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HMRC 'Loses Nerve' In Face Of Multinationals

by Robert Lee, Tax-News.com, London

26 December 2013


HM Revenue and Customs (HMRC) has said that it "does not hesitate to take large businesses to court if necessary to secure the tax they owe," hitting back at the Public Accounts Committee's (PAC) accusation that it "seems to lose its nerve" in such cases.

The criticism was made by the influential group of UK lawmakers in their annual report on tax collection.

The Committee found that HMRC collected less tax in real terms in 2012-13 than in 2011-12, in spite of its ambition to tackle tax avoidance. Revenues rose by GBP1.4bn (USD2.3bn) (0.3 percent) in cash terms. The so-called "tax gap" – the difference between the amount collected and the amount that should have been collected – increased by GBP1bn to GBP35bn.

HMRC's attitude toward multinational corporations was strongly rebuked by PAC chair Margaret Hodge. She alleged that the Department "holds back from using the full range of sanctions at its disposal," and "seems to lose its nerve when mounting prosecutions" against such firms.

According to the report, HMRC must "demonstrate that it deals robustly with individuals and companies who deliberately mislead it." The Committee concluded that "the lack of prosecutions against multinational corporations seems at odds with HMRC's stance on pursuing tax debt from small- and medium-sized businesses in the UK."

It has therefore recommended that HMRC "be more willing to pursue prosecutions against individuals and large businesses to test the boundaries of the law and to demonstrate firm action against those who have knowingly misled or withheld information."

The PAC also alleged that HMRC has not attempted to gather intelligence about how much tax revenue is lost through aggressive tax avoidance schemes, and had not included such losses in its own statistics. HMRC should in future "be explicit about the limitations of its current measure of the tax gap and gather intelligence about the value of tax lost through aggressive tax avoidance schemes."

Finally, HMRC was deemed to have "massively over-estimated" how much it would be able to collect from UK holders of Swiss bank accounts under an amnesty deal. Although Chancellor George Osborne's 2012 Autumn Statement anticipated the recovery of GBP3.12bn in unpaid tax, a mere GBP440m has been collected to date.

The Committee said that it was "astonished that HMRC could not explain the reasons for such a huge shortfall, or what it was doing to gather the data it needs from the Swiss authorities to assess and collect the tax due, despite having met with the Swiss authorities to discuss these issues." The report urges HMRC to "continue to press the Swiss authorities to provide accurate and complete information about accounts held there by UK taxpayers, and pursue more vigorously the amounts owed in unpaid tax."

Responding to the charges, HMRC said that it strongly disputed the PAC's conclusions and condemned the Committee's "selective and misleading use of figures."

HMRC's own data show that its compliance work has secured more than GBP50bn in additional tax since 2010, including GBP23bn from large businesses. 2,345 prosecutions for tax evasion have been carried in the last three years, the number of disclosed tax avoidance schemes have been halved, and more than GBP2.4bn has been protected from marketed tax avoidance schemes in 2013 alone.

HMRC also maintained that its sustained efforts have resulted in a 1.3 percent fall in the tax gap, from 8.3 percent in 2005-06 to 7 percent in 2011-12. Its methodology for measuring the gap has been endorsed by the International Monetary Fund and "does include a measure of the tax lost from avoidance, as well as evasion, but it can only measure non-compliance within the existing tax law – it cannot estimate how much tax might be due if tax laws were different."

On the subject of multinational corporations, HMRC stressed that it "can only bring in the tax that is due under the law and we cannot collect what is not legally due, however much the Committee might want us to do so." Moreover, HMRC "cannot prosecute multinational companies for activities that are lawful within the international tax framework."

It would, nevertheless, "consider prosecution in any case where we suspect that we have been misled or information had been withheld from us."

TAGS: individuals | court | compliance | tax | business | tax compliance | tax avoidance | law | corporation tax | United Kingdom | tax authority | tax planning | HM Revenue and Customs (HMRC) | revenue statistics | HM Revenue and Customs (HMRC) | Tax | Tax Evasion

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