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HMRC got £4.5bn from four sweetheart deals

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30th Apr 2013
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The way HMRC negotiates tax deals with big businesses has come under renewed scrutiny after it was reported that the government was paid £4.5bn from just four "sweetheart" settlements.

A leaked document sent by Dave Hartnett, the former head of tax at HMRC, to David Gauke, the exchequer secretary at the Treasury, discloses the figure, which has not been released by HMRC before on the grounds of preserving "taxpayer confidentiality", The Guardian reported.

The document describes deals in excess of £1bn as "not uncommon", The Guardian reported. The size of the figure has been seized upon by MPs and tax campaigners who want HMRC to release details of how much tax was owed by each of the four unnamed companies before the deals were struck.

Margaret Hodge, the chair of the Public Accounts Committee, said: "If we got £4.5bn in, how much did we not get? That is what taxpayers will want to know, and I'll be raising this with HMRC through the committee.

"Whilst it is in the interest of the government to collect monies, these are huge sums. If there were deals involved, we need to know that the companies paid a fair amount on the profits they made from their businesses in the UK."

The revelation comes as separate documents disclosed in The Guardian show that tax officials used intrusive investigative powers designed to help them catch serious criminals to try to prove that the whistleblower who uncovered one of the first sweetheart deals, involving Goldman Sachs, had spoken to The Guardian.

The Guardian report is likely to fuel the perception that HMRC has a cosy relationship with big companies but Cormac Marum, former inspector of taxes, and now head of tax advisory at Harwood Hutton, a member of the UK200Group of law and accountancy firms, said it was sometimes reasonable for HMRC to negotiate tax settlements in private: “We should not get into a position where the tax affairs of any particular taxpayer are negotiated in the full glare of publicity. These matters are too complex for them to be handled by the equivalent of a popular Saturday night TV phone-in poll."

Both the tax rules and the commercial affairs of many leading taxpayers are complex and a series of judgement calls are necessarily required in arriving at the agreed tax position. This can only be determined by detailed negotiations between HMRC on the one hand and the taxpayer and their advisers on the other. This often requires compromises from both parties and generally the balance is well struck."

Replies (28)

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By Rachael White
01st May 2013 14:39

UK Uncut legally challenges HMRC-Goldman Sachs deal

Following this report, campaign group UK Uncut Legal Action confirmed it will ask the High Court to declare the tax settlement HMRC reached with Goldman Sachs unlawful.

HMRC has vowed to contest the group's application for a judicial review "strongly", saying: "We welcome the opportunity to demonstrate that we acted llegally."

The group is already suing the Revenue over a secret tax deal with the bank, enabling it to avoid a payment of up to £20m.

HMRC defence tests on the finding of the NAO say the deal was "reasonable".

In a statement on their website, UK Uncut said the legal action will put “further pressure” on Hartnett.

They claim the settlement was contrary to HMRC’s policies and therefore unlawful.

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By Rachael White
01st May 2013 15:34

 HMRC used RIPA on Goldman Sachs whistleblower

The Guardian also reports that HMRC solicitor Osita Mba, who blew the whistle on the Goldman Sachs tax deal, was subject to invasive Regulation of Investigatory Powers Act 2000 (RIPA) investigations

Tax officials used the powers, usually used to catch serious criminals, to prove that Mba had spoken to the newspaper.

His belongings, emails, internet search records and phone calls were examined by investigators, which were revealed by previously undisclosed documents.

According to the Guardian, the disclosure has prompted "serious questions about HMRC's behaviour".

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Replying to SJIreland:
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By The Black Knight
03rd May 2013 11:32

SOCA

Rachael Power wrote:

The Guardian also reports that HMRC solicitor Osita Mba, who blew the whistle on the Goldman Sachs tax deal, was subject to invasive Regulation of Investigatory Powers Act 2000 (RIPA) investigations

Tax officials used the powers, usually used to catch serious criminals, to prove that Mba had spoken to the newspaper.

His belongings, emails, internet search records and phone calls were examined by investigators, which were revealed by previously undisclosed documents.

According to the Guardian, the disclosure has prompted “serious questions about HMRC’s behaviour”.

They are all now part of the serious and organised criminals association after all. Be very afraid!

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By cruddle
03rd May 2013 10:58

Does anyone else think that UK Uncut are not telling the whole story??

By the looks of it the tax has been paid in full what GS didn't want to pay was the interest of £20 million. What accountant doesn't look to reduce the interest that their client is being charged?

HMRC rules themselves allow them to reduce interest charges for cooperation from the tax payer.

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By daveriches
03rd May 2013 11:19

"sweetheart" deals

£22k CT bill - any chance I can negotiate?

I only really want to pay about £10k

This is a nonsense - I have no chance of getting a "negotiated" deal. My tax is due and I must pay. If I am late paying then I am ordered to pay interest and penalties - no choice.

These massive corps have all the resources they need to ensure their tax affairs are in order by a given date. If they fail then they should be made to pay the penalties and the interest just like all UK businesses. The inefficiencies of HMRC are scary. The easy target is the SMB sector.

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Replying to Counting numbers:
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By The Black Knight
03rd May 2013 11:28

self assesment

daveriches wrote:

£22k CT bill - any chance I can negotiate?

I only really want to pay about £10k

This is a nonsense - I have no chance of getting a "negotiated" deal. My tax is due and I must pay. If I am late paying then I am ordered to pay interest and penalties - no choice.

These massive corps have all the resources they need to ensure their tax affairs are in order by a given date. If they fail then they should be made to pay the penalties and the interest just like all UK businesses. The inefficiencies of HMRC are scary. The easy target is the SMB sector.

Who are you going to negotiate with? yourself?

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By The Black Knight
03rd May 2013 11:23

lost in the confusion

The truth always gets lost in the confusion. I often think these campaign groups do not have an understanding of how things work or the law. Or is that just the media report that I read third hand and is effectively chinese whispers?

Yes Margaret Hodge you are missing billions (trillions) because you don't direct enough resources to your main revenue source.

The answer is simple is it not?

but no we allocate £900 million over 5 years to collect £80 billion a year?

hands up who would spend in that proportion in their own business, perhaps I'll re phrase that hands up who thinks that would work?

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By daveriches
03rd May 2013 11:32

@ The Black Knight

looks like it ;-p

.......1

.......2

.......3

negotiation over - I lost - so will pay up. :-(

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By Donald6000
03rd May 2013 11:58

This is money legally due to the Crown which has not been collected. At the very least Hartnett should be charged with misconduct in public office, along with other officers of HMRC.

If these cases are so complex, then they are probably not the subject of CT self assessment. I suspect that they are not, in any case, subject to CT self assessment and are initially the product of senior staff attempting to settle with these large companies and banks through the investigation procedure which to the best of my knowledge and belief is more informal than demanding the mandatory CT SA return each year.

The problem with using investigation techniques is that it leads HMRC to be somewhat more lenient than formal proceedings and it leads to an emotional response of "We will take what we can get", which is just not efficacious.

What we need is CT SA returns based on the criminal standard of proof, ie you will submit this return with the proper figures on it and HMRC will tear it apart and if it is found that you have entered your profits erroneously then you will be subject to penalties and/or prosecution if the return is found wanting.

If they can put a television licence on the criminal standard of proof for non payment then they can do the same with self assessment (CT). Stop pussying about and make it a criminal offence to incorrectly complete the returns. There's too much gentlemanly behaviour at the HMRC and it's not doing the collection of tax any good.

 

 

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By James26
03rd May 2013 12:11

Money now over money future

Transfer pricing, thin capitalisation, allowable purpose... all very arguable and not as scientific as people and especially the media try and portray them.  This is before one even adds complicated tax planning into the mix.  There is a lot of subjectivity, these are not just staff entertaining add backs.

Even when you have arrived on the tax number and periods this fall in there is then usually a certain amount of argument around penalties / interest which given the passage of time can usually be as much as or in excess of the amount of tax to be recovered.  If the tax payer has brought the entire matter to you then strong arguement to not charge any penalties to encourage good behaviour and concentrate on them proving controls are in place so it doesn't happen again (purpose of SAO powers).

Who wins out of years worth of litigation, arguments, letters?  The large accountancy firms and the lawyers.  HMRC waste time chasing an extra £xm when they could have discovered the next billion.  The company wastes senior time and resources on working out historic numbers rather than working on creating jobs.  Both sides miss out on certainty and putting it in the past. 

How do you cost that all up, well as you'll never know both sides overall case and the lengths they are prepared to go to you can't!  I'm sure it makes sense to miss £xm or even the odd £bn if it saves you enough time to get on with sorting others out. 

Instead these MPs have people wasting time trying to prove the impossible instead of spending that time on getting the next £xbn. Handily forgetting of course that they create the law and hold the purse strings of HMRC so they are responsible for any perceived mess. 

While we are at it, this witch hunt they are whipping up for their short term political ends is probably putting off large groups making the UK their European holding location of choice because of the astonishingly low 20% tax rate and near territorial tax system that has been put in place by successive chancellors (Lab & Tory to give some credit to both).  So we are missing out on those head office jobs and possibly other investment that could help boost the economy.

Sorry became a bit of a rant... but it helped!

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Replying to alan.falcondale:
By Donald6000
03rd May 2013 21:18

Reply to James26

James26 wrote:

Transfer pricing, thin capitalisation, allowable purpose... all very arguable and not as scientific as people and especially the media try and portray them.  This is before one even adds complicated tax planning into the mix.  There is a lot of subjectivity, these are not just staff entertaining add backs.

Even when you have arrived on the tax number and periods this fall in there is then usually a certain amount of argument around penalties / interest which given the passage of time can usually be as much as or in excess of the amount of tax to be recovered.  If the tax payer has brought the entire matter to you then strong arguement to not charge any penalties to encourage good behaviour and concentrate on them proving controls are in place so it doesn't happen again (purpose of SAO powers).

Who wins out of years worth of litigation, arguments, letters?  The large accountancy firms and the lawyers.  HMRC waste time chasing an extra £xm when they could have discovered the next billion.  The company wastes senior time and resources on working out historic numbers rather than working on creating jobs.  Both sides miss out on certainty and putting it in the past. 

How do you cost that all up, well as you'll never know both sides overall case and the lengths they are prepared to go to you can't!  I'm sure it makes sense to miss £xm or even the odd £bn if it saves you enough time to get on with sorting others out. 

Instead these MPs have people wasting time trying to prove the impossible instead of spending that time on getting the next £xbn. Handily forgetting of course that they create the law and hold the purse strings of HMRC so they are responsible for any perceived mess. 

While we are at it, this witch hunt they are whipping up for their short term political ends is probably putting off large groups making the UK their European holding location of choice because of the astonishingly low 20% tax rate and near territorial tax system that has been put in place by successive chancellors (Lab & Tory to give some credit to both).  So we are missing out on those head office jobs and possibly other investment that could help boost the economy.

Sorry became a bit of a rant... but it helped!

 

James26 - I think I understand your point but it would be terribly useful if HMRC were to indicate in some way that they are going after the next £xBN and are not going to keep falling for the Vodafone gag of "I will take my company to x jurisdiction, where x is cheaper than y".

The problem is that there seem to be a lot of these "accidents" waiting to happen, if you catch my drift.

 

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Replying to tom123:
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By ver1tate
04th May 2013 14:25

'accidents'

Yes, there seems to be a lot of blackmail going on at the moment. Bankers threatening to leave the UK to get better salaried positions elsewhere and companies

threatening to lave to lower tax regimes.

Apart from the few who were driven out of the banks, there seems to be no other leavers (unfortunately)

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By The Black Knight
03rd May 2013 12:13

criminal offence

It is a criminal offence to knowingly and deliberately complete a tax return incorrectly and or not to correct or submit a return if an under assessment has been made.

Its not the law that's the problem. It's the enforcement! ?

 

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7om
By Tom 7000
03rd May 2013 12:14

Negotaition

I negotaiated someone to be Non resident last week....

 

Its just a matter of scale

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Replying to possep:
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By The Black Knight
03rd May 2013 12:21

no you're not? yes i am?

Tom 7000 wrote:

I negotaiated someone to be Non resident last week....

 

Its just a matter of scale

"you're not here are you?"

"yes I'm not!"

"then be gone from this place of taxation"

"I am but a poor boy from a poor family"

"banish him banish him"

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By Exector
03rd May 2013 12:19

"HMRC rules themselves allow

"HMRC rules themselves allow them to reduce interest charges for cooperation from the tax payer."                                                                                                                                                                                                                                                               No they don't. Interest  is a statutory not discretionary charge for not having the correct monies at the due time. They can negotiate to an extent on what tax is legally due and what penalties may arise and be sought, including the relevant mitigations but interest is interest from due date to payment.

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By elansea
03rd May 2013 12:31

Sweetheart deals

And how many billions did they give away to get it? We know of £0.8bn to Goldman Sachs alone. If only my clients were treated with such generous kick-backs from HMRC

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By johnjenkins
03rd May 2013 14:13

"tax payer confidentiality"

Do me a favour.

This lot need to go and quick.

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By may2011
03rd May 2013 16:14

Company accounts are public

so what has confidentiality got to do with anything?

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By ver1tate
04th May 2013 09:46

sweetheart deals

HMRC has vowed to contest the group’s application for a judicial review “strongly”, saying: “We welcome the opportunity to demonstrate that we acted llegally.”

It looks like they have missed the 'I' from the beginning of the last word, or put in an 'L' too many. 

My betting is on the 'i', and this looks like one 'L' of a deal.

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By Ian McTernan CTA
07th May 2013 12:21

Whistleblower..

Should pay for the consequences of their actions- after all, they are breaching their contract and revealing details of people's tax affairs to the country.  Am I the only one applauding the Revenue for throwing the book at the whistleblower?  Jail sentence hopefully, and a long one.

What we DONT need is people telling the press all about someone else's tax affairs when they 'think' (usually for political reasons) that a deal that was struck in the interests of resolving a case is somehow 'unfair'.

How would you like it if suddenly your name was splashed about in the Guardian after you reached a negotiated settlement with HMRC?

Investigation work results in lots of 'grey' areas, and the more complex the tax system has been made by the endless tinkering (Gordon Brown..sooo many pages) and the more international business gets the more 'grey' we get, where negotiation results in a reasonable result for both sides without the need for a Court case that could last for years and cost millions and end up achieving less.

This is how things happen out here in the real world- it's not all shiny ivory towers and pristine rules and regulations, it's grey.

Airing these sort of things in public doesn't encourage anyone to set up in this country or base their businesses here, especially given the very complex nature of international transactions these days.

It's time for an end to 'soundbite politics' from The Guardian wanting to sell newspapers to Hodge and her grandstanding (when she seems to know so little of the real world- did she ever have a real job?).

Making deals with HMRC is a fact of life when you deal with declaration cases, enquiries and investigations and having some 'UK UNCut' action group try and waste millions of taxpayers money in a politically motivated publicity stunt doesn't help either.  Actually, just looked at their website and it's not clear what they actually stand for apart from protesting about the necessary cuts to the huge Gov. overspend- they don't seem to offer any well presented alternatives aside from the usual politics of envy and 'attack big businesses as they are all bad'.

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Replying to Tim Vane:
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By The Black Knight
07th May 2013 12:51

agreed but

Ian McTernan CTA wrote:

What we DONT need is people telling the press all about someone else's tax affairs when they 'think' (usually for political reasons) that a deal that was struck in the interests of resolving a case is somehow 'unfair'.

I agree but the behaviour of HMRC has undergone a cultural shift and it is still important that we all play on a level playing field otherwise an unfair advantage is gained.

It is clear from whistle blowing and leaks that the behaviour of some officials is less than ethical or competent and how else would a fundamental problem that affects all of us be fixed? They are after all supposed to be public servants. Even the police were being paid for information and I don't suppose the attitude in HMRC is much different because its not called corruption anymore.

However I also suspect that this has got so complex politically that even the whistle blowing is part of the organised Hodge show as a means of kicking up a fuss then quietly putting it to bed without actually doing anything, the public being left with the impression that the culprits were brought to book.

Personally I feel that the encouragement of foreign firms that just supply jobs in the UK has been detrimental to UK plc in that we have become a labour supplier rather than doing anything for ourselves.

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By johnjenkins
07th May 2013 14:13

A fair playing field?

Tell that to Mr Carr and Starbucks etc.

Unfortunately (as always) HMRC like the publicity when in their favour (and didn't GB encourage it) but don't like it when it goes the other way.

My view is that HMRC are supposed to be impartial. They should check that returns are in order and collect the dosh. Nowadays it's all political point scoring.

Yes,of course HMRC do deals, they always have done and they should have that flexibility.

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By pius
08th May 2013 09:31

The Revenue has gone to Hell in the proverbial handcart. Everybody knows it. There are practically no investigations any more. The inspectorate is decimated with everybody getting out as soon as they can. The software that was supposed to identify risks and thus lead to investigations doesn't work. Meanwhile what does the government do. It looks for piddling tax savings from council tenants when the big corporations are avoiding an amount that would, I am told, run the health service. What is that answer, well why not disallow transfer pricing for a start. If a company trades here it should pay tax on it's profits derived from here, no matter where it pretends to be based. This cannot be that hard to set into law.

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Replying to Portia Nina Levin:
By Donald6000
08th May 2013 16:33

Pius

That used to be the case when I worked for HMRC in the 1980's, only it was called IR then and we did the job the way it was supposed to be done. That was when residency of individuals and corporations was a strict undertaking. Unfortunately we signed up to various EEC and G20 since then which says that you can now allow your expenses in a high tax domain and hive off your profits to a low tax domain, this winning on all fronts. The only way to combat this is to encourage investment into UK firms and actually build and make things, like Mrs Thatcher did not want to do.

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By ver1tate
08th May 2013 16:19

I negotaiated someone to be Non resident last week....

Reminds me of the old Laurel and Hardy sketch;

L. I will prove you are not here and if I do, you will give me £10

H. Done. Go ahead

L. You are not in Alaska

H. No

L . You are not in Australia.

H. No

L. You are not in Aberdeen

H. No

L. So if you are not in Alaska, Australia or Aberdeen you must be elsewhere

H. Yes

L. So if you are elsewhere, you cannot be here. You owe me £10

H. But if I am not here, I cannot owe you £10

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By ver1tate
08th May 2013 16:21

Sweetheart deals

Are these not like icebergs? Only 10% is showing, the other 90% is hidden.

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By johnjenkins
09th May 2013 10:59

There is no way,

with our taxation system and our cost of living, that we can actually manufacture many things nowadays. The costs are far too high and we wouldn't be competitive. Maggie had the foresight to see that. We have become a service industry country at which we excell.

There is a very easy way of taxing companies who choose to be based in low taxation countries. Unfortunately politicians have become too frightenend of the big boys to do anything proper about it.

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