The Public Accounts Committee's report on its hearing on the Google tax settlement has now been published. It lists five conclusions and recommendations, the first of which is the most interesting, says Wendy Bradley.
It is that “the lack of transparency about tax settlements makes it impossible to judge whether HMRC has settled this case for the right amount of tax” and the recommendation which flows from this is that “HMRC should consult widely, including with other tax authorities, on the case for changing the rules that protect corporate taxpayer confidentiality to make the tax affairs of multinational companies open to public scrutiny.”
Leaving aside the consultation with other tax authorities – not that I would minimise the importance of international cooperation such as the Base Erosion and Profit Shifting (BEPS) project – let's imagine what an HMRC consultation on company tax transparency would look like.
What should HMRC consult about? How about whether a company or other ‘legal person’ is entitled to the same rights as a ‘natural person’, an individual. Would tax transparency for corporations be a reasonable quid pro quo for limited liability? And, if HMRC was to consult on that question, who should they ask?
Well, let's not get ahead of ourselves here. In the ‘seven questions’ model of tax impact assessment, the first question to be asked is always “why are you doing this at all”, the “policy objective” field in the TIIN (Tax Information and Impact Note) that accompanies all changes in tax law. I'd be very surprised if the policy objective field of the TIIN didn't contain a cut and paste of at least some of the PAC's first conclusion and recommendation.
So if our policy problem to be solved is that ordinary taxpayers can't be assured that multinationals are playing by the same rules as the rest of us, what are the policy options available? This - looking at a wide range of policy options before looking at their detailed design, costings, impacts and unintended consequences to select the best one on balance – is the area of the impact assessment, and of tax policy development in general, which has been poorly handled in recent years.
The option I would suggest is for the tax system to recognise that a company, although a legal person, is not a natural person. We could therefore accord different rights to a company structure than those we afford to an individual. Does a company require the same taxpayer confidentiality as an individual?
This is not, however, the only way that HMRC could satisfy the PAC recommendation. What other options might there be? How about settlement of a tax enquiry including making the settlement correspondence subject to FoI? Tax compliant structures could continue to have the same confidentiality protection as the rest of us, but if they were to have to settle an enquiry with HMRC they would have to agree some kind of joint statement of what had gone wrong and what had been done about it, in the knowledge this was likely to become public.
Another option would be for all tax returns to become public documents – why not? I'll show you mine if you show me yours. I'm not envisaging it will happen, but it's an option HMRC ought to be considering and perhaps putting into a stage one consultation. Other options? Only company tax returns to be published? Company tax returns to be subject to the same publication rules as their public accounts? Add your own suggestions in the comments below.
The point is, HMRC should respond to the PAC, and they should consult on how to satisfy the taxpaying public that their dealings with corporates are fair and whether more transparency is desirable. However they should do so as a stage one consultation in accordance with the 2011 Tax Consultation Framework by generating a number of different options.