More resources for HMRC after MPs attack "outrageous" global business tax avoidance

Out-Law News | 03 Dec 2012 | 1:54 pm | 3 min. read

The Government is to provide HM Revenue and Customs (HMRC) with more funds to enable it to tackle tax avoidance by multinationals, the Chancellor has said.

Speaking on the BBC's Andrew Marr Show on Sunday, George Osborne also said that more work needed to be done on tax avoidance at an international level to avoid "pricing Britain out of the world economy" as part of plans to tackle the tax arrangements of large international businesses.

Evidence from companies including Starbucks, Google and Amazon, which have been criticised in recent weeks over the amount of corporation tax they pay in the UK, formed part of a report by the Public Accounts Committee (PAC) on HMRC's annual accounts. Committee chair Margaret Hodge described the tax arrangements of some multinationals as "outrageous" and an "insult to British businesses".

"There is little credible information about what is going on," she said. "The evidence we took from large corporations was unconvincing and, in some cases, evasive. HMRC also lacked clarity when trying to explain its approach to enforcing the corporation tax regime. The inescapable conclusion is that multinationals are using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK."

She called for HMRC to be more "aggressive and assertive" in its approach to corporate tax avoidance.

Representatives from Starbucks, Google and Amazon were called before the PAC following press coverage of complex tax arrangements allegedly used by the companies to avoid their UK tax liabilities. While there were no allegations that the companies had broken the law, the PAC report accuses them of "[exploiting] national and international tax structures to minimise corporation tax ... [with] the outcome that they do not pay their fair share".

However tax expert Heather Self of Pinsent Masons, the law firm behind, said it was "unfair" of the PAC to criticise HMRC for "simply applying the law as it stands".

"Everyone agrees that companies should pay UK tax on the economic profits they make here – but working out the number is much harder than the PAC seems to think it is," she said. "The lack of trust between the PAC and HMRC is very worrying."

She explained that a business' "true economic risk" arose in the country where key decisions, such as how much stock to buy and at what price, were made.

"The fact that Amazon has a large delivery operation in the UK does not mean that all, or even most, of its profit arises here," she said. "Key decisions are taken in Luxembourg, where its European headquarters are based. There are questions to be asked about multinationals' tax affairs, but action needs to be co-ordinated internationally, not rushed through in a knee-jerk reaction by the UK. While it is right that companies should pay their fair share of tax that amount should be based on clear laws, applied properly by HMRC, and not on some vague notion of morality."

She added that Government plans to provide HMRC with "more resources, to enable it to apply the law effectively" were to be welcomed. However, she added that the department "needs to get better at" project management. "There are still too many open cases, and decisions are too slow," she said.

Ahead of the Chancellor's Autumn Statement, which will be delivered on Wednesday, the Government has announced that it will make £77 million in funding available for HMRC to expand its anti-avoidance and evasion work. This is expected to bring in an additional £2 billion annually in tax that would have otherwise gone unpaid, the Government said. A new 'centre for excellence' will be set up within HMRC to head its work on offshore tax evasion, while the department is to develop a "comprehensive strategy" on offshore tax evasion to be published in spring 2013.

Earlier this month, Osborne issued a joint statement with German finance minister Wolfgang Schäuble calling for "concerted international cooperation" against artificial 'profit shifting' of taxable income to jurisdictions with more lenient corporation tax regimes by large companies. They called on colleagues to back work on identifying possible gaps in international tax standards, currently being carried out by the Organisation for Economic Cooperation and Development (OECD).

In a statement, Starbucks said that it was "looking at" its approach to UK taxes through discussions with HMRC and the Treasury.

"We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more," the company said.