Poor old Lin Homer (CEO of HMRC) got a very rough ride at yesterday's Public Accounts Committee. Homer was forced onto the back foot by aggressive questioning from the committee, and had to repeatedly deny that HMRC enter into negotiations with large companies over how much tax they pay (although they do negotiate wrt other tax issues eg IHT "You should consider negotiating a settlement where the issues are not clear cut and the taxpayers cannot be persuaded that your point of view is the correct one.").
Well, sorry to say it, but unless things have changed since when I was a young internal auditor in the early 90's that simply isn't true (or at least she may be mistaken).
The standard practice between HMRC (the Inland Revenue as it was then) and companies was for IR to present a tax figure (detailing how they derived it) and for the company to present theirs. Where there were major discrepancies the two parties would keep "surprises" (eg write offs, hidden losses, hidden profits etc etc) in reserve to use during the discussions as to how much the tax bill would finally be. A final figure (midway) would usually be decided whereby both IR and the company felt that they had gone as far as they could without incurring costs of litigation etc.
That to me is a "negotiation", and there is nothing wrong with that if both parties act with honesty, integrity and commonsense.
Anyhoo, apparently, these "negotiations" do not occur now (according to Homer).
Leaving that aside, Margaret Hodge (chairman of PAC) accused HMRC of letting large corporations off paying large sums of money and (as per the Huffington Post) said that there were "many question marks" hanging over the settlements reached in cases such as those involving Vodafone and Goldman Sachs.
Referring to the Vodafone case, Hodge said:
"It seems to me that you haven't pursued them properly and you have actually let them off a lot of tax."Re the giant vampire squid, Goldman Sachs, she said that it had been "let off tens of millions".
Homer said that she accepted criticisms relating to governance arrangements and was aiming to increase the number of commissioners with tax law qualifications from one to three or more, as well as to recruit as many as 1,000 tax-qualified graduates.
Jim Harra, director-general of business tax at HMRC claimed that HMRC were investigating the tax affairs of “just over 4,000” companies
"We settle for the amount we think the Revenue is due. We do not settle for a lesser amount than we believe we could reasonably expect if we litigated."To which Hodge retorted that Homer's position was "incredible".
"It is the committee's view that there are so many question marks over whether the settlements are in the public interest and properly defend the taxpayer's interests and are fair and equal under the law."Homer refused to handover documents detailing the precise tax arrangements of large companies which have come into the spotlight, insisting that she was not allowed to do so unless the papers entered the public domain as part of a court case.
Whilst Hodge threatened to refer HMRC lawyer Anthony Inglese to the Attorney General over claims he made under oath in an earlier parliamentary hearing that lawyers were involved "throughout" the Vodafone case.
"I think you should take this away and investigate further whether or not somebody who accounts to you did mislead Parliament and we will take away what we will do, with possible reference to the Attorney General, as to whether or not a particular individual accountable to you did mislead Parliament."All in all a pretty lousy day for HMRC.
In my humble opinion, if "negotiations" are still conducted in the same manner as I described from the early 90's then Homer should have stated that forcibly and without shame.
A commonsense cost effective approach to gathering tax is surely what everyone wants, and should be aiming for, is it not?
As ever, comments and opinions from all are very welcome. I would be particularly interested to hear if the "negotiations" that I described are still carried out in the same way.
Here is the hearing for you to watch:
Tax does have to be taxing.
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