PAC report on Google: Is a company a ‘person’?

Wendy Bradley
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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.


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26th Feb 2016 13:31

Good points all.

The only one I'd question (or perhaps just expand on) slightly is the one about making enquiry correspondence subject to FOI. If that's the only bit of transparency, then it's a bit of a patchy blanket one. It would mean most taxpayers's affairs remained confidential, but others' didn't, depending only on whether their number came up in HMRC's system.

It's also implicitly assuming that an enquiry means something has "gone wrong", whereas in many cases a check is simply a routine check. For example, should the papers involved in a VAT enquiry (which might well include many details of sales) be made public even if the conclusion is that everything is OK, nothing to see, no adjustment to make?

You can't even straighten that out by saying that only papers to support adjustments will be published: at the moment the appetite is to see why HMRC thinks Google Ireland doesn't have a PE in the UK, for example.

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26th Feb 2016 15:08

Not all companies are equal

Small companies (turnover under £6.5m) currently enjoy a great deal of privacy. They can file abreviated accounts at Companies House, and micro-entities (tunover under £632,000) can file a version of accounts with even less information.

If tax transparancy was to be introduced for large companies, there would be some pressure for the privacy protections to be retained for small and micro entities. I imagine that many owner-managed companies would not be happy about the tax affairs of thier personal or family company being laid bare for public inspection.

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26th Feb 2016 18:37


Ah, but if HMRC were to do a proper consultation on a range of options to achieve transparency for multinationals, they would also need to conduct the charmingly-named SaMBA (Small and Micro Business Assessment) for each option.  And the first principle of designing a policy solution is to "think small first" and see if it's possible to exclude the very smallest businesses...

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By Exector
29th Feb 2016 12:20

Scandi- Noir

Sweden, Norway & Finland make  all personal tax returns publicly available & have done for decades!

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29th Feb 2016 12:40

Scrap Corporation Tax

Rather than tax the profits of a company and then give (at least) partial credit for CT paid when paying a dividend I would argue that CT should be abolished (also allowing many of the tax-breaks designed to stimulate purchase of plant for example, to be rendered pointless) and tax charged to the shareholder when a distribution is made.

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By iainx6
01st Mar 2016 13:10

PAC and "persons"
I believe these are tempting ideas, but I'm less sure of their utility. I think I'd go back a little further and ask why would removing or diminishing confidentiality produce any increase in public or even PAC confidence that the tax affairs of MNCs are being settled for the right amount of tax? Is there any evidence to support such a removal?
(Limited liability is essentially a contract that balances risks and rewards and applies to all companies. I dont think that confidentiality is part of that equation, on the grounds that legal persons are entitled to operate in confidence, in the same way as others. On the same basis would we extend the removal to LLPs?)
To be sure HMRC had got the "right" ( ie correct) amount of tax would surely mean full disclosure of everything, which, for an enquiry, might in itself raise issues over the confidentiality of material prepared by real people and real tax officials?
And for tax returns to provide any real information would require the detailed tax computations supporting them. Are they devoid of elements that might be of commercial value, like rents, rates of royalties, etc?
An alternative to making everything open, or a lot more open, is one that retains confidentiality for everyone but enhances independent scrutiny over the largest settlements, ie the ones that go before the Assurance Commissioner and Boards. External observers, or full members, could be appointed to be that independent voice. They could be supported by calling on an enhanced NAO for analysis or comment. We could give such an enhanced NAO powers to call in proposed settlements if they felt there were grounds for review.
This avoids the need to liaise with other countries and could be introduced fairly quickly without potential legal arguments over confidentiality and "rights".

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02nd Mar 2016 20:07

The Tax profession as a whole

I think this is interesting and several people have made similar comments, not least on twitter, but it rather misses the point.  The PAC have NAO to work for them, checking the work of the Assurance Commissioner, and yet they still seem to feel there's something fishy going on somewhere.  It's of little use to dismiss them as ignorant when they are, in fact, democratically elected representatives of the wider taxpaying public - who seem, demonstrably, now to have got hold of the idea that something fishy is going on in the tax world.  Piling more technical scrutiny onto the existing mechanism isn't going to convince people who don't understand their own tax returns let alone want to read reports from NAO or anyone else.  As the Crickhowell campaigners' slogan has it, "either we all pay tax, or none of us do".  It's a dangerous state of affairs when people start to believe that someone else is "getting away with it".  Consulting on whether companies should have the same tax confidentiality as natural persons seems a not unreasonable way of starting the conversation.

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By iainx6
03rd Mar 2016 08:39

PAC report on Google: Is a company a ‘person’?

We have a conundrum. It would seem that altering the law on confidentiality and publishing details of tax settlements is a good thing because it addressees the fishy smell the PAC and others can detect. But at the same time people don’t understand their own tax returns, let alone want to read reports from NAO or anyone else.

How does being democratically elected representatives transform the ability of the PAC to scrutinise over and above people who don’t understand their own tax returns? The NAO does not, as far as I know, “work” for the PAC. They advise and can support them. Despite that, the PAC persists in making basic, even fundamental errors that really impair their ability to scrutinise. From mixing up sales and profits, to accusing cross border companies of VAT avoidance by not understanding the reverse charge mechanism, to assuming the defence of “reasonable care” only applies to the biggest companies. It suggests they assume their role as democratically elected representatives does not require them to seek expert advice before they ask their questions. Beefing up the NAO would help the PAC by giving information that ought to significantly improve their ability to scrutinise.

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