Yesterday I noted, based on a reading of the government's new policy document on tax avoidance and tax evasion, that it intended to take action to clamp down on the abuse of the tax profession.
I wish to apologise. I was wrong. They said this:
Today, the government also announced it is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance to protect the reputation of the tax and accountancy profession and to act for the greater public good.
In my desire to finally find something I could praise the government for my optimism carried me away. What this actually disguises is the fact that yesterday they also issued a minute in response to the PAC report on PWC's involvement in Luxleaks in which the PAC said that the tax arrangements PWC promoted in Luxembourg bear all the characteristics of a mass marketed tax avoidance scheme and recommended that:
HMRC should set out how it plans to take a more active role in challenging the advice being given by accountancy firms to their multinational clients, with a particular view to the mass marketing of schemes designed to avoid tax.
To which the government response was
1.1 The Government disagrees with the Committee’s recommendation.
1.2 The department already challenges non-compliance by multinationals very effectively. The tax
affairs of the 2,000 largest businesses in the UK are managed by Customer Relationship Managers
(CRMs) in a special Large Business directorate. CRMs are experienced tax professionals trained to
the highest levels of tax compliance, who “man mark” these complex and high risk taxpayers and lead teams of highly skilled specialists to manage their compliance.
1.3 Large businesses are inherently high risk because of their potential impact on revenues and their ability to structure their affairs in tax-efficient ways. That is why the department invests in direct engagement with them so that its tax professionals have in-depth knowledge of their business model, business and tax disputes, appetite for risk in tax planning, and internal governance.
1.4 Through this approach, the department secured £31 billion extra tax from large businesses between 1 April 2010 and 31 March 2014.
In my opinion this provides very clear indication that the Treasury lives in a little bubble where fantasy is permitted and reality need not intrude precisely because of the over influence of the Big 4 accountants, of which PWC is one, and of big business. The schemes revealed by Luxleaks worked. HMRC did not recover more money as a result of them, and they were tax avoidance on an industrial scale and the government is saying it will not take action to stop it. They cannot be clearer in their willingness to permit abuse to continue. As for the claimed numbers, I have already shown them to be works of fiction.
But worse was to come. The third recommendation of the PCA was:
The Committee believes strongly that the Government must act by introducing a code of conduct for all tax advisers, as the Committee recommended in its April 2013 report. The Committee further recommends that the Government should consult on how it should regulate the industry and enforce such a code, including through financial sanctions that could be imposed in the event of non-compliance.
This is a long overdue move. Despite what was put in the tax evasion and avoidance document the government has rejected this obvious and vital step:
3.1 The Government disagrees with the Committee’s recommendation.
3.2 The Confederation of British Industry (CBI) has published a draft Statement of Tax Principlesto promote responsible tax planning. This initiative is a valuable contribution to the ongoing national and international debate around corporate tax transparency.
3.3 The ICAEW has also developed its own Code of Ethics, which it expects all of its members to follow. This Code encourages members to comply with its fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
3.4 Compliance with either the Code of Ethics or the Statement of Tax Principles will not determine whether or not firms can access government contracts. However, the Government has published separate guidelines to give departments the discretion to terminate contracts with suppliers that have engaged in tax avoidance themselves.
So, if you've published a code of ethics apparently all is well in the world. The fact that there is no policing of that code, especially in the case of the CBI, and that as far as I know there has never been an ICAEW case of misconduct for the selling of industrial scale tax avoidance (or any at all, come to that) the government sees no need for action.
Four things follow.
First this government has declared firmly on the side of corporate tax abuse. No wonder they are forecasting real deceases in the corporate tax take.
Second, their policy document yesterday is now shot through.
Third, we now know why their goal for collection of additional tax from evasion and avoidance is so small at £5billion.
And fourth, they confirm business has totally captured the tax process in the UK. We desperately need an Office for Tax Responsibility to break that.
The time for real change has come. And the tax profession and big business must be stopped from tax abusing.
They have told the FT they intend to take no action in response to government comments.