HMRC have announced a new tax amnesty. And this time it is for big business. It's called the Profit Diversion Compliance Facility, and what it basically does is to permit multinational companies that have been less than candid with their transfer pricing arrangements to now bring their past defaults to the attention of HM Revenue & Customs and make amends with limited risk a penalty apply.
Why is HMRC doing this? The clue might be in para 4.4.1 (some of us have been reading the small print) which says:
Our investigations into Profit Diversion to date have established that in a large number of cases the factual pattern outlined to HMRC at the start of an enquiry does not stand up to scrutiny once tested. That may be a result of a careless error (for example individuals within a group being unaware of what the actual facts are) but it may also be a result of a deliberate behaviour, that is a group knowingly submitting a TPmethodology in a Corporation Tax Return based on a false set of facts. A common issue is an overstatement of functions performed, assets used and risks assumed in entities taxed at lower rates, and an understatement of the functions performed, assets used and risks assumed in the UK.
I added the emphasis.
This begs questions. In particular:
a) What is the total estimated value of trade subject to transfer pricing a year?
b) How many TP specialists does HMRC have?
c) How many investigations do they do a year?
d) What is the value of transactions subject to enquiry annually?
e) How many of those enquiries resulted in the view that “the factual pattern outlined to HMRC at the start of an enquiry [did] not stand up to scrutiny once tested”?
f) What is the sum recovered?
g) How many of those enquiries were subsequently referred to Fraud Investigation Service?
h) What is the anticipated yield of this current exercise?
HMRC needs to be saying a great deal more.
NB: My thanks to Alex Cobham of Tax Justice Network and Robert Palmer of Tax Justice UK for input on this issue.
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This is obscene. Sounds like fraud, corruption and money laundering to me.
Is the amnesty for a limited period of time? If so it may be HMRC’s way of saying ‘we’re giving you a chance to own up now, if you don’t we’ll come after you”. Whether that would be a bluff or not I don’t know.
It is time limited
Do amnesties like this actually work? ie do companies, individuals or whatever actually come forward and admit to past errors and thereafter change their ways – and pay their dues in future, rather than find ways round the legislation? And is this a fair and equitable way of proceeding against those who have deliberately or inadvertently erred when there are many more who have not erred and have paid up as and when required?
In broad terms I think such amnesties short sighted and unfair
I see little reason to think differently on this one
The IMF have some thoughts on whether tax amnesties work
https://www.imf.org/en/Publications/IMF-Special-Issues/Issues/2016/12/31/Tax-Amnesties-Theory-Trends-and-Some-Alternatives-21865
The authors write
“successful” tax amnesties are the exception rather than the norm. Improvements in tax administration are the essential ingredient in addressing the main problems that tax amnesties seek to address. Indeed, the most successful amnesty programs rely on improving the tax administration’s enforcement capacity.
And further that
“Every so often, a “very successful” tax amnesty program
occurs and attracts widespread media and policymakers’ attention. One such
recent example is Italy’s Scudo Fiscale (2001), which targeted undeclared
offshore capital and enabled the repatriation of some €60 billion”
So HMRC’s plan could work as it’s targeting the same sort of things, but on balance the IMF would not recommend it.
Thanks
I agree with them
This is corporate tax collection on the cheap and from a position of weakness.
I ask you – who can take it seriously?
Sorry 3rd comment on third article.
This coming out of the blue has the hallmark of a delayed brexit. If we (UK) have dealt with tax avoidance in such a pathetic sanction the EU won’t be able to?