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Tax experts defend work with government to shape legislation

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Tax experts have dismissed Margaret Hodge’s suggestion that sharing technical expertise with HM Treasury and HMRC personnel working on draft legislation is ‘inappropriate’. The claim prompted an angry reaction on Twitter, with some tax advisers expressing concern that volunteers who serve on technical committees might be discouraged from doing so. Peter Fanning, chief executive of the Chartered Institute of Taxation, told Tax Journal today that the CIOT’s members work with HMRC to improve the tax system.

Hodge, chairman of the Commons public accounts committee, noted during yesterday’s evidence session on tax avoidance that representatives of some of the large law and accountancy firms sit on a number of committees, including the tax professionals forum chaired by exchequer secretary David Gauke.

That forum’s members include Jane McCormick, head of tax at KPMG, Chris Sanger of Ernst & Young, and the head of tax at Grant Thornton, she noted.

‘You’re all in there,’ Hodge said.

She told McCormick: ‘My view is that you use that close relationship in an inappropriate way.’

A KPMG employee was the ‘lead policy adviser’ on secondment to the Treasury, advising on tax and innovation including development of the patent box, Hodge said. ‘He gave the technical advice.’ The same employee was now a member of a KPMG team doing patent box work.

‘The guy who actually helped write the law goes back to you and supports your clients in using that law, for a purpose for which it is never intended. It wasn’t intended to avoid tax, it was intended to support innovation.’

Hodge added: ‘So you’re a poacher turned gamekeeper, and then you go back and you’re a poacher again. That is shocking.’

McCormick said all of the big four firms were frequently asked by the Treasury and HMRC to provide technical support ‘in various areas, particularly when new legislation is being looked at’. The people who do that do not set legislation, she said.

Hodge claimed that the ‘so-called technical support’ was ‘you guys writing the legislation’.

The patent box was attracting new business into the UK, McCormick said: ‘That is exactly the purpose of that legislation.’

She denied that KPMG would seek to exploit the legislation: ‘We are seeking to apply the legislation with our clients to fulfil the purpose of the legislation.’ The patent box is designed to tax income from patents at a lower rate.

‘How you get there is quite complicated,’ she said. ‘Businesses taking advantage of that need quite a lot of support to do so.’

The witnesses were asked later whether they had ever seconded anyone to the Office of Tax Simplification. Bill Dodwell, head of tax policy at Deloitte, said his firm had done so and had been asked to do so again. He added that the firm receives nothing directly in return for the secondment. ‘There is no fee,’ he said.

Asked whether he would second someone of ‘weight and seniority’ to the OTS, PwC's head of tax Kevin Nicholson said he would, ‘as long as I wasn’t then criticised for having someone on the inside helping to change the legislation’.

McCormick said in a statement today: ‘Seconding people to HMRC and the Treasury and other government bodies is a routine part of what we do – as is the case with the rest of the big four, the major accountancy firms and the magic circle law firms. Our people bring valuable technical expertise and helpful insights into the likely practical commercial impact of policy and legislative changes being discussed by government so that the authorities can make informed choices on policy decisions.

‘Having worked closely with policymakers, our secondees have a very good grasp of both the intention of parliament regarding the area of tax they were focusing on, together with a strong understanding of how the rules will be applied, both of which mean we are well placed to help our clients meet their compliance objectives under the letter and spirit of the law when it is implemented.’

Peter Fanning told Tax Journal that CIOT members gave up about 30,000 hours of their time to CIOT work last year. ‘We tend to see the tax profession as extending across HMRC as well as our own members. We work together to try to make the tax system better,’ he said.

The CIOT announced in 2010 that a new CIOT branch would be based in HMRC, to meet ‘certain training and other requirements that the existing branch network does not provide for HMRC staff’.

The tax body’s 2012 accounts will show that CIOT members donated about 30,000 hours to CIOT activities, Fanning said.

These include the work of CIOT technical committees and branches, but the largest component comprises technical work with HMRC and the CIOT’s Low Incomes Tax Reform Group (LITRG), which assists taxpayers and tax credits claimants who cannot afford to pay for professional advice.

The technical work with HMRC is ‘all about people donating their time to helping HMRC produce better legislation and improve the administration of the system’, Fanning added.

He pointed out that HMRC contributes about 3,500 hours of staff time annually to LITRG.

The CIOT, ICAEW and other professional bodies, as well as firms of accountants and lawyers, are routinely consulted on draft tax legislation. Consultation will close next week on the draft Finance Bill measures published on 11 December.

Fanning said the CIOT saw its role in this context as helping the government to deliver policy by pointing out the consequences of draft legislation. ‘We are more like engineers than architects,’ he said.

Mike Truman, editor of Taxation, said: ‘The worst parts of a very poor PAC hearing were the baseless insinuations that the work done by those from the profession on technical committees, or seconded from their firms into HMT or HMRC, to advise on new legislation was a ruse to let them create new loopholes for the benefit of their clients.

‘If those countless hours of professional unpaid help, offered in a spirit of goodwill to improve the tax system, are not wanted, then I am sure tax advisers would be glad to reduce their workload and take on something more remunerative instead.’

David Gauke, the exchequer secretary, has defended consultation with ‘working groups’ of businesses representatives on tax issues.

In the BBC’s File on 4 documentary, broadcast on Tuesday, he said: ‘Do we want to engage with businesses and hear what they have to say? Yes. Are we in any way captured by them? Do they determine what we decide? Absolutely not.’

Gauke added: ‘The message that I want to put out is that we want businesses located in the UK, we want a competitive tax system, and we want those businesses to pay tax under that system.’

BBC journalist Fran Adams asked him: ‘Who are the people on [Treasury working groups on matters such as the reform of controlled foreign companies (CFC) rules] who are saying “Actually no, we don’t want to drive tax rates down?” Who are the people arguing the other point of view in that process?’

Gauke said: ‘We hear the arguments all the time, plenty of representations, and I meet with plenty of groups who will raise issues as to how our tax system works. The point of the working parties was to get the views and expertise of those businesses likely to be affected by the change in the CFC regime.’