{"id":15721,"date":"2012-05-25T10:43:41","date_gmt":"2012-05-25T09:43:41","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=15721"},"modified":"2012-05-25T11:02:36","modified_gmt":"2012-05-25T10:02:36","slug":"even-seasoned-tax-journalists-are-now-beginning-to-doubt-hmrc-on-the-tax-gap","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/05\/25\/even-seasoned-tax-journalists-are-now-beginning-to-doubt-hmrc-on-the-tax-gap\/","title":{"rendered":"Even seasoned tax journalists are now beginning to doubt HMRC on the tax gap"},"content":{"rendered":"

Andrew Goodall is a pretty seasoned tax journalist. He works for the Tax Journal<\/a>. Like all good\u00a0journalists\u00a0he is not satisfied with\u00a0first\u00a0impressions, glib responses and being brow beaten. So it's interesting that Andrew's view on the tax gap seems to be\u00a0changing. He's covered this issue for some time - talking to me about my work in the process, but yesterday on hios own blog he had this to say<\/a>\u00a0(and I reproduce at length with his permission):<\/p>\n

There is a potentially very large amount of UK corporation tax, legally avoided by some of the biggest multinational companies, that does not figure at all in HMRC\u2019s \u00a335bn estimate of the tax gap. As HMRC told MPs last week, that estimate is used to prioritise the department\u2019s response to the risk of revenue losses.<\/p>\n

As I reported this week for\u00a0Tax Journal<\/a>, this avoidance is not the \u2018egregious\u2019 activity that the proposed general anti-abuse rule is meant to see off.<\/p>\n

It is \u2018international\u2019 corporate tax avoidance of the kind featured in last week\u2019scPanorama programme<\/a>, which some tax professionals regard as normal tax planning. This would not be caught by the new rule.<\/p>\n

Last week\u2019s\u00a0Private Eye<\/em>\u00a0said that while the schemes described in that \u00a0programme were complex, they worked on a simple principle:<\/p>\n

\u2018paying tax-deductible expenses from the UK or other countries into Luxembourg companies that with some artful financial engineering pay less than 1% tax on the income\u2019<\/p>\n

The result? \u2018Multi-million pound tax savings all round.\u2019<\/p>\n

HMRC told the Treasury Committee that Richard Murphy\u2019s \u00a3120bn estimate of the tax gap \u2014 often quoted by trade unions, charities and campaign groups \u2014 was \u2018misleadingly high\u2019.<\/p>\n

By far the biggest component of the tax gap is illegal evasion. I\u2019m focusing here on legal avoidance.<\/p>\n

HMRC\u2019s estimate of tax lost due to avoidance is \u00a35bn, while Murphy\u2019s is \u00a325bn, including \u00a312bn for corporate tax avoidance. That estimate is based on an \u2018expectation gap\u2019.<\/p>\n

Murphy argues that HMRC\u2019s \u2018bottom-up\u2019 approach for direct taxes does not take account of the tax saved by multinationals through arrangements such as those featured in Panorama.<\/p>\n

Recent research for the\u00a0Mail on Sunday<\/a>\u00a0used a top-down, \u2018expectation gap\u2019 approach.<\/p>\n

But, using the bottom-up approach, HMRC may not identify any loss of UK tax, or \u00a0\u2018avoidance risk\u2019, in a company\u2019s return.<\/p>\n

Consider, for example, a deduction for interest paid to a Swiss subsidiary. UK law may well allow the deduction \u2014 and the tax saved by what may amount to profit shifting is not considered by HMRC to be part of the tax gap.<\/p>\n

As\u00a0ActionAid has demonstrated<\/a>, it is the legal structure of multinational groups that enables them to shift profits from countries with high or \u2018normal\u2019 tax rates to those with lower tax rates,\u00a0without<\/em>\u00a0breaching the OECD\u2019s transfer pricing guidelines.<\/p>\n

John Christensen of the Tax Justice Network told MPs on the International Development Committee last month that the problem of corporate tax avoidance was systemic. The current regime for taxing multinationals was \u2018not fit for purpose\u2019, he said.<\/p>\n

Now it seems that HMRC\u2019s assessment of the tax gap, in relation to corporate tax avoidance at least, may be misleadingly low.<\/p>\n

HMRC declined to comment on the Tax Journal story, but in its report\u00a0Measuring Tax Gaps 2011<\/em>\u00a0it did acknowledge (at 9.16) that for the largest businesses the main source of error in its estimates was that \u2018HMRC may not identify all risks\u2019.<\/p>\n

HMRC added: \u2018It is difficult to quantify the extent to which this source of error impacts upon the estimates.\u2019<\/p><\/blockquote>\n

Andrew's right to highlight HMRC's doubts.<\/p>\n

They're wrong to defend their claims so robustly.<\/p>\n

The reality is that HMRC have got the tax gap\u00a0wrong\u00a0- and it's time they admitted it.<\/p>\n","protected":false},"excerpt":{"rendered":"

Andrew Goodall is a pretty seasoned tax journalist. He works for the Tax Journal. Like all good\u00a0journalists\u00a0he is not satisfied with\u00a0first\u00a0impressions, glib responses and being
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50,1],"tags":[],"class_list":["post-15721","post","type-post","status-publish","format-standard","hentry","category-tax-gap","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/15721","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=15721"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/15721\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=15721"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=15721"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=15721"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}