Conclusions and recommendations
1. The UK tax system is too complex and a
more radical approach to simplification is needed. Nearly
9,000 of the four firms' UK employees are engaged in tax work.
The four firms agree that the tax system is too complex and stated
that no-one benefits from this. The Office of Tax Simplification
is grossly understaffed and has focused on abolishing tax rules
that are no longer necessary, rather than more radical simplification.
HM Treasury and HMRC should work together to make more radical
progress in simplifying the UK's tax code, and should equip the
Office of Tax Simplification with the resources and influence
it needs to help them do so.
2. There is no clarity over where firms draw
the line between acceptable tax planning and aggressive tax avoidance.
The four firms stated that they would no longer engage in some
of the schemes they devised ten years ago, such as the cases they
have lost in court. We heard about the guidelines that firms have
to govern their tax advice, but they are still devising complex
schemes that look artificial and their appetite for risk appears
high—selling schemes that they consider only have a 50%
chance of being upheld in court. HM Treasury should introduce
a code of conduct for tax advisers, setting out what it and HMRC
consider acceptable in terms of tax planning. Compliance with
this code should determine whether or not these firms can access
both government and wider public sector work.
3. It is inappropriate for individuals from
firms to advise on tax law and then devise ways to avoid the tax.
The four firms second staff to HM Treasury to advise on technical
issues in drafting legislation. They conceded that this may give
rise to a perception that they have an influence on the formulation
of tax policy that smaller businesses do not have. The four firms
maintained that their involvement had improved the quality of
legislation, but we are concerned that the very people who provide
this advice then go on to advise their clients how to use those
laws to avoid tax. We were told by the four firms that the advice
they offer to clients in regard to specific tax laws is in line
with what Parliament intended those laws to achieve. HM Treasury
should ensure that the code of conduct we have proposed for tax
advisors sets out how conflicts of interest should be managed
when a firm advises government on the formulation of tax law and
subsequently provides tax advice to clients in related areas.
4. We welcome the four firms' agreement that
tax laws are out of date and need revising.
We heard that international tax rules have not changed to reflect
the way businesses operate globally and through the internet.
It is too easy for companies to exploit these rules by setting
up structures in low-tax jurisdictions, rather than pay tax where
they actually conduct their business and sell their goods and
services. We heard helpful examples of ways of better matching
taxation with economic activity, as used in some US states. In
line with the Committee's first recommendation in our Nineteenth
report, the UK must take the lead in demanding the urgent reform
of international tax law.
5. Greater transparency over companies' tax
affairs would increase the pressure on multinationals to pay a
fair share of tax in the countries where they operate.
We are pleased that the four firms agree that there should be
more transparency over where companies make profits and pay tax.
The four firms stressed that this information needs to be readily
understandable to enable fair comparisons. Tax returns are complicated
documents and by themselves would not provide enough context and
information for someone who is not a tax expert to interpret.
In our Nineteenth report, we recommended that companies should
publish more information on their tax affairs. In response, the
Government told us "HMRC will continue to work in partnership
with HM Treasury to ensure strong standards are developed and
maintained through relevant international fora such as the OECD."[1]
We think HMRC and HM Treasury should push for an international
commitment to improve transparency, including by developing specific
proposals to improve the quality and credibility of public information
about companies' tax affairs.
6. HMRC is not able
to defend the public interest effectively when its resources are
more limited than those enjoyed by the big four firms. The four
firms employ almost 9,000 people as part of their UK tax practice.
For instance HMRC has 65 transfer pricing specialists whereas
the big four firms alone have around 250. In our report on tackling
marketed avoidance schemes we found that HMRC does not know what
level of resource it commits to tackling tax avoidance. Government
must ensure that HMRC is properly resourced to challenge the advice
given by the four firms and others to companies and individuals
seeking to aggressively avoid tax.[2]
1 Treasury Minutes: Government responses on the Fourteenth,
the Seventeenth to the Nineteenth, and the Twenty First Reports
from the Committee of Public Accounts Session: 2012-13, HM Treasury,
Cm 8556, 25 February 2013 Back
2
HC Committee of Public Accounts, Tax avoidance: tackling marketed
avoidance schemes, Twenty-ninth Report of Session 2012-13, HC
788, February 2013 Back
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