3 HMRC's role in tackling corporate
tax avoidance |
23. We have long been concerned that, despite
HMRC having customer relationship managers for large businesses
to understand these organisations, and its overriding duty to
collect all tax due, it has not done enough to tackle corporate
tax avoidance. In
the case of Google, we could not understand how a few journalists,
whistleblowers and MPs have uncovered what the Department had
24. The Department told us it believed it reached
legal, reasonable and good decisions on tax due.
It defended its judgment on companies' tax liabilities and emphasised
these are made by expert tax professionals.
The Department denied it operates in a way that favours big companies
rather than small taxpayers. The Department told us it wins 86%
of the cases it takes to court, as an indicator of its good judgment
in using taxpayers' money in going to litigation.
25. The Department has around 1,200 people work
in its large business service, dealing with the 800 largest businesses
in the UK. This includes a specific transfer pricing specialist
team of 65 people, supported by case-working teams to examine
whether multinationals have a 'permanent establishment' in the
UK and their use of transfer pricing. It is recruiting three further
economists and 15 specialists.
26. The Department recognises that multinationals
have very carefully planned their structures, with advice from
the expert tax advisers in the large accountancy firms. The Department's
staff check a multinational's declared structure against what
it finds out about how the multinational actually operates in
the UK. This involves visiting the company premises, interviewing
senior executives and employees, observing what employees are
doing, gathering third-party information from customers of the
business, and liaising with other fiscal authorities.
27. The Department considered that the evidence
presented by whistleblowers to the Committee might not be directly
relevant to whether Google has a 'permanent establishment' in
the UK. However,
it acknowledged that the greater the value added by UK staff,
the greater the transfer price that should be paid to Google Ltd,
even if this did not necessarily create a 'permanent establishment'
of Google in the UK.
28. The Department acknowledged it has had disputes
with digital businesses about whether they have a 'permanent establishment'
in the UK, and whether the UK operation is getting the right transfer
price for the services it provides to its operations overseas.
The Department told us that there has been no litigation against
any digital company in relation to 'permanent establishment.
It accepted that the current international rules about 'permanent
establishment' have been under strain following the development
of a digital economy. The Department has experienced cases where
it argues there is trading activity in the UK, but has not been
able to prove the multinational has a permanent establishment
in the UK carrying out the trading activity. It concluded that
the UK and other fiscal authorities will struggle with multinational
digital businesses until those rules are updated.
29. The Department considered its work does already
achieve an impact on large business behaviour. However, it also
acknowledged there is more it can do to tackle avoidance and it
could use more resources to do this.
28 'HM Revenue and Customs: Annual Report and Accounts',
19th Report, Committee of Public Accounts, HC 716, 3 December
'Tax avoidance: the role
of large accountancy firms',44th report, Committee
of Public Accounts, HC 870, 26 April 2013
'HM Revenue and Customs 2010-11
Accounts: tax disputes', 61st report, Committee
of Public Accounts, HC 1531, 20 December 2011 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1531/1531.pdf Back
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