Improving tax collection - Public Accounts Contents

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 We concluded that HMRC had to work with complex and out-of-date UK and international tax laws, which are too easy for businesses to exploit, but that HMRC had not been sufficiently challenging of the manifestly artificial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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Prepared 26 March 2015