the very different view taken by some media commentators — and, notably, Margaret Hodge.
I am afraid that, as is often the case, Heather has got this completely wrong.
First, this tax specialist did think the issue worth commenting on - and I estimated the loss at £12 billion.
Second, whilst it is undoubtedly true that the law did not require that tax be paid and that therefore Vodafone did nothing wrong as such (although it did have avoidance in mind, very clearly, as the Dutch structure can only have that intent - so comment on that motive was wholly appropriate) it is also equally undoubtedly true that those with an interest in the political economy of tax have a right to howl in protest at such losses and to say - as Margaret Hodge has done - that the law needs to be changed.
Third, let's be quite clear: Heather Self or her firm will, I am sure, have no hesitation in saying Labour is wrong to scrap the cut in corporation tax for big business that Osborne is planning. That is also engagement in the political economy of tax - and it's time that these advisers admitted it.
In which case, finally, they should drop all their claims of puritanical objectivity when it comes to issues such as avoidance. Major law and accounting firms are about as objective on tax as the average football supporter is when it comes to their club and its local rival. To put it another way they are completely and utterly partisan and all pretence that Margaret Hodge can be dismissed 'because she has got tax wrong' in a way 'no self respecting tax adviser would' should be seen for the self serving sophistry that it really is. It's blatant, albeit non party, political economic positioning.
There's nothing wrong with that. But if the tax profession is to be accepted as credible it has to drop its supposed 'holier than thou' suggestion of 'independent observation' and admit it's engaged in blatant lobbying. When it does people might accept what it says with more open minds. Right now they rightly, and very largely, dismiss it because it self evidently is not telling what most people would consider to be the truth - and rightly so.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Well said, as usual Richard. Pinsent Mason have been playing a very clever game on tax, pretending to be objective in their newsletters and public comments but doing something quite different behind the scenes.
Perhaps Heather Self and her boss James Bullock should disclose their clients’ list each time they comment publicly on tax or indeed endow a professorial chair on tax at a leading university!
The case law is replete with the dodgy clients McGrigors (and now Pinsent Mason) have represented in some of the most egregious tax abuse schemes, so there is no credible issue of client confidentiality at stake.
That list would be interesting to see
Only just seen the Oxford news
No wonder Judith Freedman was tetchy with me last week
From KPMG professor to Pinsent Mason professor
Richard,
Pinsent Mason acted for Mr Mayes in the notorious HMRC v Mayes [2011] EWCA Civ 407, cited by even Aaronson in his report as the worst type of “egregious” schemes that need to be tackled by his very narrow GAAR.
Pinsent Mason’s website shows that they are stiil very happy with their achievement: “Acting for Mr Mayes (one of 70 participants in a tax scheme called SHIPS 2) in the Court of Appeal in Revenue & Customs v Mayes [2011] EWCA Civ 407, one of the only tax avoidance “schemes” to succeed before the courts in recent times.” http://www.pinsentmasons.com/en/expertise/services/tax/tax-litigation–disputes/
Fascinating
Ships 2 was ugly
This is what Aaronson wrote about Mayes and SHIP 2:
3.20 Regrettably, however, it is clear that purposive interpretation, specific anti-avoidance rules and DOTAS are not capable of dealing with some of the most egregious tax avoidance schemes. Such schemes focus on prescriptive tax rules which are not susceptible to contextual interpretation. A recent example is the “SHIPS 2”13 scheme, which gave UK taxpayers a seven step route to creating an artificial tax loss which could be used to set off against their other tax liabilities. In the High Court Proudman J sympathised “with the instinctive reaction that such an obvious scheme ought not to succeed”14 . However given the prescriptive nature of the statutory rules in question she was unable to find a purposive interpretation sufficient to defeat it.
3.21 The Court of Appeal15 reached the same conclusion. In the present context it is particularly pertinent to note the comments of Thomas LJ and Toulson LJ. Thomas LJ16 said —
“I agree with the judgment of Mummery LJ which sets out with great clarity why the appeal and cross appeal have to be dismissed. However, for the reasons given by Toulson LJ, my concurrence is reluctant. The higher-rate taxpayers with large earnings or significant investment income who have taken advantage of the scheme have received benefits that cannot possibly have been intended and which must be paid for by other taxpayers. It must be for Parliament to consider the wider implications of the decision as it relates to the way in which revenue legislation is structured and drafted.”
3.22 Toulson LJ17 said —
“I also agree. On the corresponding deficiency issue I add a brief summary to explain the reason for my reluctant concurrence in a result which instinctively seems wrong, because it bears no relation to commercial reality and results in a windfall which Parliament cannot have foreseen or intended.”
3.23 I agree with Thomas LJ that it would be appropriate for Parliament to consider the implications of that decision. SHIPS 2 shows the inadequacy of the existing means of combating highly artificial tax avoidance schemes. It, and other schemes like it, provide the answer to the question “does the UK need a GAAR?”. The answer is that it does.
What do the commentators above want? Pinsent to deliberately lose the case or refuse to act on behalf of a client?
It is a fundamental freedom that anybody appearing in court is entitled to representation – it would indeed be a sad day when a taxpayer is not entitled to litigate as best they can, even if it is against State machinery.
As regards lobbying – there is no difference between left-wing tax campaigners and law/accounting firms? Both entitled to lobby, just the arguments differ. Why should these firms be disbarred from lobbying but the campaigners not. Seems you are demanding an uneven playing field – are your arguments failing that you need such an advantage.
As regards Oxford – has anybody else offered to endow the chair – how about the cash-rich TUC or PCS. That would be great and then maybe you naysayers will witness first hand what Academic Freedom is – even though you detest it.
You are ridiculous
A lawyer is not obliged to act for anyone
Look at Pinsent web site. They’re proud to have won SHIPS 2. You make a complete idiot of yourself to say this was a justice issue
And of course all are entitled to lobby – just some claim they don’t and aren’t going to be regulated for it
And the answer on chairs is – taxation. Of course
Richard
I think you are a bit harsh on Heather
Please leave her alone as seeing how wrong one individual can be is v entertaining.
Her role is like that of the Daily Mail ie what she says is the exact opposite of the truth when it comes to political economy.
Your linked post doesnt seem to give tbe calculation of the £12bn. But is your figure based on a comparison with what might have been tbe case if the law was different? If so then could it be a higher or lower figure depending on what laws you assumed would apply?
And if funding dictates/influences analysis and outputs surely we can’t trust anyone who’s in any way professionally engaged on tax or social justice or indeed any issue of public concern? We would ignore all MPs who had external funding. We’d have to put aside the work of NGOs. We’d only be able to rely on unpaid commentators.
Doesn’t sound a great position to find ourselves in.
The calculation is all there
Sorry. Still can’t see it. Maybe because I’m looking on a phone? But it must still have been based on an assumption about the law/tax rates that could or should have been applied?
And I wonder if there are any views on the links between funding and analyses?””
I have set out a logical series of steps to come to a conclusion, I think
Not sure what your last means
The relationship between the sources of funding an individual and/or organisation may receive and the influence this may have on the analyses, reports, comments, opinions, and so on, they may produce has been a topic for discussion on this blog – by Richard and commentors – a fair few times over the years, Iain.
If my memory serves me correctly, it’s been discussed in the context of various centres and Chairs at universities, think tanks, and consultancies and accountants, and more. Beyond that, Ben Goldacre and George Monbiot routinely write on the subject, in the former’s case about the influence of big pharma on drug and medical research, and in the latter case the organisations that we used to refer to as “think tanks”.
The point that Richard makes here, and that Goldacre and Monboit also make, is that there are a wide range of people who explicitly or implicitly present themselves as neutral and/or objective commentators. This is a position all the more easily achieved and maintained where a person is able to present themselves as a member of a profession (such as an accountant), academic or suchlike – positions that have historically been seen as bestowing an objective, non-partisan value to what a person says, when in reality there may be a range of things – such as their own values and beliefs – as well as sources of support and funding – that influence what they do and say.
Insofar as funding and other forms of support go (such as the provision of office space, technology. etc) the issue is that many individuals and organisations fail to disclose what they receive and from where. In short, there’s a complete lack of transparency and thus it’s difficult for Jo or Joanna Public to make a judgement as to whether the comments they make, positions they take, or opinions they give MAY be biased by that funding relationship or not, or lead to other forms of conflict of interest.
Contrast this with the situation that applies when, as an academic, I submit something for publication in many academic journals. I quote from Elsevier’s instructions to authors:
‘Conflict of interest
Authors are requested to disclose any actual or potential conflict of interest including professional/personal relationships with other people or organisations within three years of beginning the submitted work that could inappropriately influence, or be perceived to influence, their work.’
As as starting point I’d like to see something similar applied to all individuals who publish (individually or collectively) any form of report that comments on and/or seeks to influence public policy. But as a realist I recognise that, sadly, this will never happen.
Ivan
I agree
I hope I make all my biases known
Surely no one can miss them?
Best
Richard
How much does the UK lose in tax through the sale of primary residences where such transactions are not being taxed by HMRC?
No one knows
This is interesting background Ivan but I’m not sure it helps us in this case. As far as I can see Pinsents are not commissioning a piece of research, marketing a product, or appointing people to serve on their own Think Tank. Nor are they providing office space or technology, and are certainly not withholding information about funding.
And of course it is true we all have our own ways of looking at the world and biases. But I thought it was precisely for that reason that over the centuries academics have evolved the procedures of peer review, independent refereeing, full disclosure of evidence, and so on.
I assume that you apply these standards in your work. Without specific evidence to the contrary I would also assume that a University appointed academic would operate in the same way. I do not think it sufficient evidence of bias to argue from the basis that they draw different conclusions to you – there may be no universal truth!
But if we are to take Richard’s and your comments at face value then I think there is a significant risk that Tax Research or Fair Tax Mark work is devalued or ignored by those who say that the presence of funders like unions or NGOs taints the outcomes.
I would rather not be in the place that says all research and findings are really biased so that we cannot rely on anything. Which takes me back to my opening question about the £12bn loss. Richard may have set out a series of steps but I still cannot see how the specific number is derived from those arguments. Even something broad brush like £84bn proceeds, all taxed in the UK in the mix of X% at lower rate, Y% at another rate, and so on. I assume this has been done otherwise there would be no figure of £12bn.
Incidentally, I still have reservations about using the term “loss”. In plain English no one has actually “lost” anything. If this use is accepted then it gives credence to those who are claiming that a refusal to implement a cut in corporation tax is actually a rise.
I have complained about disclosure at Oxford Centre for Business Taxation
The complaint was reported by the THE
As for the £12bn loss I still remain baffled
But try again here if you wish http://www.mirror.co.uk/money/city-news/vodafone-avoids-12bn-tax-bill-2248272
I think Nero and Richard adequately deal with the Pinsent Mason and similar examples at the head of these comments, Iain. And I accept there may be no universal truths. But I was not saying or even suggesting that all research and analyses is biased or conflicted. In fact I made a point of putting MAY in upper case to try to ensure it was clear I was not suggesting that.
My central point was that too often it is not possible to make a judgement about whether bias or a conflict of interest may exist and thus the possible consequences of that situation. A particularly egregious example of this that the public are routinely subject to – via TV, newspapers and such like – are the research reports and expert opinions from the large number of bodies (think tanks as they used to be referred to) that routinely comment on public policy. I’ve lost track of the number of times I’ve listened to people from the likes of the Tax Payer’s Alliance on the BBC and elsewhere being presented – and speaking – as if what they have to say is objective and non-partisan when in actual fact it may well be partisan, politicised, opinion,the purpose of which may be to promote the interests and concerns of the bodies that fund/support them. Currently, we have no way of judging whether that may be the case or not unless an organisation/individual choses to undertake the type of diclosure I mentioned in my previous comment.
You are suggesting that lawyers acting on behalf of clients have no objectivity when it comes to applying and commenting on the law.
Would the same apply to Michael Mansfield QC, who according to you can have little or no objectivity in discussing the crime of murder – after all he has defended those charged and convicted of the offence.
It probably means, too, that David Goldberg is incapable of commenting on tax law as he has represented HMRC.
Should we disregard Philip Baker’s seminal work on Tax Treaties because he has represented taxpayers in DTA disputes?
Unlike you I do not think the world is black and white
I think there is, to use the Quaker phrase ‘that of God in everyone’
In some it shows
In others, let’s be candid, it’s hard to spot
Your argument is, I suggest, based on a false assumption
It’s one libertarians love
I am glad you made the point about “major law and accounting firms” objectivity,
because I believe that there is a gradually growing rift not only between these firms and small and medium sized firms, but also the professional bodies. These large firms think themselves untouchable, just talking to their members I find that they are only just becoming aware of the current tectonic movements in the tax debate. Like Generals in History they are fighting the Last War not the current.
We agree on that
That calculation was not cited in your linked posts on this site.
As suggested this is not a real loss, in plain English. It is an estimate of the cost of rule changes, assuming that every recipient of the proceeds would have been taxed at 23%. I do not know enough about the shareholder composition to know if that is the case but I suspect this would not be the case. Has anyone done more research on that point?
The recipient was a company – called Vodafone – hence 23% loss
And yes it was a loss – it was the loss to political lobbying for this change