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MPs ask HMRC to justify taxpayer confidentiality

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14th Oct 2014
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There is “extremely overwhelming” evidence that ending taxpayer confidentiality would result in a loss of tax revenue, HMRC’s tax assurance commissioner has told MPs. But Treasury Committee chairman Andrew Tyrie asked Edward Troup this morning to investigate, and provide the committee with “a thorough and robust exemplification” to support the argument.

Troup is responsible for shaping tax policy and strategy, and is head of profession for tax at HMRC. He second annual report, published in July, covers “the first full year of the strengthened governance processes we put in place to provide assurance that all disputes, large or small, are resolved in a consistent and even-handed way”. Last week the Commons Treasury Committee announced an inquiry into his work.

‘Independence’

Committee chairman Andrew Tyrie began today’s hearing by asking Troup to give “some evidence of your independence”.

Troup said criticism had been made of the way in which HMRC had reached settlements with some large businesses. He reminded the committee that in 2012 Sir Andrew Park, a retired judge, investigated five settlements for the National Audit Office.

They included settlements with Goldman Sachs and Vodafone which, critics had alleged, resulted in substantial losses to the Exchequer.

Troup continued: “[Park] concluded that the settlements in question had all been reasonable. Indeed one of them had been more than reasonable, but he did raise some questions about the HMRC processes and the extent that there was enough internal separate oversight of the process of reaching settlements.”

He added: “My appointment was to redress that. I’m independent in the sense that … I am a Commissioner of Revenue and Customs, and Parliament has given responsibility for collection and management of tax to the commissioners, and without Parliament changing the law we couldn’t actually give a final independent decision-making power outside the commissioners – that would be effectively abrogating the responsibility we have.”

Troup accepted that he reported to Lin Homer, chief executive of HMRC. “I’m not completely independent of HMRC but I am outside the case-working process. The process in which large settlements come for a final decision to me and two other commissioners … and the assurance processes … it is genuinely independent of the lines of business and is giving them the oversight, assurance and scrutiny [needed to ensure] that the public have confidence in the way we work.”

Taxpayer confidentiality

Tyrie observed that taxpayer confidentiality had become “controversial” in recent years. “Why is it so important to maintain taxpayer confidentiality?” he asked.

Troup said the principle was enshrined in law and had always been “an essential feature” of the tax system. This was in part because of “constitutional respect for the privacy of an individual’s affairs”.

There were very practical reasons, from HMRC’s perspective, why confidentiality should be maintained. “Although we have a lot of powers, if we were to exercise our formal legal powers to pursue every taxpayer we would not get nearly as good results and we would devour much more resource than we do at the moment.”

He added: “The reason we don’t have to use our powers extensively is that the public have confidence in us, and the taxpaying public is willing to share information, and sometimes more information than they are required [to share].”

This allowed for a more collaborative way of working, he argued. “Knowledge that the information that comes to us is provided in confidence is an absolutely essential part of that.”

‘An extremely important point’

Tyrie said HMRC’s central argument appeared to be that if taxpayer confidentiality was compromised, “we’re going to get less money in”.

“Yes,” Troup replied. Tyrie said Troup was in a very good position to investigate that argument and give Parliament an assurance on what was an “extremely important point”.

Troup said the evidence was “extremely overwhelming” and pointed to an example at page 21 of his report. “That’s a helpful example,” Tyrie said. But he asked Troup to report to the committee “in due time” with “as thorough and robust an exemplification as you can of the point that you’ve made”.

Tyrie added: “This issue is not going to go away, and if we’re going to address it properly we need as much evidence as possible … It’s not that this committee has a view about whether [the argument is correct].”

If taxpayer confidentiality is maintained, Tyrie asked, “how are we going to scrutinise you?”

Troup replied: “The principle behind the Commissioners of Revenue and Customs Act [2005] is that you are reposing trust in seven commissioners, and the 60,000 people who actually do the work, to do that job. That does need proper public scrutiny, and the National Audit Office do have full access to everything without limitation ...”

Collaborative working

Troup’s report said HMRC inevitably continued to handle a very large number of disputes and most were settled by agreement under the governance arrangements. “In a small proportion of cases, disputes cannot be resolved without litigation. Where litigation is necessary, HMRC wins more than three quarters of the cases we take,” he wrote.

More than 7,000 appeals were sent to tribunal in 2013/14, the report said, and more than 6,500 were closed, with 38% closed by a formal hearing and the remainder settled by agreement before the hearing. HMRC won in 76% of cases heard by tribunal in the year.

Thirty out of 39 tax avoidance cases were decided by the tribunals and courts in HMRC’s favour.

‘Non-confrontational approach’

A theme of Troup’s report was “how we use collaborative working in cases large and small to resolve disputes without litigation, because it is the most efficient and effective approach.” An internal audit team’s review of sample cases settled in 2012/13 had identified “some areas where we need to do better to ensure that procedures are applied consistently”.

Sustained, on-going engagement was the best way to manage tax risk for the “largest and most complex customers”, the report said. “For other customers we need far less day-to-day contact. But at the point where we identify a risk that requires us to make enquiries or when a dispute arises, the collaborative principles that we work to are the same – a non-confrontational approach, where we are transparent with the taxpayer and they are transparent with us, enabling the parties to resolve the dispute as quickly and efficiently as possible.”

Troup added that for all taxpayers, regardless of size or complexity, “we want to develop a relationship where there is a positive joint commitment from HMRC and the taxpayer to work together constructively to resolve current and historic risks as quickly as possible”.

Referrals

In 2013/14 HMRC’s Tax Disputes Resolution Board (TDRB) considered 63 referrals from case teams. It referred 46 cases to the commissioners, remitted 13 for further work, and decided four cases that did not need referral.

Three commissioners, including Troup, met to make decisions on each of the referrals. They considered 44 referrals from the TDRB during the year. Four case were remitted by the commissioners for further work before re-submission to them for a final decision, so the commissioners saw a total of 48 referrals. These related to decisions where the “tax under consideration” was almost £3.9bn.

The commissioners accepted the taxpayer’s position in 28 of those cases, worth £1.2bn, and rejected it in 12 cases, worth £472m. Three referrals were accepted with additional conditions, with the remaining five remitted for further work before a decision was taken.

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