Examination of Witnesses (Questions 60-79)
HM REVENUE AND
CUSTOMS
28 JANUARY 2008
Q60 Mr Bacon: When did the process
of seeking to hire them start?
Ms Chaloner: We recruited them
internally so we did it during the autumn. They are all being
trained now.
Q61 Mr Bacon: My point is it started
after the publication of this report?
Ms Dawes: Yes.
Q62 Mr Bacon: Was it a response to
this report?
Ms Dawes: It was partly, yes.
It was also a response to the review on Links with Large Business
which we published in November 2006 where we made a commitment
to overhaul our transfer pricing and, in particular, to shorten
the amount of time we take for transfer pricing inquiries.
Q63 Mr Bacon: It is not just transfer
pricing I am interested in. Paragraph 4.9 on page 26 says that
although your initial training is highly regarded: "..the
Department had reduced the additional training it provides to
enhance the skills and knowledge of frontline tax specialists.
For example, in 2002 it halted the international training courses
which covered issues such as transfer pricing and it has cut back
on the number of technical update courses." Are you basically
saying you went too far and you realised that you had better start
getting more specialists and training them more? Is that what
you are saying?
Mr Hartnett: We are saying something
slightly different, Mr Bacon. We found that the international
course was pretty good for a number of years, but that actually
we could train and develop our people on the job, working alongside
specialists and alongside economists and others we brought in
to work with us on these very big cases. We have transfer-pricing
cases which had a couple of billion pounds as the amount at risk.
The teams are large and have our best specialists in, and they
are training others as the job is taken along.
Q64 Mr Bacon: It strikes me as interesting
that you do not know what your training budget is, and according
to paragraph 9 in the November 2006 Large Business Service survey
of staff, a third of tax specialists and client relationship managers
felt that the training they received was not sufficient to give
them confidence in their role.
Mr Hartnett: We recognised that
concern, and we are addressing it vigorously now.
Q65 Mr Bacon: Is it possible that
you can send us some information with the amount that you do spend
on training?
Mr Hartnett: Of course.[4]
Q66 Mr Bacon: And as a proportion of
your total salary bill; that would be interesting to see. I would
like to turn to page 16, figure 6. It might help if I could ask
Jane Wheeler of the NAO about this. I take it that the little
diamonds represent one case each! If I take the case on the far
left-hand side, between 140 and 160, that is basically saying
there were over 150 staff days spent on that case—it is
quite difficult to read, but one assumes these are split into
billions, so this is about £10 million or £15 million
at risk—and 150 days. Correspondingly, in the extreme right-hand
corner, where there is about £470 million at risk, 20 days
were spent on that. Am I reading that correctly? I am. Mr Hartnett,
can you explain how that can be? There may be a perfectly reasonable
explanation, and I am sure you have got one, but what is it?
Mr Hartnett: The first explanation
is that we may invest a huge amount of staff time in a £15
million issue if it is one that runs across a large swathe of
companies.
Q67 Mr Bacon: If you lost, it would
have huge consequences for other—
Mr Hartnett: Absolutely. The case
on the right—I do not know which case it is—could
only involve 20 days of resource inside the department or inside
the Large Business Service, but might be in the hands of half
a dozen leading counsel as we prepare to litigate something very
significant.
Q68 Mr Bacon: At the end of it you
might get a lot of money and a very clear answer.
Mr Hartnett: Absolutely.
Q69 Mr Bacon: Perhaps I will ask
you this: I have often wondered—since you know, once you
have collected the money in that it is just simply going to be
squandered by other departments that perhaps it is better to leave
it with the people from whom you are trying to take it in the
first place!
Mr Hartnett: I am not brave enough
to answer that!
Q70 Mr Bacon: No, I did not think
you would be. On page 7 in the NAO's recommendations, they say
in (vii) that the NAO recognises that the Department should develop
a set of performance measures that build on those which have already
been outlined as a result of the Varney Review, and that they
should include a compliance measure, intervention yield and so
on. It says over the page: "The total estimated tax under
consideration in open enquiries and its distribution, to demonstrate
its approach to focusing resources on higher tax risks ... "
and similarly underneath: "The total number and the age profile
of open enquiries, to demonstrate its approach to closing long-running
enquiries and dealing more quickly with new tax risks". You
are presumably happy to accept those recommendations.
Mr Hartnett: Absolutely.
Q71 Mr Bacon: Are you happy to publish
the results of those performance measures?
Mr Hartnett: In terms of major
cases and—
Q72 Mr Bacon: In terms of those blobs—in
fact, my question is really about all of them.
Mr Hartnett: Two of them I think
are in the report already, Mr Bacon.
Q73 Mr Bacon: They cannot be for
the future, can they?
Mr Hartnett: No, no.
Q74 Mr Bacon: But you would be happy
to publish them on an ongoing basis, say on your website?
Mr Hartnett: I am very happy to
take that away and think about it, yes, indeed.
Q75 Mr Bacon: That is a very interesting
answer.
Mr Hartnett: Let me tell you why
I am giving the answer in those terms. What I do not want to do
is—
Q76 Mr Bacon:—is commit yourself
to something you would later regret—I fully appreciate that!
Mr Hartnett: It depends how I
regret it. If I were to regret it in the sense that the numbers
turned out to be an incentive in some way to tax avoidance, that
would be a very unfortunate consequence. Those are the sorts of
things I want to go away and think about. If we can do this in
a sensible way which is helpful, then we will do it.
Q77 Mr Bacon: One more question only,
to Melanie Dawes: You might have put the word "globalisation"
in there somewhere, but you used the phrase "ever more complex".
There is no libretto that says things will get ever more complicated
in future; it is down to policy-makers, ministers and those who
advise them. I am not trying to trick you into answering a policy
question that you should not answer, but you said "ever more
complex" as if, somehow, it is inexorable.
Ms Dawes: I was talking about
that in the context of the global economy. Perhaps at some point
there will be a slowing down in that rate of change, but the sort
of thing I am talking about is the fact that around half of growth
in global trade comes from intra-company trade within large multinationals,
with increasingly large multinationals managing their products
across national boundaries. It is a complex business to manage
that with a national tax system. That is just the reality of the
environment we are operating in.
Q78 Mr Bacon: You are obviously in
competition with other tax authorities around the world because
to some extent you get the money and they do not very often, or
vice versa; but to what extent is there scope for you to
co-operate with them?
Mr Hartnett: We work a lot with
other tax administrations. I can give you a couple of examples.
We have a Joint International Tax Shelter Information Centre based
in Washington DC and here in London. The partners in Washington
are the US, Canada, Australia and ourselves; the partners in London
are Japan, Australia, US and ourselves—and more will join.
Recently, the UK led a study for the OECD which we presented to
43 countries on the role of tax intermediaries, tax advisers,
investment bankers and the like in the tax system, which focused
particularly on the role of the chief financial officer in multinational
and other large businesses in ensuring compliance. We work together
a lot.
Q79 Mr Bacon: Paragraph 2.15 talks
about the Australian Tax Office and how it uses effective corporation
tax rates on a business, and comparing them with the statutory
corporation tax rate as a rule of thumb or a quick-fire way of
assessing the risk, rather than going into great detail. It says
at 2.17 that the Canadian Revenue Agency is basically copying
the Australian Taxation Office. Generally and specifically, do
you think that is something you should look more at, and in what
other senses are you looking around the world and thinking you
could learn from other tax administrations?
Mr Hartnett: Effective tax rates
are something we in the UK used for a long time, but only on a
company-by-company basis because, as I explained to the Chairman
earlier on, we do not have consolidation of groups. The Australians
and Canadians can apply and calculate effective tax rates in relation
to a group. What they both tell us, though, when we meet to discuss
compliance, is that effective tax rates are useful; they are absolutely
not perfect and quite often they mis-state what the true ratio
might be. I expect all our people who handle large businesses
to have a feel for the effective tax rate in bigger companies
within a group so they can see the change year on year. What do
we learn from other countries? A great deal. The disclosure rules
that I mentioned briefly earlier on we learnt a lot about them
from the United States and how to make them work and what not
to do. We have learned a lot from some of the work the Australians
have done with small business; but both of those countries spend
a lot of time with us, learning what we do as well.
4 Note by Witness: The Department's £69.3m
training budget for 2006-07 is 2.6% of the £2.7bn pay bill
published in that year's resource accounts. Actual figures are
not yet available for 2007-08. Back
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