HM Revenue & Customs 2010-11 Accounts: tax disputes - Public Accounts Committee Contents

2  Taxpayer confidentiality and lack of transparency

5. The Department's rationale for not disclosing information about tax settlements is the need for confidentiality to protect the interests of taxpayers. The Department claims that it is prevented from disclosing information about individual taxpayers under the Commissioners for Revenue and Customs Act 2005 (the 2005 Act).[8] Section 18(1) of the Act prohibits the disclosure of information, and criminal penalties for unlawful disclosure are contained in section 19. However, exceptions to this general prohibition are set out in section 18(2).

6. Section 18(2)(a) of the 2005 Act permits disclosure of information which "is made for the purposes of a function of the Revenue and Customs". One of the Department's functions is to assist Parliament, as the Permanent Secretary for Tax recognised in his evidence to us.[9] However, the Department's view is that this does not permit providing information to a select committee which would identify a specific taxpayer. The Department has cited a number of policy and operational reasons which it believes support its decision not to release information identifying taxpayers. These include: the potentially damaging effects on voluntary compliance by taxpayers; potentially harmful effects on Ministers and the Department's relationship with other departments and agencies; the possible impact on the Department's reputation for impartiality; and the risk of exposing officials to criminal sanctions.[10]

7. The 2005 Act does not provide an absolute bar to information disclosure and it is therefore the Department's particular interpretation of the legislation that has prevented it from being more open about specific cases. Commissioners have the power to disclose information at their discretion, and in doing so will have regard to the considerations set out above.[11] However, these are policy not legal reasons for maintaining confidentiality.[12] It is essential that when balancing the case for and against disclosure of taxpayer information, the Department gives due weight to the wider public interest, and in particular its duty to provide Parliament with the necessary assurance that the Department and Commissioners have acted appropriately when reaching settlements. The Department also needs to distinguish between different types of taxpayers in considering whether to disclose information, as the impact on an individual taxpayer or family will be different to the impact on a large corporation.[13]

8. The Department's General Counsel and Solicitor also claimed he could not discuss a particular case because of legal privilege, as a judicial review of the case was pending.[14] However, he conceded there were no proceedings yet before the courts.[15] Erskine May stipulates that the sub judice rule applies only where there are court proceedings, so this is not a valid reason for declining to answer our questions.[16]

9. We are particularly uneasy about the blanket confidentiality applied to cases raising governance concerns or where mistakes were made in reaching settlements, because we are unable to scrutinise what went wrong in these cases. Details of some of these cases only came to our attention because they appeared in the media. It is deplorable that we received more information from the media and from a whistleblower than from the Department itself.[17]

10. The Permanent Secretary for Tax and other senior officials repeatedly cited taxpayer confidentiality and legal privilege to justify not answering our questions about specific cases. In one case, we sought information on the details of a settlement in which an error had been made with the effect that the company concerned did not have to pay interest due on its tax liability. The C&AG told us that this resulted in a loss of up to £8 million in interest forgone. We have since received evidence from a whistleblower that the total value of interest payable in respect of this particular settlement could be as high as £20 million. The Department cited taxpayer confidentiality as the reason for refusing to answer our questions about this error:

  • The Permanent Secretary for Tax declined several times to answer questions about the extent of the interest lost on the settlement;[18] and the General Counsel and Solicitor said he could not comment on the settlement sum reached even though some particulars of the claim were in the public domain because, before the settlement was reached, the case was the subject of public proceedings in the county court.[19]
  • The Permanent Secretary for Tax declined on several occasions to explain why he had not reopened the case in order to pursue the interest on the tax liability after the mistake was discovered, despite advice from the General Counsel and Solicitor that it would have been possible to reopen the case.[20]
  • The Permanent Secretary for Tax said he could not confirm whether the Department warned the company it would be liable for interest if it continued to resist settling the dispute.[21]
  • The General Counsel and Solicitor claimed he could not answer a question on whether he believed there was any impediment to charging interest on the tax liability.[22] However, later in the same hearing the Permanent Secretary for Tax confirmed that there was no such legal impediment.[23]
  • The Permanent Secretary for Tax said he could not clarify whether the case was one of the four large tax cases where the Department did not follow its normal governance arrangements.[24]

11. We also asked about another case, where the Department concluded a tax settlement of £1.25 billion with another large company, and again the Department cited taxpayer confidentiality as the reason for refusing to answer our questions. In particular:

  • The General Counsel and Solicitor said he could not comment on whether lawyers had advised that £1.25 billion was the correct settlement amount or whether the settlement included interest.[25]
  • The Permanent Secretary for Tax chose not to answer questions on why the company had been given five years to settle its tax liability without being charged interest, despite this information being put in the public domain by the company itself.[26]

12. Notwithstanding the debate about confidentiality, it is essential that we are given clear and complete evidence to questions arising from the way the Department discharges its responsibilities. The weaknesses in the evidence provided by the Department extended beyond matters relating specifically to the taxpayer concerned. The Department was also inconsistent in its presentation of its own internal discussions where no confidentiality constraint could conceivably apply:

  • The Permanent Secretary for Tax maintained several times that he did not deal with the company's tax affairs, despite acknowledging that he attended the key meeting with the company where the settlement was reached on 19 November 2010.[27]
  • The Permanent Secretary for Tax gave unclear and potentially misleading evidence at our 17 October 2011 hearing on the chronology of events leading to the discovery and reporting of the mistake and the timing of subsequent discussions he had with the General Counsel and Solicitor. He omitted to say exactly when he had informed the General Counsel and Solicitor about the mistake leading to loss of interest due to the Department, despite our specific questioning on when the mistake was identified and reported.[28]

In a subsequent hearing, the General Counsel and Solicitor said the Permanent Secretary for Tax had spoken to him shortly after the 19 November meeting, but also confirmed that he was not explicitly told about the mistake until 7 December.[29] The Permanent Secretary for Tax confirmed later in the same hearing that he had spoken to the General Counsel and Solicitor in the week of 22 November to inform him that the case had been settled, and then admitted he had not mentioned the mistake involving the loss of interest until 7 December.[30]

  • When asked if there was a note of the 19 November meeting, the Permanent Secretary for Tax initially said he did not know.[31] In subsequent hearings he clarified that a meeting record had been prepared by the company, which the Department considered to be a fair reflection of what took place.[32] However, he still could not confirm whether the Department had prepared its own note of this meeting.[33]
  • The Permanent Secretary for Tax provided inconsistent evidence on whether anyone within the Department had been held accountable for the mistake. At the hearing on 12 October 2011, he said that no disciplinary action had been taken against anybody as a result of the mistake.[34] However, in a later hearing he said that the error had been taken into account in someone's annual appraisal and implied that the individual concerned did not receive a bonus that year.[35]

8   Q 49 Back

9   Q 58; Ev 65 Back

10   Ev 65 Back

11   Qq 48-49, 60; Ev 65 Back

12   Qq 517-519 Back

13   Qq 723-724 Back

14   Qq 479-484 Back

15   Qq 479-484 Back

16   Q 486; Erskine May, 24th edition, London, 2011, pp 441-3 Back

17   Q 45  Back

18   Qq 25-28, 43-44  Back

19   Qq 529-532 Back

20   Qq 126, 545-547 Back

21   Q 33 Back

22   Q 631 Back

23   Q 710 Back

24   Qq 83, 91 Back

25   Qq 583-589 Back

26   Qq 233-234 Back

27   Qq 1-7, 37-39 Back

28   Qq 261-263 Back

29   Qq 559-560 Back

30   Qq 722-725 Back

31   Qq 14, 17-19 Back

32   Qq 260, 713 Back

33   Qq 257-261; Qq 729-733 Back

34   Qq 113, 118 Back

35   Qq 703-705 Back

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Prepared 20 December 2011