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LIVE BLOG: HMRC Public Accounts Committee

28th Oct 2013
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Join us from 3.30pm as we live blog the HMRC Public Accounts Committee annual report and accounts 2012 - 13 session. 

That's all from us, folks, but if you want to see more on the PAC session, click the link above. Watch out for potential editorial pieces on AccountingWEB based on this session. 

***

17:31: Hodge: It's a small world, tax avoidance advisers are all there. 

PAC: I know we're going to cover a separate hearing about reliefs, but how do you determine offshore charities? What checks do you make about the legitimacy of the charity? 

Question for the reliefs session. 

PAC: Congratulations for getting after the accountancy partners for getting their remuneration into a corporate vehicle - would you describe that activity as avoidance or evasion?

HMRC: Government bringing changes in this area is because we need changes in the law to tackle it. If you consider this tax avoidance it's down to personal opinion. 

PAC: Why allow this under the old rules? 

HMRC: I think the type of arrangement that this new legislation is directed is not what I could characterise as evasion - it's setting up partnerships with corporate members and is a form of avoidance but we need to change the rules to tackle it. 

PAC: Not just accountants who are doing it but there are a large number of LLPs that have come into being since they were made a legitimate vehicle years ago. How does HMRC tackle this when the normal company approach doesn't appy?

HMRC: There is specific legislation that for tax purposes they are partnerships. 

PAC: Is it fair to say partners of LLPs are members of offshore organisations or opaque?

HMRC: It ranges over very wealthy and increasingly used to exploit others. 

***

17:30: Hodge: I hope you go to these events, send your spies along to these "100 ways to avoid paying tax" conferences...

HMRC: We do send our spies. 

***

17:28: PAC now asking about HMRC governance and board, including GAAR advisory panel. 

***

17:23: Hodge mentions previous Dave Hartnett comments: "Tax relief on films is nothing more than scams for scumbags." 

HMRC: I don't think we would have used such colourful language, but we have seen a number of cases where film tax relief which we recognise as legitimate has been used in a way contrary to the intention of parliament and will continue to challenge those.

***

17:15: Hodge: "Is it true that you once said taxation is legalised extortion, Ed Troup?"

Troup: "In the context of that article [a past FT article], those words appeared. It's late on a Monday afternoon, I admit, I did write those words, I believe Mr Murphy has put most of it up on his blog today. 

Hodge: Did you say that GAAR would be laid at the mercy of the beaurocrat? Given those views, are you really the person to lead the people's fight against tax avoidance?" 

Troup: Jim is our most senior tax inspector, so he ultimately is leading the fight with Jenni. 

***

17:06: PAC: The head of the OECD asserted we weakened CFC rules: The UK has changed its CFC legislation in a way that it hasn't strengthened it. Is the head of the OECD wrong?

HMRC: The old CFC rules were hard to challenge. I'm not going to make a comment as to whether they're weakened or strengthened. They're workable. 

Hodge: "I'll take that as weakened then." 

***

17:00: Hodge referring to article from KPMG: "What the Revenue has explained to us, is that they won't challenge the regime..." 

HMRC: We have seen the article, there's not a great deal in it for us to challenge the residency of companies. One of the challenges in taxing interest flows is that it's relatively easy to set them up in these companies with the infrastructure they need to establish residency. 

Hodge: Did ministers and HMRC know about the potential loophole, as KPMG appeared to?

HMRC: No, ministers and HMRC would not have been fully aware as to how people would have tried to exploit the regime. 

***

16:49: Hodge on the below: "This is a flagrant mis-use of the rules to avoid paying CT here and to get profits abroad. It's so obvious." 

PAC continues: You're assuming the UK tax man is going to get his hands on the first leg of the transaction but chances are he won't. It really is a perfect chain. What it's leading to is a massive incentive to owning British business offshore. 

If you look now, any company that does make high profits in the UK - you're pretty crazy if you keep it onshore now, it's so attractive to hold profits offshore. 

HMRC: It is the case that capital can flow very freely across borders and we aren't in a position to restrict this, the aim of the CFC rules is to provide protection to the Exchequer of the transfer of profits to offshore jurisdictions. 

We also want to ensure competition. 

Hodge: "You have devised a mechanism well known by Big Four accountants to get profits offshore without being liable for tax. Private Eye is chock-a-block with it. You must have known about it. When did you know? Did you know there was a loophole when they were devised and first implemented?" 

HMRC: "We have a very good understanding of how we expect the CFC rules to work. I don't agree with the analysis of what was happening in this example." 

***

16:42: Hodge: Control of foreign companies: "Is it possible for a UK tax based company to borrow money and charge interest on its profits?" 

HMRC: Yes, that would be tax deductible. 

Hodge: "Is there anything stopping that company putting the money it's borrowed in another tax jurisdiction for share capital?"

HMRC: No rule prohibiting a UK company for investing in an offshore subsidiary. 

Hodge: Is it then possible for that money to be invested by another arm of the company in another jurisdiction i.e. Germany, to offset interest against their tax liabilities?

HMRC: That'd be a matter for the German tax authority, it's entirely possible. 

Hodge: Is it right that one multinational enjoys double-tax relief using this structure? 

HMRC: If you follow the chain of borrowing, there's only one set of tax relief - Hodge disagrees - HMRC adds that there are two tax charges, and in theory one cancels another out. 

Hodge: Multinational can enjoy two sets of tax relief - the whole purpose for us giving tax relief for that sort of borrowing is economic growth/investment but that hasn't taken place. 

HMRC: The more likely scenario is that there's a UK CFC charge on 25% of its profits. Hodge: There isn't a profit. The company in the UK borrowed money, takes it to tax haven, arm in the tax haven lends to company in Germany, then can claim tax relief in Germany - two lots of tax relief. 

HMRC: If company in the tax haven makes profit - it would be subject to a UK corporation tax charge of 25%. 

***

16:37: Hodge airs her consternation at the Swiss UK tax agreement figure deficit: "You're being so ineffective in pursuing this particular debt. I can't understand why you can't employ one little weapon in your army, make a few showcases, it's so bloody obvious!" 

***

16:24: PAC: Amyas Morse: "When you went to Switzerland, did they give you some indication of what had happened to cause the deficit?"

HMRC: "There was no doubt as to our concern that we weren't getting the flow of money we expected. Did I come away completely reassured we were going to get the full £3bn? No. Did I make it clear that the government were not happy with it? Yes I did. I'm not going to say what actions may flow from this."

We have made a huge amount of progress in getting over £780m, but we would still like more information but have had to take account of Swiss bank secrecy. We have to work within them within the framework of their banking secrecy approach. 

We have not had disclosure from all of the banks yet. We've had 18,000 names, have written to half, 600 have come forward voluntarily. 

***

16:14 Hodge: "How much have you got so far in money owed in Swiss bank accounts?"

HMRC: With other payments so far: £782m, and £440 so far this financial year. 

Hodge: In Autumn Statement last autumn, the Chancellor estimated the income in the agreement in 2013/14 to be £3.12bn. You've so far got £440m. 

HMRC: "This amount is significantly less than we expected, we got it from the Swiss. So far we've had 18,000 individual names given to us, we've sent out letters to those." 

Hodge: Why are you so far behind your target? 

HMRC: "We'll find out how much the cash we don't get this year will be offset by future amounts we received under audit procedures put in place." 

Ed Troup says OBR estimated the Swiss tax settlement incorrectly. 

Hodge: Who's being held to account for the fact you're only going to get a quarter of what you've estimated? 

HMRC: "We're getting money we wouldn't have got through any other means. It was a best estimate at the time, of money we expected to get this year. 

Hodge persists: "Who is being held to account for the failure of someone in the system to get income in that was predicted? It's an Alice in Wonderland figure, isn't it?"

Troup: "No forecasting ever is accurate. What we need to see now is are the Swiss performing under the agreement and is there money that has gone elsewhere?"

We've had one prosecution out of 18,000 names given by the Swiss to HMRC.  

*** 

16:11: "Tell the committee how many times you have agreed/rejected a tax settlement deal since you came in, tax assurance commissioner Edward Troup." 

HMRC: "We do not make deals. Of the 22, 11 we approved and five were rejected." 

Hodge: "When did you last litigate?"

HMRC: Eight large tax avoidance cases in the first half of this year against large businesses. 

Most recent one in July this year - when we won against a subsidiary of a company where we won £8m. 

***

16:08: PAC asks about tax avoidance schemes - "What action in these cases have been taken against firms, especially Big Four firms, the people who are organising the theft?" 

HMRC: If they overstep the boundaries, we will take action. Harra references the Vantis case. "Where we can identify fraud, we take that kind of action," he says. 

Government has spoken over the summer about high risk tax avoidance scheme promoters: "Included in that consultation is a penalty for those high risk promoters if they do not comply." 

***

16:06: Hodge asks: "Why have you never litigated a single internet company?"

HMRC said they collect the tax the law provides and have not yet established a case with enough evidence to do so.

***

15:57 PAC asks: "Why is the tax gap estimate so much lower than the EU's?"

HMRC: "There are few companies in the world who publish a comprehensive tax gap like we do, the EU publishes a VAT gap estimate, in which we compare very well to other countries. Not only are we one of the small number of countrieswho does publish a comp VAT gap, but we recently had an IMF study confirming the robustness of our methodology - it's as good, given the difficulties of estimating a tax gap."

***

15:54 PAC asks about GAAR: "Why haven't you used it?"

HMRC says it's already having an impact, but does not come into force until March next year. 

Harra: "Applying it to people who are abusing, it's too early days for us to have invoked it." 

PAC: "Why will it have an impact on the tax gap at all?"

Harra: "It gives us another string to our bow in challenging avoidance schemes." 

***

15:51 Hodge: "Have you any idea how big the tax gap would be if you had regard to the tax supposed to be paid by Starbucks, Apple, Google? How big could it be?"

HMRC: "I can't answer that question because it means I would have to think of an alternative way we levy CT." 

"We are pursuing this - there is an action plan being published by OECD. Some of these considerations are quite complex things and haven't put this through our systems. Our job is to collect the tax from the laws as they stand." 

Harra explains that the OECD has already tried to do this, but given that there are considerations about which state the company is operating, etc, it was unable to. 

***

15:46 Director genera, business tax Jim Harra is asked by Hodge about dormant companies - in 2009 around 800/900,000 companies did not file a tax return

HMRC says this is because they are dormant.

PAC asks Harra about German companies registering in the UK: One of the reasons HMRC sees so many dormant companies in the UK is because of companies in other EU countries, i.e. Germany, registering in the UK. 

Why they register: "It's not about tax, it is about company registration behaviour," Harra said, and promised to pick up on this point after the session. 

***

15: 40: Hodge grills HMRC on the tax gap figures: 

" While the tax gap is a theoretical figure, I'm right in saying that it doesn’t include what the ordinary person thinks we should be collecting from large companies." 

*** 

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By User deleted
28th Oct 2013 21:16

Samll point ...

... but I don't think that is what they meant when they said the clocks go back this weekend - it would be easier to follow if it went down the page not up!

 

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By Rachael White
29th Oct 2013 09:27

Thanks for the suggestion - it was a live rolling blog though so for that purpose I put more recent updates at the top so people reading it in real time could see when something new had gone up.

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