HMRC better at applying tax law than Public Accounts Committee, HMRC chief says

Homer was appearing before the Committee on Thursday as part of its investigation into tax avoidance and the role of multinational companies. Google's vice president for Northern and Central Europe Mark Brittin, also appeared to answer further questions over Google's tax arrangements.

Homer suggested that some of the issues that had attracted media attention recently around multinationals arose because of the "gap between what people what like to be the case and what actually is the case". She told MPs: "what we can't do unless and until you change the law is we can't collect the tax that people would like us to collect".

Homer said that collecting the tax due under the law was a matter of application of expert knowledge. “I am afraid I think that is something we do rather better than the select committee,” she said.

PAC chair Margaret Hodge said she accepted that applying many of the tax rules to the facts was a matter of judgement but said of HMRC "your judgement belies common sense, we don’t trust your judgement". She said that HMRC had "lousy judgement and the people who are taking those judgements are not fit for purpose".

James Bullock of Pinsent Masons, the law firm behind Out-law said "It’s time for politicians and campaigners to focus on informed oversight, and let HMRC get on with its job without the distraction of a major political and legal row.”. He was commenting in response to HMRC's success in the High Court in a judicial review brought by tax campaigners UK Uncut, challenging the legality of an agreement entered into by HMRC to settle a dispute with investment bank Goldman Sachs.

Earlier on Thursday morning Hodge and the other MPs on the PAC had questioned Mark Brittin at length on Google's business operations. MPs were investigating why Google paid only £3.4m in UK tax in 2011, when $4.9bn of advertising sales were made to UK customers. Google said these sales were made in Ireland.

Brittin said that that the staff Google employs in the UK do not conduct any sales activities and that all conclusion of contracts is done in Ireland. He explained that Google Ireland had the rights to sell Google advertising and it was Ireland that owned the IP for the purpose of selling to its customers across Europe. Britten said that the UK team would be talking to advertisers or their agents in the UK but "nobody in the UK has the right to close a transaction with an advertiser".

Hodge accused Google of "rather devious" and "calculating and in my view unethical behaviour in deliberately manipulating the reality of your business to order paying your fair share of tax for the common good". She said to Brittin “You are a company that says you do no evil and I think that you do do evil.”

Britten said Google had been "totally transparent and open with HMRC" and "weren't trying to disguise what they did" He said that HMRC had questioned them over a number of years and spoken to people in the business as to how it worked.

Hodge said it was "clear" from the documentation that she had seen and from whistleblowers' accounts of the situation that "deals were closed by UK based staff". "The entire sales process took place in the UK" she said. "If the sales activity is taking place in the UK you are misleading the tax authorities" Hodge said.

John Dixon, Ernst & Young's head of tax was unable to answer questions specifically about Google, due to client confidentiality, but explained that much of the "evidence" the PAC had "uncovered" from its whistleblowers was not relevant to the issue of whether a multinational was trading in the UK.

Jim Harra, director of business tax at HMRC explained that in order to be taxed in the UK, a non resident company had to have a permanent establishment in the UK. He explained that this could be either a fixed office of the overseas company or people here acting as dependent agents. He explained that if a UK group company was employing people who were providing services this would not constitute a permanent establishment of the overseas company.  The services provided by the UK company were relevant only in establishing the "transfer price" that the UK company should charge the overseas company for the services it provided.