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PAC also critical of reliefs cost data
MPs have expressed concerns about the closeness of the relationship between HMRC and leading tax advisers and their multinational clients that are too often given leeway to avoid paying tax.
The first of two new, strongly worded reports published today by the cross-party Public Accounts Committee (PAC) claims the Revenue’s affiliation with large accounting businesses is “too cosy”.
The PAC recommended last month that the Revenue take a more active role in challenging the advice given by big accountancies to multinational clients – but the department rejected the assertion, along with suggestion for a new code of conduct for advisers intended to clampdown on the promotion of abusive tax planning.
The report, Improving Tax Collection, urges the department to reconsider its response, and reiterates the previously aired concern that some multinationals do not pay the appropriate amount of tax on UK transactions.
“The practice of creating artificial structures and transactions to exploit international tax boundaries, and so avoid tax in the UK, is widespread,” claims the PAC.
“Designing ways for multinational companies to avoid tax is a lucrative business, and it is clear that the voluntary code of conduct for tax advisors is not working in all cases… We expect HMRC to take a much more proactive approach to challenging and tackling artificial tax arrangements.”
The PAC chair, Margaret Hodge, attacked the “unacceptable practices and sheer lengths that some companies go to in order to avoid paying the appropriate amount of tax on the profits they make from their activity here in the UK”.
She went on to claim that evidence from companies including Google, Starbucks and Amazon and from accounting giants PwC, KPMG, Deloitte and EY had exposed a “tax avoidance industry”, with many advisers and lawyers “making lucrative business out of designing and selling ways for their clients to avoid tax”.
Hodge urged the Revenue to “show that it comes down hard on tax cheats and change the perception that it is far too tolerant of these companies and individuals, in contrast to its treatment of small businesses and the majority of the public who pay their taxes through PAYE.
“We are not persuaded that HMRC and the Crown Prosecution Service are doing enough to prosecute serious tax evasion cases,” she said.
The second of today’s PAC reports criticises the Revenue for failing to provide accountability and accuracy in its reporting of tax reliefs and their costs.
The paper, The Effective Management of Tax Reliefs, claims the department does not fully recognise its responsibilities for assessing the value for money of tax breaks and provides “little or no information” by which it can be held to account for the accuracy of cost estimates or whether reliefs are achieving their intended objectives.
The PAC rejects the assertion by HMRC that they are not accountable for issues of cost and demands that tax officials set out how they intend to improve transparency of reliefs, with current data being “poorly defined, incomplete and inaccurate”.
The Office of Tax Simplification has identified 1,140 reliefs – but the Revenue lists just 398, half of which the National Audit Office estimates were designed to have a specific impact on behaviour or to benefit particular groups.
Of the 196 expenditure reliefs, the taxman publishes cost information on little more than half (58%) and does not collect data in 53 cases, the PAC reports.
It goes on to lambaste tax officials’ tardiness in identifying instances in which reliefs are exploited as means of avoidance.
“Monitoring whether the cost of a policy instrument is in line with expectations is a basic principle of sound financial management, but HMRC and HM Treasury often show a lack of curiosity about the cost of tax reliefs,” according to the cross-party committee.
“We have seen examples of large increases in the cost of reliefs as a result of abuse. Spikes in the cost of share loss relief, business premises renovation allowance and film tax relief were all caused by the systematic use… for tax avoidance.”
