Tax Avoidance-Google - Public Accounts Committee Contents

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.[28] In the case of Google, we could not understand how a few journalists, whistleblowers and MPs have uncovered what the Department had not.[29]

24.  The Department told us it believed it reached legal, reasonable and good decisions on tax due.[30] It defended its judgment on companies' tax liabilities and emphasised these are made by expert tax professionals.[31] 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.[32]

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.[33]

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.[34]

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.[35] 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.[36]

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.[37] 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.[38]

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.[39]

28   'HM Revenue and Customs: Annual Report and Accounts', 19th Report, Committee of Public Accounts, HC 716, 3 December 2012

'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 Back

29   Q 220 Back

30   Qq 220 -21 Back

31   Q 223 Back

32   Q 223, 226 Back

33   Qq 226-227 Back

34   Qq 226-228 Back

35   Qq229-230 Back

36   Q 231 Back

37   Q 267 Back

38   Qq 242-245 Back

39   Q 239 Back

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Prepared 13 June 2013