I have made a submission to the All Party Parliamentary Group on Responsible Taxation this morning in response to its consultation on the Organisation for Economic Cooperation and Development Base Erosion and Profits Shifting process. For those who want to read the full 3,500 words, it's here. In practice I will be reproducing more digestible chunks of it on the blog. This is the first and deals with the UK's role in implementing BEPS:
There are particular issues of concern in the UK which need monitoring at present if there is to be any prospect of the OECD processes delivering the anticipated outcomes. These are, in no particular order:
- The on-going cuts in resources being made available to HMRC are troubling. Time and again I am told by senior tax executives in large companies that they cannot make the progress they wish for in discussion with HMRC because suitably qualified staff are not available. This problem is likely to be seriously exacerbated by the plan to close the vast majority of HMRC offices over the next few years which will precipitate the retirement of many of the most experienced staff working in these places who will not wish to relocate late in their careers. HMRC is already heavily over-dependent on people within 10 years of their due retirement date and the prospect of a massive skills shortage within its staff is very likely in the next three years;
- The digitisation of HMRC is going to reduce the number of people within its staff trained to fully understand the tax system. This is going to exacerbate the skills shortage noted above;
- A lack of resources makes it very likely that the supply of additional information to HMRC, including country-by-country reporting data, will not result in any meaningful action because there will be a shortage of people to use this data. The whole process could, as a result, go to waste as a consequence;
- The same problem exists with regard to information to be supplied by tax havens under automatic exchange of information agreements, where, once again, the chance that there will be sufficient staff to use this information to make meaningful enquiries of taxpayers who have broken the law is low;
- The UK government's pursuit of an overtly aggressive policy with regard to tax competition, which makes the UK looks like a tax haven to those from other countries, has a number of significant consequences. In particular, if a low tax rate is used to induce the relocation of businesses into the UK it becomes almost impossible for our tax authority to then take an aggressive stance with regard to the estimation of the tax base of those companies that have relocated as a result. This is because they have already proved themselves to be footloose and might, therefore, leave as a consequence of any such enquiry. In that case the capacity of HMRC to actually enforce UK law is being seriously undermined by government policy;
- The Diverted Profits Tax show that the UK is willing to ignore the OECD process and the international cooperation implicit within it when it suits its own purposes: this is not encouraging with regard to necessary future joint action to tackle tax abuse;
- The UK's continuing dedication to maintaining a network of tax havens undermines the BEPS process;
- The continued existence of the U.K.'s domicile rule still signals that we are a tax haven for wealthy individuals, undermining international initiatives on this issue;
- The UK is an opponent of many of the initiatives being taken in the European Union on taxation matters, including the creation of the Common Consolidated Corporate Tax Base;
- It is also widely believed that the UK is a major opponent of public country-by-country reporting.
As a consequence of all these issues it is fair to note that the UK is at present a greater impediment to progress on the implementation of the OECD's proposals than it is a facilitator of their achievement.