The Treasury Committee of the House of Commons issued a call for evidence on Tax After Coronavirus (TACs) shortly before the summer recess, with submission requested by 28 August 2020. I have on behalf of Tax Research LLP, and the Tax After Coronavirus (TACs) project that it runs, submitted evidence in response to that call.
That submission is here. Since the whole submission is 13,000 words it is not possible to summarise it all in a post. What I will, however, be doing is posting parts of this submission, and discussion of it, on a new Tax After Coronavirus (TACs) website that has been set up for this purpose at the request of the project funders, the Joffe Charitable Trust. The first post, noting some of the recommendations made is here. Please take a look.
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From your summary.
“the UK should consider removing the exception from filing a corporation tax return provided to companies who claim to trade only outside the UK.”
You’ve misunderstood this issue. There is no exemption from filing a UK tax return for a UK company which trades only outside the UK.
I suspect you vaguely half-remember the possibility of a UK company electing to exempt profits (and losses) of foreign branches and you’ve become confused by it. That exemption doesn’t mean the company doesn’t need to file a corporation tax return, it still does. I hope you haven’t gone in to too much detail on this in your report, it will make it look like you don’t really understand what you are talking about.
I can imagine someone at HMRC saying “What’s he on about? There is no exemption. He’s suggesting rule changes and doesn’t even know what the rules are!”
The fact this is the case was stated by the First Secretary of HMRC to parliament
Can you point to the legislation which exempts a UK company from filing a UK tax return if it only trades overseas? Or HMRC internal instructions? You won’t be able to because there is no such exemption.
Or can you point to the statement made by Jim Harra? I’d be interested in what he actually said.
I am quoting what what Jim Harra told Margaret Hodge Was HMRC practice
She was shocked
So was I
I have not got time to find it again Hansard now
The essence was that there was no tax to be paid because any due should have already been paid so HMRC did not want to know
The discussion was in the context of why HMRC do not ask for tax returns from so many companies
You’re not “quoting” Jim Harra.
You seem to be relying on what you think Margaret Hodge told you about what she thinks Jim Harra said to her. Hardly a sound evidence base to suggest changes to legislation.
Take it from someone who actually files company tax returns. HMRC require them in those circumstances. Quite why you intransigently insist on sticking to a view arrived at from third hand gossip and seem impervious to the idea that it might not be a bad plan to actually check facts before demanding changes is a mystery.
It was in Hansard
And I watched him say it to the Committee
And no HMRC do not require them – in fact the whole arrangement is virtually a voluntary disclosure box scheme
I reported this here https://www.taxresearch.org.uk/Blog/2013/10/29/tax-haven-uk-runs-a-voluntary-box-corporation-tax-system-for-those-whod-like-to-pay/
I am sure you can find Hansard from that
Here you are Jon, search for 30% and/or Harra:
https://publications.parliament.uk/pa/cm201314/cmselect/cmpubacc/666/131028.htm
Thanks Graham
Note this exchange:
Jim Harra: The two main categories [of companies from which returns are not required] are either because they are dormant-company registration agencies set up shelf companies and keep them on the shelf, ready to sell to clients-or, increasingly, because the charges to register a company in the UK are low. We find that, for example, a lot of German businesses register on the UK register, but they operate only in Germany, so they are not within the charge to UK tax. Those would be the two main reasons.
Q244 Chair: And you can tell this Committee that of those 838,370 companies in 2009-a similar figure possibly today-all of those would have been checked? Or do you do a risk-based assessment, meaning that you will check a sample?
Jim Harra: Our process is to review dormancy on a periodic basis. Our experience is that the risk in that population is low.
Q245 Ian Swales: Can I ask for clarification on something that Jim has just said? Why would a German company take the time to register in this country? Just because it is low-cost would not make me go and register a company in a country I was not interested in.
Jim Harra: It has been our experience. I mentioned Germany in particular because it has been our experience that German businesses will register in the UK, because the charges for doing so are much lower than in Germany. Under EU law, they are entitled to establish wherever they wish.
Chair: What’s the purpose?
Q246 Ian Swales: Why would they do that? Is that to avoid tax in Germany?
Jim Harra: No. It is to save them the registration cost.
Q247 Mr Bacon: So you mean that they trade in Germany, and their customer base is German-or perhaps they export and their customer base is overseas-but they do so as a UK-registered company?
Jim Harra: They will be on the UK register of companies.
Q248 Mr Bacon: But so long as none of the activity takes place in the UK, they don’t attract any liability for tax in the UK.
Jim Harra: That’s correct.
––
I do not make things up
So to clarify, is there any legal requirement for a UK company who do all of their business outside the UK to file a UK tax return Richard ?
Ask Jim Harra
He says not
And in practice he sets the rules, whatever the law says
If he’s wrong he’s accountable to parliament for it
No he doesn’t he is quite clearly saying that their is no liability to tax in the UK. Not that do not have to produce a return.
This is simple stuff.
Read the context please
Your claim cannot fit it
UK companies are taxable on their worldwide income. However if they trade exclusively outside the UK, and/or their directors/staff are all outside the UK, they could also be subject to tax in another country.
The UK/German Double Tax Agreement states that a company which is potentially resident in both the UK and Germany will only be taxed in the country of effective management. So if someone in Germany sets up a company in the UK solely because the admin is easier, but all the customers and staff are in Germany, then effective management is in Germany, and the company will only be taxed in Germany. Harra is referring to that specific example. He is not saying that UK companies that trade exclusively outside the UK have a blanket exemption from UK tax.
That is clearly not what he was saying
Is it that hard to read what was said?
I don’t understand why you would want dormant companies or any other company that wasn’t liable to UK tax to file a tax return? What’s the point.
Sure, accountants will be happy. Extra fees.
HMRC will be swamped with hundreds of thousands of nil returns to process and so waste resources.
All for what? No tax.
You seem obsessed with the idea that there are hundreds of thousands of companies secretly evading taxes but I never seen you produce any evidence at all of this.
It’s like insisting that every car boot is searched by the police on the off chance someone has a dead body in it.
Why wouldn’t you want a return?
How would you know there was no liability without one?
The tax legislation is very clear on this point. UK companies are taxable on worldwide profits. It is in CTA 2009 s.5(1).
It is obvious that Harra is talking about one specific situation. He gives the example of German businesses registering in the UK and then answers questions from MP’s on that specific example. He is not saying that UK companies are not subject to tax on all profits earned outside the UK.
I think legitimate questions could be raised about how HMRC are policing this – I would expect them to require confirmation from the overseas tax authority that the company is filing tax returns and paying tax in that jurisdiction – but the law is very clear.
You clearly have not read what he said in full
And what he said supports my conclusion
It was not a specific example; it was generic
And no evidence was said to be required
It was generic
And no evidence was sought, which is what much of the questioning was about
But write to him for an explanation by all means
And at the same time ask why they don’t ask for returns from millions of other companies without any evidence either
You are wrong. At best the quote is inconclusive, but for those that know the rules, your interpretation is wrong.
Persisting with this interpretation purely because it supports your position is nonsensical.
With respect, in the context my interpretation is all that makes sense – have you gone back to Hansard? I doubt it
‘With respect’ when you mean no such thing.
You are wrong, and once again will be proved wrong in due course. In the meantime, keep arguing that you are correct against all the evidence!
This is getting boring – most especially when I have provided the evidence
Without evidence there are no further comments in this
I am stunned at the lack of addressing of geopolitics and structured caste system within society in this report. It is abysmal & more tax money ain’t going to fix it. We need new people oriented policies, which requires a political will which does not now exist.
There are inherent problems with giving more powers to central government, especially historically tyrannical ones like the US and UK. Both are captive to corporate oligarchs who will use shared financial information to not go after the rich but after mom and pop.
OECD has admitted they don’t give a damn about security controls on information sharing. It is just one hack away, if it not has happened already. Where’s the discussion on personal security?
Why should we be giving any of our hard earned money in the form of additional taxes to any government where it treats the majority of its citizens as expendable and to be used up? Covid has proven the UK and the US authorities are inept at containing the virus compared to other countries – not because of lack of revenue but because of not giving a damn.
The social contract has long been broken.
So, give the same elite clowns more of our money as “revenue” and give them more powers to spy on us? It is a bad deal and is dangerous.
Did you read section 1? I discuss the integration of tax with social policy