Tuesday, November 13, 2012

UK tax authorities have not taken a single corporation tax avoidance case to court since 2004

NB this blog has been updated from the original version, published a couple of hours earlier.

Another extraordinary tax scoop from the UK investigative/satirical magazine Private Eye, following all the commotion in Britain (and other countries) about corporations like Starbucks, Google and Amazon using tax havens to avoid paying taxes.

Recently a member of the Public Accounts Committee (PAC) grilling corporate officials on tax avoidance asked Edward Troup, a top official from the UK's HMRC (its revenue authorities,) how many multinationals had been taken to court for tax avoidance. He listed several technical disputes concerning duties (such as Value Added Tax) involving GlaxoSmithKline, Axa, Carlsberg, and Pendragon, and a Pay As You Earn (PAYE) avoidance scheme involving PA Holdings. The Eye comments:
"The staggering truth established by the Eye – to which HMRC refuses to respond despite half a dozen requests – is that of the thousands of major corporation tax ruses set up since 2004, not a single one has been taken to a tribunal or court! All have been settled through “light touch” compromise agreements, often in breach of the department’s official policy and at immense cost to taxpayers."
Not a single case of tackling transfer pricing (which is, as top US tax expert Lee Sheppard explains, is "the leading edge of what is wrong with international tax.") Not a single case. The use of the word 'staggering' here is, for once, justified, and possibly even understated. (Read this article about the capture of tax policy making by the UK by multinational corporations, and weep.)

The previous edition of Private Eye cited a partner in a Big Four accounting firm as saying that on transfer pricing, HMRC has 'no meaningful presence.' The UK border is just not being policed.

There are three main ways to turn your country into a tax haven, from the perspective of corporate taxation. One, cut your tax rates. Two, create (and encourage) tricky tax loopholes. Three, don't enforce your tax laws, (and let them write your laws in the first place.) This latest revelation by the Eye - among other things, revealing how a senior tax official misled a public inquiry - just confirms the third, leg, if ever such confirmation were needed.

P.S. The same page (5) of the edition briefly describes how online website Ebay avoids corporation tax by basing its Paypal payment service in Luxembourg.

PPS A detailed note on the GSK, Axa, Pendragon cases noted above: while there are still a couple of court cases rumbling on, they are old cases that pre-date 2004 and haven't been completed yet. The point is that since 2004, when HMRC has become aware of literally thousands of tax avoidance cases, and hasn't taken a single one to court.

PPPS also note this, from Private Eye tax writer Richard Brooks, in The Bookseller, from the PAC:
"When Amazon’s Cecil tried to boast of the other taxes that his company pays, such as business rates, Hodge jumped on him.  “Let me kill this argument because it really makes me cross . . . So does every other business. The community-based bookshop that you’re putting out of business also pays business rates, also pays its PAYE . . . And you’re making it uncompetitive”.
Next year, Brooks brings out the big one. It's not available yet, but for anyone interested in international tax, be sure to put it on your wish list.

And if you want a first-rate film looking at these issues, try this.

Update 2: Thanks to Alex Mostrous in the twittersphere who questioned the central premise of this blog - noting this transaction in front of tribunal and saying that that's new litigation. We replied saying "look at the PPS in this blog" (see above) and note that this scheme relates to transactions that took place in 2003 and 2004. We also note that since 2004 HMRC has been running a scheme known as DOTAS (Disclosure of tax avoidance schemes) whereby HMRC will find out about a scheme within weeks of its being put into practice (the document linked says five days), and can act immediately. If there had been any activity since the start of DOTAS it would have come up in tribunal by now. It looks as if Greene King (in this case, a minor multinational) had a very long running enquiry and eventually agreed to differ in 2010, then it hit tribunal last year, and it concerns very old law (since updated.) Mostrous' objection is a worthy one, but it doesn't alter the point that none of the thousands of major corporation tax ruses set up since 2004 have gone to tribunal or court - as the Eye article says.


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