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UK Parliamentary Committee Keeps Up Pressure on HMRC

By Amanda Banks,, London

17 June 2013

A UK Parliamentary committee has once again accused HM Revenue and Customs of not doing enough to tackle corporation tax avoidance by multinationals, asking how it was that "a few journalists, whistleblowers and MPs" had uncovered details of which the tax body had been unaware.

The criticisms appear in a new report by the Public Accounts Committee (PAC), published in the wake of an investigation by Reuters which claimed that members of Google's advertising sales team are based in the UK, despite invoicing being carried out from Dublin. Reuters' article was condemned by Google as "willfully misleading," but Margaret Hodge MP, who chairs the PAC, announced that the Committee would be seeking answers "as soon as possible." Reuters interviewed clients and former staff, and studied staff profiles on Linkedin and job adverts.

Google's Vice President for Sales and Operations in Northern and Central Europe, Matt Brittan, was subsequently recalled to the PAC to explain alleged discrepancies between evidence he had given late last year and the claims in the news article. Brittan explained that while Google staff in the UK meet with high-value clients, and negotiate advertising prices, they could not conclude transactions or contracts, and that no money changed hands in the UK. By contrast, the Committee concluded that Google Ireland merely carried out "automated billing."

The Committee also took evidence from HMRC officials Lin Homer and Jim Harra. According to the PAC report, HMRC accepts that international rules about "permanent establishments" for tax purposes have been under strain as a result of the digital economy, and that it has experienced cases where it has seen trading in the UK but has been unable to prove permanent establishment. However, the officials explained that HMRC does undertake checks into multinationals' declared structures, including interviews with executives and employees, visits, and information-gathering from customers and other fiscal authorities.

The officials also made clear that even if the issue of "permanent establishment" is not directly relevant to Google, the greater the value added by UK staff, the greater the transfer price that should be paid to it in the UK.

The PAC recommends HMRC be "much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax," and for HMRC and the Treasury to improve tax transparency by "developing specific proposals to improve the quality and credibility of public information about companies' tax affairs," including information from tax havens.

The report's conclusions also take aim at the big accountancy firms, urging them to "provide responsible advice," and for professional accountancy bodies to emphasize the importance of doing so.

Hodge has now called for the Prime Minister to intervene. Speaking to the BBC, she stated: "I want him to toughen up HMRC, I want him to simplify the code, I want him to have greater transparency about what happens."

Hodge has argued that HMRC has not only failed to collect revenue, but that its lack of assertiveness with multinationals creates an unfair environment for domestic businesses. She recently gave evidence to the House of Lords Economics Affairs Committee, at which she claimed that SMEs feel that HMRC pursues them in a "regressive" way.

However, Harra, responding to the PAC report, defended HMRC's record. He explained that HMRC has collected an extra GBP23bn since 2010 through challenging the tax arrangements of large businesses, including GBP2bn from transfer pricing issues, and he added: "We relentlessly pursue businesses that don't play by the rules; these results reflect this."

The PAC report also drew comment from Heather Self, a Partner at international law firm Pinsent Masons. Self stressed that businesses need tax certainty, and that the tax system would become unworkable unless senior politicians trust the information they are given by HMRC. She argued: "There are proper channels for the oversight of HMRC's activities. It's time for politicians and campaigners to focus on informed oversight, and let HMRC get on with its job without the distraction of a major political row."

Self also suggested that companies could do more to explain their tax bills, for example by following key principles set out by the Confederation of British Industry, but that the reality of corporation taxation in the UK "is not as simple" as the PAC report suggests. In her view: "Tax is very complex and politicians who largely escape criticism in the report must accept that continual changes to the rules have left us in a situation where few understand the key principles of the system they have enacted."

TAGS: tax | tax avoidance | commerce | government committee | corporation tax | United Kingdom | e-commerce | transfer pricing | HM Revenue and Customs (HMRC) | HM Revenue and Customs (HMRC)

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