Examination of Witnesses (Questions 20-39)
HM REVENUE AND
CUSTOMS
28 JANUARY 2008
Q20 Mr Touhig: Can you also tell
us which of these companies paid no tax because they did not make
any profit?
Mr Hartnett: I think we can do
that as well.
Q21 Mr Touhig: Can you also tell us which
companies paid no Corporation Tax because they successfully applied
for tax relief?
Mr Hartnett: You will have to
help me, Mr Touhig, because there are innumerable tax reliefs.
Q22 Mr Touhig: Can you give us some
examples then?
Mr Hartnett: We can certainly
give you some examples.[1]
Q23 Mr Touhig: Can you also tell us which
companies paid no Corporation Tax because they used tax avoidance
measures which are appropriate and are allowable?
Mr Hartnett: Let me express a
concern. You are beginning to ask me to disclose very great detail
about individual companies where we have a duty of confidentiality
and I would be very concerned indeed, Mr Touhig, if suddenly all
this information was to be made public.
Q24 Mr Touhig: Do you not think the
public has a right to know? The report says on page 19: "Tax
avoidance is not easily definable but it can involve highly creative
ways of using tax laws to reduce or defer tax". Should we
not know which companies are doing that?
Mr Hartnett: I go back to where
I am. I am under a statutory duty of confidentiality, as are my
colleagues.
Q25 Mr Touhig: So you cannot tell
us which companies are using methods of tax avoidance?
Mr Hartnett: I think we can help
you with some details about this, but listing this company by
company in the sort of detail you are now asking is very difficult
indeed.
Q26 Chairman: This point raised by
Don Touhig is very important. You say you have a duty of confidentiality.
Mr Hartnett: Statutory duty.
Q27 Chairman: We understand that
it is a duty particularly to individuals but these are public
companies.
Mr Hartnett: I am afraid all our
legal advice is that they have the same statutory right of confidentiality.
Chairman: We are only trying to help
you. Do you not think it helps your job getting this into the
public domain. It is not just about naming and shaming, it is
ensuring that there is public discussion about some very large
companies that are not paying tax and you sheltering behind this
blanket of confidentiality. I want you to think very carefully
in the answers you give to Mr Touhig whether you cannot be rather
more helpful to him. I hand back to you, Mr Touhig.
Q28 Mr Touhig: Perhaps you would
like to reflect on the question I have asked and write to us and
if we need further correspondence we can do so, but I do think
it is in the public interest that we should know this.
Mr Hartnett: Certainly, Mr Touhig.
Q29 Mr Touhig: Mr Hartnett, Sainsbury,
the supermarket giant, paid no Corporation Tax in 2005-06 or 2006-07,
why was that?
Mr Hartnett: As I sit here I have
no idea, I am afraid.[2]
Q30 Mr Touhig: They were given a tax
credit by your Department of £3 million in 2005-06 and that
went up 300% in 2006-07. You would not know why that was either,
a £9 million tax credit?
Mr Hartnett: I am afraid I do
not have those details with me.
Q31 Mr Touhig: It just appears, Mr
Hartnett, that taxpayer's money is being used to give huge, rich
companies some form of tax credits.
Mr Hartnett: What sort of tax
credits are these, Mr Touhig?
Q32 Mr Touhig: These are credits
they were given, it appears, and they paid no Corporation Tax
in those two years.
Mr Hartnett: I am afraid I am
lost as to what these credits might be.
Q33 Mr Touhig: I understand the credit
was linked to the fact that Sainsbury's put money into its pension
scheme.
Mr Hartnett: Ah, right.
Q34 Mr Touhig: I applaud that they,
as a company, are looking after their employees' pension scheme
but should the taxpayers subsidise that?
Mr Hartnett: They are not credits
as such, and I apologise. They are a deduction which in law a
company is entitled to for paying money into its pension scheme.
It is a statutory tax relief.
Q35 Mr Touhig: You paid them £3
million and then £9 million for doing that.
Mr Hartnett: I am sorry, I do
not have the details which tell me whether we paid for that. They
would have been entitled to a deduction, against their profits,
for Corporation Tax if it is as you say it is.
Q36 Mr Touhig: In 2006-07 Sainsbury's
paid no Corporation Tax and had a profit of £189 million
in the second half of the year. They paid no Corporation Tax and
they got a credit from you.
Mr Hartnett: I would have to ask
Sainsbury's whether they were—
Q37 Mr Touhig: With profits like
that, they were not short of a bob or two, even though they put
money into their pension funds.
Mr Hartnett: That sounds to me,
in the way you have described it, like a pre-tax profit but, I
am sorry, we do not have any detail. We will ask the company whether
they are happy for us to respond in detail.
Q38 Mr Touhig: That would be helpful.
If a company decides it wants to put money into the employees'
side of the pension fund it can claim tax relief and tax credits
for doing that and end up not paying any Corporation Tax?
Mr Hartnett: In broad terms, yes,
but there are detailed rules to be applied in this.
Q39 Mr Touhig: It is interesting
that the taxpayer is subsidising the pension fund. The Chairman
mention that 58% of Corporation Tax inquiries focus on cases which
collectively account for 1% of all tax under consideration and
you said you were reducing that, but it is not a great use of
resources. How did you get into chasing the minnows and leaving
the big fish alone in the first place?
Mr Hartnett: I do not think we
were very good in the past at resourcing to risk and we have got
a lot better. As Melanie explained, one of the issues always with
these smaller amounts is does the issue apply across a number
of companies, is the risk only in relation to one company or in
relation to many, and often that is why we have got into things
like that. We are now much more rigorous about that.
1 Ev 16-17 Back
2
Note by Witness: Having looked at the position it appears
that the question is based on a misguided premise because, as
the published accounts for J Sainsbury Plc show, the 2006 year
tax expense amounted to many millions and a tax expense also arose
for 2007. In both years the effective tax rate was higher than
the standard rate of corporation tax in the UK. Back
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