HMRC corporate tax deals ‘reasonable’, says NAO

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Robert Lovell
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The National Audit Office (NAO) concluded that five corporate tax dispute settlements with HMRC were “all reasonable” and produced a positive outcome for the Exchequer.

Based on an examination of five cases by tax expert Sir Andrew Park, the auditor general's latest report effectively exonerates outgoing permanent secretary for tax Dave Hartnett, who was personally involved in several of the so-called sweetheart tax deals. Sir Andrew found that all five deals were reasonable under the circumstances and at least one may have been better than reasonable.

The NAO review followed up concerns raised by the Public Accounts Committee about how HMRC had handled multi-million pound disuptes with the likes of Goldman Sachs and Vodafone. The study highlighted some procedural and governance concerns, but lived up to Private Eye’s prediction that with access to information on cases controlled by HMRC, "nothing too explosive is expected to come out".

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About robertlovell

About robertlovell

Business and finance journalist


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    14th Jun 2012 14:55

    Exonorate Hartnett?

    I don't think so. Its clear he did not bother to observe the internal governance proceedures that he must have been party to introducing. If the top tax man doesn't think he needs to observe the rules, why should the rest of us?

    Its also interesting that the NAO admit that "there is no clear answer to what represents the ‘right’ tax liability" - Wasn't the 'right amount of tax' one of Hartnett's catchphrases? "" """

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    By dstickl
    to lionofludesch
    15th Jun 2012 15:05

    @ chicken farmer: RE: Exonerate Hartnett?

    chicken farmer wrote:

    I don't think so. It's clear he did not bother to observe the internal governance proceedures that he must have been party to introducing.       ...

    Hi chicken farmer! The way I read the NAO 14 June'12 report, pdf available via link:

     I have to agree with your "Exonerate Hartnett?" headline, e.g. NAO report states:

    15      Four settlements were fully compatible with the Litigation and Settlement Strategy. It is less clear that the settlement with company D was compatible with the Litigation and Settlement Strategy. [HMRC's "Litigation and Settlement Strategy (‘LSS’)" - a "framework within which HMRC seeks to resolve tax disputes through civil procedures" - undated 5 pages (refreshes ... guidance published in 2007) is available via link: ]. There are some issues where the possible outcomes are either that the taxpayer owes nothing or that it owes the full amount. In these circumstances, the Litigation and Settlement Strategy does not permit ‘splitting the difference’, that is settling for less than the full amount. The agreed settlement with company D was lower than the tax liability that would have been paid if the Department won in litigation. Given the uncertainties and costs of litigation, it was reasonable for the Department to settle at the amount it did. However, it is not clear that this is compatible with the Litigation and Settlement Strategy.

    16     When negotiating the settlement with company E, the Department’s staff believed that there was a barrier to charging interest on the employer’s National Insurance contributions (NICs). There was no barrier to charging interest, and the Department did not check this before agreeing to settle without interest. The Department’s decision not to charge interest was reasonable in the context of reaching a settlement on several issues, but the Department should have checked the position on interest so that it could have made an informed decision on this issue.

    17     The definition of a package deal in the Litigation and Settlement Strategy requires each issue to be assigned a value. It does not prohibit [dstickl comment: Really? Please see my footnote!] settling the individual issues in a wider settlement on different terms than would be considered if the issue was settled by itself. The Department updated the Litigation and Settlement Strategy in 2011. The updated version addresses this point by adding that each disputed issue should be considered and resolved on its own merits. However, it does not recognise the reality that when the Department and a taxpayer enter a process to resolve multiple complex, finely-balanced issues at once, interdependency is created between these issues.

    NB dstickl footnote: Point 4 of HMRC's refreshed LSS states: "The definition of ‘dispute’ includes a disagreement with a customer on tax liabilities with respect to a particular issue in a return, transaction or arrangement, but not a disagreement with a customer over several, unrelated issues." [My edits are in bold underlined thus.]

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    14th Jun 2012 16:04

    There is more and more encouragement for

    collective bargaining these days (gas supplies to small villages etc) - i wonder if the small business community should get together and approach the Revenue on the basis that they (we) think we are paying a little to much and given the amount tax up for grabs(millions?...billions) we would like to look for a compromise....may at least get away with some interest that underpaid tax has attracted?!

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    15th Jun 2012 09:51

    Another farce..

    "The study highlighted some procedural and governance concerns, but lived up to Private Eye’s prediction that with access to information on cases controlled by HMRC, "nothing too explosive is expected to come out". 


    In the private sector he would have been fired. The real story is behind the fact that he wasn't, the government apparently incapable or unwilling to make people accountable.

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    15th Jun 2012 10:38



    Chris Oates, head of tax controversy and dispute resolution at Ernst & Young, said:

     “We also welcome the recognition that there are, in most tax cases, a range of ‘right answers’ and that collaborative resolution of disputes is a useful tool for settling long running and complex issues.  This gives support for those taxpayers looking to achieve settlement with HMRC through any of the available Alternative Dispute Resolution routes.  

    “It is also clear that a number of technical arguments that HMRC has been willing to argue in the past are unlikely to have been resolved in their favour if the issue had gone to litigation. Therefore taxpayers with strong technical arguments should continue to press ahead with them, where appropriate.”


    Mike Truman, editor of Taxation, said: “The National Audit Office (NAO) has completely exonerated Dave Hartnett from charges of having entered into 'sweetheart' deals with companies such as Vodafone and Goldman Sachs.  It has, however, criticised the failure to follow proper procedures in agreeing the deals.

    “The NAO looked at five deals of which the Public Accounts Committee had been particularly critical.  Although they refer to them as cases A to E they admit that some of them are identifiable from the facts, and it is clear that case D is Vodafone and case E is Goldman Sachs.  The NAO appointed a senior tax judge, Sir Andrew Park, to investigate, and he saw all the documents held by HMRC in relation to the cases.  In all the cases he concluded that a fair deal was achieved for the Exchequer, and at least one of them was a better deal than could have been expected.  However, the deals did not go through the normal governance procedures to approve them, and Mr Hartnett was often both a negotiator of the deal and one of the Commissioners who signed it off.

    “Neither of these will be a surprise to those in the tax profession, where Mr Hartnett has a reputation for being determined opponent of those who do not pay their taxes, but also as someone who does not suffer fools gladly, and who wants to take personal charge of contentious issues.  It does, however, directly contradict the claims made by whistleblowers that Vodafone, in particular, was 'let off' some £4.8 billion of tax.


    Pinsent Masons said:  “A dogmatic approach needs to be replaced by a pragmatic one. There is often no ‘right’ answer in tax, and it comes down to individual opinions. By saying borderline cases have to be given up or litigated, HMRC is giving up valuable revenues.”

    "The NAO also pointed out that, where a taxpayer has a number of disputes, it is unrealistic to say that a settlement should not be reached which recognises the interdependence of the issues. In other words, one party might give up one issue in order to keep another, when they might not have given up the issue had it been the only one on the table."

    “There have been tweaks to the litigation strategy recently, but they haven’t got to the heart of the matter. The strategy needs a fundamental review.”

    “The core aim of the strategy is to dissuade taxpayers from engaging in tax avoidance in the hope of at least achieving a split the difference settlement. The problem is that it is not practical to have a blanket approach to all disputes.”

    “A litigation-at-all-costs approach in necessary in some circumstances but should be reserved, for instance, when there is a real behavioural issue which needs to be addressed, such as when the taxpayer is repeatedly avoiding tax using abusive devices. The LSS is a sledgehammer to crack a nut.”

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    15th Jun 2012 10:57

    NAO credibility

    As the organisation that recently stated  that the Olympics boodoggle originally,  according to the millionaire Sir Seb Coe and Tessa Jowell projected to cost the largely non attending UK taxpayer 3.2 billion, but now up to 11 billion and counting, to be 'on budget' are we to believe anything they pontificate on?

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    15th Jun 2012 11:18

    HMRC and NAO

    With (Sir Andrew Park's) access to information on cases controlled by HMRC, what other verdict could be expected?

    I for one await the next issue of Private Eye with bated breath. Hurrah for the whistle-blowers !

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    15th Jun 2012 11:46

    Control of papers

    According to para 1.27 of the report, Sir Andrew Park 'was content that he received full answers to [his] questions, and he had access to all the papers he considered necessay to conclude the review'. If you look at the detailed case summaries in the appendix to the report, it is clear that he established to his own satisfaction what the legal issues concerened were, and that the deals reperesented a sensible settlement.

    I think if someone wants to argue that they were not, it needs to be on the basis of specifics as to why Sir Andrew's view on the application of the relevant CFC and transfer pricing rules is wrong. Personally I'm not going to try and do that; those of you who think that your knowledge of them is better than Sir Andrew's, please feel free to try...I agree that the weakest of the cases is E, which is clearly Goldman Sachs, but his conclusion is that the company would probably not have settled for a higher figure, and that taking the case to court could have meant that Goldman Sachs would have succeeded in getting a better outcome than the one they settled for.

    It is certainly clear that proper procedures were not followed; it is also clear that this did not result in the wrong amount of tax being paid. Since the main allegation against Hartnett has been that he did 'sweetheart' deals, and 'let off' large companies because they gave him lunch, 'exonerated' is the right word, I think.

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    15th Jun 2012 12:50

    Full answers

    I have a great deal of respect for Sir Andrew. However, I believe that the very act of denying him full access (otherwise there would be no  HMRC control as reported) taints the inquiry. If this happened in a court of law, there would be an outcry. No, I am not fully convinced that HMRC had nothing to hide. In fact, had it not been for the whistleblower(s), none of this would have seen the light of day and Sir Andrew Park would have been otherwise occupied.

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    15th Jun 2012 14:47

    Sweetheart deals

    There's nothing reasonable about remitting £5BN and collecting £1.2BN out of a £6.2BN debt and if the NAO think there is, they are out of their minds. Its like saying, well we owe you a month's wages of £4,000 but will you settle for £900? Somehow I thought not. The best brains have left HMRC and the dross are now in charge. Shameful and the people who allowed it to go through are traitors to this country.

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    15th Jun 2012 17:00

    Sweetheart deals

    Donald2000., with respect, you need to read the appendix to the report. It details the issues which were in dispute, and makes it clear that there never was a 'debt' for the amount that HMRC was claiming. Assuming you are referring to Vodafone, that is case D in the appendix.

    Although it had lost its claim that the CFC regime could NEVER apply to an EC subsidiary, it still had two further arguments to litigate. One was that it had always qualified under the motive test, the other was that its circumstnaces did not meet the narrow window for applying the rules provided by the Cadbury Schweppes case. Winning on either ground would have meant Vodafone had no tax liability at all.

    HMRC therefore came to a settlement based, like many other CFC disptues, on the taxation of a 'deemed dividend' of an agreed amount. If you want to argue that was wrong, you need to engage with those issues, not just keep repeating what mainstream journalists, who don't understand tax, have been told by UK Uncut.

    Sammerchant, you seem to conclude that if Private Eye says one thing and Sir Andrew says another, the latter is wrong. If I had no further evidence of my own to go on, I would tend to conclude precisely the reverse...

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    16th Jun 2012 11:57

    Private Eye

    With respect Mr Truman, you have only to look at the number of issues that have seen the light of day because of Private Eye to conclude that your view is unjustified. I did not say that Sir Andrew was wrong to reach the conclusion that he did, given the 'controlled access' he had. I accept he felt that he had been given answers to all the questions he raised, but would he have raised different questions had he been given full access? We shall never know. 

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