2 Tax avoidance
4. We held evidence sessions with representatives
from Amazon, Google and Starbucks to investigate why some multi-national
companies pay little corporation tax despite doing a large amount
of business in the UK. We found that multinational companies were
able to exploit national and international tax rules to minimise
corporation tax on the economic activity they conduct in the UK
so that they did not pay their fair share, giving them an unfair
advantage over British businesses.[12]
In our report on Google we noted that the big accountancy firms
sell tax advice to multinationals that involve constructing artificial
tax arrangements that serve only to help them avoid UK taxes.
We concluded that HMRC had to work with complex and out-of-date
UK and international tax laws, which are too easy for businesses
to exploit, but that HMRC had not been sufficiently challenging
of the manifestly artificial tax arrangements of multinationals.
5. Following the publication of documents that suggested
PriceWaterhouseCoopers (PwC) had promoted complex tax avoidance
schemes to numerous clients we took evidence from PwC and Shire
Pharmaceuticals, one of the firms on which media attention had
focussed. We concluded that the tax arrangements PwC had promoted
in Luxembourg had borne all the characteristics of a mass-marketed
tax avoidance scheme and that earlier evidence from PwC asserting
that they were not in the business of selling such schemes had
been misleading.[13]
HMRC told us that PwC, as a firm of Chartered Accountants, was
subject to the Institute of Chartered Accountants in England and
Wales' code of ethics and a code of professional conduct in relation
to tax which had been endorsed by HMRC. These codes do not have
a statutory underpinning and it is the Institute's responsibility
to ensure its members comply with them. HMRC told us that, in
relation to aggressive tax avoidance, the code states that firms
should not engage in structures that are artificial.[14]
6. HMRC told us that its main way of tackling the
exploitation of international tax rules was through the UK's support
for the Organisation for Economic Co-operation and Development's
(OECD's) Action Plan on Base Erosion and Profit Shifting.
We fully support the OECD's important work in this area, which
will set international standards that all countries will be expected
to comply with. But we are concerned that it will take some time
for it to have an impact.[15]
We asked HMRC about the proposals in Autumn Statement 2014 for
a diverted profits tax.[16]
HMRC told us that these proposals covered two types of arrangements:
those where a multinational stops just short of putting a permanent
establishment in a country and uses "commissionaire arrangements"
instead; and arrangements between companies in the same group
that involve entities or transactions that lack economic substance.
HMRC confirmed that these proposals did not cover intra-company
loans because those arrangements were being pursued through the
OECD.[17] HMRC told us
that it expected to collect some £1.35 billion in additional
tax up to 2020 from the diverted profits tax through the direct
revenue it raises and by changing the behaviour of companies.[18]
7. We reported on marketed tax avoidance schemes
that are sold to one or more high worth individuals with the aim
of reducing their tax liability in early 2013. We found that HMRC
had allowed a system to evolve where the die were loaded in favour
of the promoters of tax avoidance schemes. The complexity of tax
law created opportunities for avoidance, there was no effective
deterrent to stop people from promoting avoidance schemes, and
HMRC was ineffective in challenging promoters who obstructed its
attempts to investigate.[19]
HMRC has improved its approach in response to our recommendations.[20]
HMRC has set up a new counter-avoidance directorate to better
co-ordinate its activities. Before this change the schemes were
dealt with by separate teams and HMRC's response was not joined-up.[21]
It has acted to disrupt the market and change the economics of
promoting and operating avoidance schemes by seeking new powers
in five areas: an accelerated payment rule so that HMRC, rather
than the user, can hold the disputed tax until the case is resolved;
follower notices to tackle avoidance schemes with multiple users;
powers to tackle serial avoiders; a stronger disclosure regime;
and powers to issue conduct notices to promoters whom it considers
abuse the rules. The new powers should make it less attractive
to promote or buy an avoidance scheme.[22]
8. HMRC told us that it had at least 65,000 unresolved
marketed tax avoidance cases,[23]
an increase of 24,000 since 2012.[24]
HMRC noted that it had applied its new 'accelerated payment' powers,
which enables HMRC to make the users of schemes pay the tax up
front, to 4,000 cases since November 2014. HMRC told us it would
be using this power across 41,000 cases over the next two years
which it expected would raise £5 billion by 2017-18.[25]
12 Committee of Public Accounts, HM Revenue & Customs: annual report and accounts 2011-12, Nineteenth Report of Session 2012-13, HC 716, 3 December 2012, hereafter 'HMRC 2011-12'; Committee of Public Accounts, Tax avoidance - Google, Ninth Report of Session 2013-14, HC 112, 13 June 2013 Back
13
Committee of Public Accounts, Tax avoidance: the role of large accountancy firms (follow-up), Thirty-eighth Report of Session 2014-15, HC 1057, 6 February 2015, paras 2-3, hereafter 'Role of the large accountancy firms (follow up)' Back
14
Qq 285-290 Back
15
Qq 192, 234 Back
16
Subsequently included in the Finance Bill 2015. Back
17
Qq 312-315 Back
18
Q 246 Back
19
Committee of Public Accounts, Tax avoidance: tackling marketed avoidance schemes, Twenty-ninth Report of Session 2012-13, HC 788, 19 February 2013, summary Back
20
C&AG's Report, Increasing the effectiveness of tax collection, para 4.5 Back
21
C&AG's Report, Increasing the effectiveness of tax collection, para 4.6 Back
22
C&AG's Report, Increasing the effectiveness of tax collection, paras 4.9 - 4.11 Back
23
Q 219 Back
24
C&AG's Report, Increasing the effectiveness of tax collection, para 4.7 Back
25
Qq 220-223 Back
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