I blogged twice this morning in anticipation of today's Public Accounts Committee investigation of HMRC relating to its 2012/13 accounts. I suggested questions needing answers here and questions for Ed Troup, here.
It would seem, having listened to this afternoon's hearing that my pre-breakfast question setting was not a wasted exercise: a great many of the points I raised came up in the hearing, by chance or otherwise, whilst the blog on Ed Troup was specifically referred to by him when he was questioned by Margaret Hodge on whether he wrote 'Taxation is legalised extortion', which he finally, and inevitably had to admit.
That though is not the main point of record for now. The point is to record impressions of what was learned.
Firstly, I learned from Twitter that the profession - who otherwise hate HMRC- always love them when Margaret Hodge is giving them a rough time. I think we can be sure that there is a reason for that though - which is that the profession like the HMRC light touch.
Like the light touch that means HMRC do not recognise the tax gaps resulting from most corporate tax abuse - as they had to admit.
Or the light touch - best called an open gift to big business designed by KPMG secondees to HMRC - that the new controlled foreign company regime represents.
And the light touch approach to Eurobonds
Or the light touch that means that so far of 18,000 names received under the Swiss tax deal only 9,000 have been contacted, just 200 have settled and one has been prosecuted.
Or the light touch that says signing a declaration on a tax return saying it is correct is not apparent evidence enough to prosecute for evasion even when cash in a tax haven has been omitted.
Or the light touch that dose not apparently demand that the Swiss explain why the £40 billion of cash believed to be held by UK residents there has not materialised in practice.
And the light touch that trusts Swiss banks to get this right.
Or the light touch that will not prosecute tax cheating and yet is apparently keen to prosecute social security fraud.
And then there was the problem with amnesia. I am wholly unsurprised that Margaret Hodge was frustrated by a permanent secretary for tax who did not know who prosecuted tax cases. Or who did not know who was on his board. Or who did not know when the GAAR came into operation. Or that the EU has got an estimate of its tax gap - even if Ed Troup does not want to recognise that it has on its web site just because I prepared it. Why not, for heaven's sake?
I was wholly sympathetic too with MPs frustration at the dissembling they were presented with. There are times when Yes or No is the right answer. Witnesses should know that and say so when they do.
What else did we learn? That the tax gap estimate from HMRC is 'the tip of an iceberg' when it comes to the real issue.
And that HMRC think that consultations will tell them about the ways in which companies will exploit new legislation (how naive is that?).
And that the Swiss are running circles around us on information exchange.
Plus the fact that the controlled foreign companies rules are now being openly abused.
Oh, and HMRC have not tried to link claims that the number of self employed is rising with new self employed registration data.
Just as they seem to think that if a company does not trade in the UK it does not need to pay tax here (a law that was changed in the 90s and on which the technical commentary made by HMRC was just wrong!)
I could go on, and on. I could even mention that HMRC did not seem overwhelmed by the idea of either Richard Brooks or myself being appointed to their board (why not?). And that to follow that up they said they "usually consult tax professionals" in the final stages of consultation, as if to deny that Richard and I are just that.
It was not an edifying afternoon - especially from Ed Troup who seems to have been sent from central casting to fill the role Dave Hartnett once played.
But it has to be said there is good reason for that concern. I want to believe, very strongly, in HMRC. So I want them to be consistent, open and fair. That was not what we got. One minute it was said HMRC does not do deals. The next there was talk about deals agreed. Then it was said HMRC does not prosecute - but it does decide whether to send any case to the CPS, so of course it makes the first decision on whether a case is prosecuted, or not. And it was said HMC does not do policy. And then they talked about their policy consultations. And these things do matter. They're about credibility and this was not a credible show.
And I'm not pleased about that. I'm deeply disappointed. I want HMRC to work. On this evidence it is not. And that's just not good enough and the PAC, once again, did the right job in exposing that fact.
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Two words keep ringing in my ears and they are “corporate capture” along with another “c” word…C-O-R-R-U-P-T-I-O-N – being the dishonest exploitation of power for personal gain.
dishonest meaning or meant to deceive, defraud, or trick people in this case those being deceived are the vast majority of ordinary voters.
Can you you please explain why you think a non-UK resident company that doesn’t trade in the UK can be taxed here? And what the change in law in the 90s was?
Pointed towards on another blog:
http://tinyurl.com/ohj5gmt
Sorry don’t get that link – that’s to do with thin cap rules being out of line with EC rules and nothing to do with a change of law around the taxation of non UK resident companies.
Sorry – which link – done in haste this morning so I may have done wrong one
“Firstly, I learned from Twitter that the profession — who otherwise hate HMRC- always love them when Margaret Hodge is giving them a rough time. I think we can be sure that there is a reason for that though — which is that the profession like the HMRC light touch.”
Another reason is that “HMRC” and the “Profession” are one and the same at the top, so you could argue that they are defending themselves.
What you say only reinforces my view HM Revenue & Customs needs to be reformed root and branch. I can’t go all the way though when you say the Tax Profession wants a Light Touch from HMRC. For example it’s good for my clients if HMRC apply a Heavy touch because then there is a level playing field with their competitors who don’t pay enough or no taxes.
My question was slightly unfair, as I know the answer – it has been the case for over a hundred years that a non-resident company can only be subject to UK tax on its profits if it’s carrying on a trade in the UK. There was no change of law in the 90s. The effect of carrying on a trade in the UK, and exemptions from that treatment, has changed a couple of times (1995 and 2003) but neither changed the basic proposition.
As to whether the likes of Amazon and Google, all selling books/CDs/advertising/whatever to people in the UK, are carrying on a trade in the UK, there are several things to say. First, if they arranged their affairs very carefully and were stringent in how negotiations were undertaken, contracts signed etc, then it is conceptually possible they are not. But in my experience it is very hard for a complex business to do this – if you actually looked at what is going on I suspect you would find all or part of the trade is carried on in the UK. One would then get into a discussion of whether the domestic exemptions or tax treaty exemptions could change the position.
I should say that I’m not clear whether Amazon/Google’s position is that they aren’t carrying on a UK trade, or whether they are but are exempt, or whether they are and are taxable, but only minimal profits are attributable. But if their position is that they are not carrying on a UK trade then in my experience this is likely wrong.
I disagree on what happened in the 90s
The Egyptian Cotton case was basically overturned by a presumption in ireland – which did not happen in Ireland where the former UK position remains
You can’t say that was not significant. It was
I don’t understand your point. Section 5 CTA 2009 is very clear:
“A non-UK resident company is within the charge to corporation tax only if it
carries on a trade in the United Kingdom through a permanent establishment
in the United Kingdom.”
Nothing about place of registration in there, is there?
That applies to any company in the world
Well of course, but I’m not sure I understand your point. Is it that a non-UK registered company that is centrally managed and controlled in the UK will be resident here even if it is not trading? Certainly true, but unlikely to be relevant to the Amazons of this world. Or are you referring to the deemed residence rule for UK incorporated companies? This did change in the 90s but I’m not sure that’s relevant here. Or are you making a different point entirely?
I am referring to the latter point
And I am saying residence has to be proved, not deemed, or that change is meaningless
The cost of policing will be a tiny proportion of the gain
Well if it is a non-resident company in the UK (not under treaty), it wouldn’t have been incorporated in the UK!!
s9 deals with a UK incorporated company – and a company can be tax resident in UK if it is incorporated in UK or is centrally managed or controlled here.
So what is the point you are trying to make – or this just an unfounded dig at UK legislation?
My point is that it is deemed UKL resident companies are resident here unless proven otherwise and the proof is not being required
Is it that hard to understand?
I see. What avoidance do you see here? One does sometimes see UK incorporated companies that are resident elsewhere due to tie-breakers in double tax agreements, but this is not usually tax motivated (after all, they could just have established a company in the other jurisdiction). There used to be avoidance around moving a UK resident company to another jurisdiction, but there’s now an array of exit charges to combat this. So not clear what the “gain” you have in mind is.
I see widespread fraud
Seems an unnecessarily complicated way to commit tax fraud. If I want to use a Dutch company to evade tax I’ll use a Dutch company. Why would I go to the bother of establishing a UK company and then tie-breaking it into being Dutch resident? What’s the point?
But if the UK company register totally fails to uphold company law – and get us the case – and costs next yo nothing to use it’s a perfect way to evade
Is that really so hard to understand?
Still makes no sense. Why not use a Jersey company? A Dutch company? A Caymans company? I doubt any of these places enforce company law stronger than the UK, and potentially far less disclosure. Why would a fraudster put themselves in the frame by using a UK registered company when there is absolutely no advantage in so doing? And do you have any evidence this happens?
They cost more and are more demanding at present on disclosure of beneficial ownership
Jersey and the Caymans cost more than the UK and are more demanding on beneficial ownership? Really?
Until today, yes
Not on public record, obviously, but in that it was nigh on impossible to form a company without disclosing beneficial ownership to someone, undoubtedly so
That’s why I am so critical of the UK