Tax prat of the year

KEY POINTS

• PAC not listening to evidence
• Chair attacked practice of seconding staff to Treasury who then return to work in the same area.
• Refusal to accept that the tax profession in general wants simplification.
• What would happen if next Budget’s consultation documents were met with silence?

If you are going to dish it out, you ought to be prepared to take it, which is why I make no apologies for the title or tone of this article.

The personal crusade of Margaret Hodge (pictured) against the tax profession as a whole (whether in the leadership of HMRC or in private practice), because it will not fall into line with her idiosyncratic and ill-informed views about tax avoidance, risks marginalising the Public Accounts Committee (PAC) and has already made it a joke to those who understand the subject.

The low point of this vendetta came on 31 January, of all days, when the heads of tax of the Big 4 were called before the committee to give evidence.

As the drama unfolded live on Parliament TV, so the volume of complaint grew on Twitter from those tax professionals who were watching

The professional bodies and firms put out comments later that showed all the hallmarks of having been edited and re-edited through gritted teeth until they were sufficiently dispassionate and professional.

I may not be the only one who notes the distinction made between “various committees” and the PAC in the statement by the ACCA’s Chas Roy-Chowdhury:

“When the ACCA has been called to give evidence to various committees in parliament, there appears a genuine desire by members to try to understand and learn from us as to what the issues are. What the recent PAC hearings have shown is that there is a role for the profession here to educate, communicate and prove its worth to the external world.”

Never mind the facts

There seems to be a frequent tendency in parliamentary committees to forget that they are neither in a criminal court nor at prime minister’s questions, and to adopt a point-scoring and aggressive tone which generates heat without ever casting light.

Unique to the PAC, however, is a seeming refusal to accept that their witnesses might actually have something useful to say.

With Margaret Hodge at the helm, the PAC does not seem to see its role as listening to the evidence that its witnesses give and then probing and testing it, which is what I always understood its function to be.

Rather, the members appear to go into the hearing with a view that whatever has been alleged by   Private Eye   and/or  T he Guardian is, ipso  facto, correct, and to then pour scorn on its witnesses and hold them up to ridicule when they refuse to accept that 2+2=5.  

This could be seen in the earlier hearings in 2011 and 2012 about the alleged “deals” done by HMRC, including those with Goldman Sachs and Vodafone.

However much it was explained to the PAC that HMRC had a statutory duty to observe taxpayer confidentiality, still Hodge would lambast them for not giving full details, and struck back with an implicit (and totally unwarranted) attack on the integrity of HMRC’s top lawyer, Anthony Inglese, putting him under oath during questioning.

When eventually a solution was found that enabled Sir Andrew Park to see all the files and report to the National Audit Office, the clean bill of health he gave the settlements was simply ignored as if it had been dropped into a 1984 Minitrue memory hole.

Last Thursday, Hodge again referred disparagingly to the “deal” done with Goldman Sachs: Goldman Sachs is a tax avoider, Goldman Sachs has always been a tax avoider, and no one has ever believed differently.

Scores on the doors

And so we come to the hearing attended by the Big 4 heads of tax. From left to right, as we looked at them, were Bill Dodwell (Deloitte), John Dixon (E&Y), Jane McCormick (KPMG) and Kevin Nicholson (PwC).

Or, as we discovered in one of the lighter moments of the hearing 6, 7, 6 and (if I heard Nicholson’s mumble correctly) 7; those being the number of figures in their respective annual partnership incomes.

As a former consultant with PwC (not in the accountancy practice), who explained that she understood how professional firms charged their time, you might have thought that Hodge would add up the implicit combined charge-out rate and ensure that the witnesses spent most of the time talking.

Not a bit of it. No sooner would one of them start to answer a question than Hodge would jump in with a dig or a slur.

Told repeatedly that tax was not significantly more (or less) profitable than the rest of the accountancy business, she replied “Well, I can’t believe that”, a conclusion for which she gave no evidence at all.

Told that the only way to deal with online companies basing themselves in low-tax jurisdictions was OECD reform, she impatiently dismissed it as an attempt to buy time.

Seconds out

All of which would be bad enough, but the part of the session which really incensed me was when she attacked the work done on technical committees and working groups by tax professionals from private practice, and in particular the work done by staff who are seconded from their firms to HMRC and HM Treasury (HMT).

Triumphantly brandishing an advertising brochure from KPMG on the patent box, she jabbed her finger at a section explaining that Jonathan Bridges, a KPMG associate partner, had been seconded to the HMT team working on tax and innovation policy, including the patent box.

Quivering with righteous indignation she said it was “completely inappropriate and wrong” that “the guy who helped write the legislation then goes back to you to help use the law for a purpose for which it was never intended”.

First, what on earth did she expect him to do after his secondment? Go back into KPMG and work on something completely different? Take a vow of silence and enter an enclosed order of monks, never to sully his mind with tax matters again?

In vain, Jane McCormick tried to explain that it is precisely the point of the patent box that you pay less tax on patent income – that, according to Hodge was not its purpose at all, it was to “encourage innovation”, though seemingly in her world without incurring any cost to the Exchequer.

And she had another example, a KPMG manager Robert Edwards, who had been seconded to the team dealing with controlled foreign companies and had then also committed the unpardonable sin of advising clients on the same subject once his secondment had finished.

Let’s get this straight. It is quite routine for HMT to ask the professional firms whether they would be prepared to second staff for a period to provide technical and practical expertise when significant tax reforms are being prepared.

The firms will send the CVs of candidates that they think are suitable, and frequently the process of appointment is just like a normal competitive job interview.

The staff seconded will be paid by their firm, but HMT will either pay nothing, or significantly less than a commercial rate. The terms of the appointments are governed by robust confidentiality agreements.

The seconded staff join teams in HMT, which are tasked with implementing the minister’s policy. The job of the team is to put forward options and explain the implications of the decisions the minister has to make.

It is fundamentally wrong for Margaret Hodge to say the seconded staff were “drafting the legislation”, because there is a separate Office of Parliamentary Counsel with that responsibility.

HMT has a lot of bright staff, but they are not tax experts, and they are not experienced in business. While HMRC can provide some of the technical expertise necessary, and often does, HMT wants the commercial insight and business experience which a view from outside can bring.

There are, of course, advantages to the firm and to the individual staff from the secondment. The firm gets, through the knowledge of the seconded member of staff on their return, a deeper understanding of the purpose behind the legislation, and can therefore advise clients if what they want to do is within that spirit – since, if it is not, it is much more likely to be challenged.

But what they definitely are not doing is discovering loopholes (still less deliberately drafting them into the legislation) so that they can advise their clients how to get round the rules when they are back with their firms.

Edwards called such allegations “upsetting”, and told me that the tenor of the comments in the debate seemed to be questioning his integrity and professionalism. He believed that, with the rest of the Treasury team, his advice had led to robust and effective law being drafted.

Does not compute

The idea that across the profession there is a desire for simpler and more effective tax legislation simply did not compute with the committee.

Asked who would benefit from the length of last year’s Finance Act, Nicholson correctly answered “No one”, but his suggestions for removing redundant or ineffective legislation by including sunset clauses was ignored by the committee, as it did not fit their view of reality.

Instead, they implied that simplification would mean Dodwell losing one of his “many jobs”, such as chairing the CIOT Technical Committee, or sitting on the GAAR interim advisory panel.

It did not seem to occur to the MPs that, unlike chairing the PAC, these positions are unpaid; ever the gentleman, Dodwell did not feel the need to enlighten them.

Clearly expecting the answer “no”, one of the other committee members asked whether any of the Big 4 would second staff to the Office of Tax Simplification (OTS). 

Yes, we already have, said Dodwell, and have just been asked to second someone else. He emphasised that the firm would get nothing in return, since the project was about abolishing legislation, not writing new laws.

Unfortunately this was the wrong answer, so Nicholson was asked whether he, too, would be prepared to second someone of suitable seniority to the OTS.

Yes, he said, “as long as I wasn’t then criticised for having someone on the inside helping to change the legislation”…

Nothing to do with us

After the hearing, HMT seemed keen to dissociate themselves from the views expressed by the committee; as well they might, considering that consultation with tax professionals outside government is an integral part of the new policy for developing tax law, and the secondments are made to help them understand the technicalities of the proposals they are implementing. Their official response was that:

“Tax policy is always a matter for HMT ministers, but there is a role for external interested parties in informing policy development. The government is committed to better tax policy making and recognises the importance when developing policy of engaging fully with those that will have to operate the rules and with all other interested parties.”

The Exchequer Secretary to the Treasury, David Gauke, made a similar comment when discussing the issue on the Radio 4 programme File on Four.

Taxation has yet to receive a comment from HMRC. Peter Fanning, for the CIOT, stressed that tax professionals give about 30,000 hours a year voluntarily to that Institute alone, many of them spent trying to improve tax legislation.

What the PAC completely fails to grasp is that, by and large, tax professionals are passionate about their subject.

Of course they will advise their clients on legal ways to arrange their affairs so that less tax is paid, but the number of advisers who want to indulge in aggressive tax planning has diminished and continues to diminish as the courts complete their swing back from the heady days of the Barclays Mercantile case.

Most tax professionals recognise that the current tax system is broken, and simply want to help to fix it.

They have given HMT and HMRC suggestions and advice about how to do so, not because they want to be “poachers, turned gamekeepers, turned poachers again” but because poorly targeted and uncertain tax legislation is not good for either government or business.

More fundamentally, it simply offends our professional sensibilities to be working with rubbish tools.

But if our input is not required, then I am sure tax advisers have better things that they could be doing with their time.

Perhaps, when the next round of consultation documents comes out with the budget in just under six weeks’ time, it should be met with stony silence from the institutes and the large firms. Then we’ll see how well HMT do when tax is run on Hodgesonian principles.

As was mentioned in the PAC, David Gauke was tax personality of the year at the 2011 Taxation Awards. (For reasons inexplicable to me, that got a laugh from the committee.) The citation on the night highlighted the policy of cooperation and engagement with the profession as one of the reasons for his success.

On precisely equal but opposite grounds, I have no hesitation in awarding Margaret Hodge the title of Tax Prat of the Year, for her attempts to destroy that cooperation and engagement.

Issue: 4389 / Categories: Comment & Analysis , Admin