MPs are wrong to suggest that HMRC is not adequately tackling tax avoidance, and their criticism of multinationals is an ‘unprincipled attack on the rule of law’, a leading tax lawyer has said.
David Goldberg QC argued in a letter to The Times that the Commons public accounts committee (PAC) had set up its own standard for HMRC and criticised the department for not achieving that standard. ‘But the standard set up has no basis in fact or in law,’ he said in response to an article written by PAC chairman Margaret Hodge.
HMRC ‘must pursue aggressive tax avoiders more vigorously’, Hodge wrote. ‘It’s not just a matter of resources; it’s also about culture and attitudes.’
Last week’s PAC report was highly critical of tax arrangements at Amazon, Google and Starbucks. ‘We were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimise their tax obligations, are defensible,’ the PAC said.
All three companies defended their tax arrangements but Starbucks made a public commitment to pay more corporation tax than required by law. ‘Specifically, Starbucks will not claim tax deductions for royalties and standard intercompany charges. Furthermore, Starbucks will commit to paying a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years,’ Kris Engskov, managing director in the UK, said in an open letter.
The Financial Times reported that Starbucks had said ‘it would not claim tax deductions for royalties, coffee purchases, interest on intercompany loans, or capital allowances, and would not carry forward tax losses’.
‘Principle, not demotics’
However, Goldberg suggested that the PAC had exceeded its remit: ‘It is beyond the competence of the committee to determine whether a particular taxpayer has paid the “right” amount of tax; the proper job of the committee is to examine, against the standards of good administration, whether HMRC is doing its job.’
Hodge had adopted ‘far too broad a conception of tax avoidance’, Goldberg added. ‘A company which pays tax on its profits, computed by deducting from its receipts the expenses incurred to earn them, cannot be said to have avoided tax.’ A stand needs to be made ‘for principle, not demotics’, he warned.
Increasing public pressure on companies such as Starbucks ‘seems to be throwing taxes in to disarray’, said Richard Jordan, a partner at the law firm Thomas Eggar. He warned that Starbucks’ commitment ‘does not represent a reasonable way to pay taxes and sets a dangerous precedent.’
Tax professionals
As Tax Journal reported last week, Hodge told the BBC’s Today programme that accountancy firms ‘supporting anybody in trying to avoid tax in an aggressive way’ should be denied access to government contracts.
In her Times article Hodge said she questioned ‘whether the public will continue to tolerate the current practices of the big accountancy firms, banks and tax lawyers’.
She added: ‘Helping people to avoid tax may make you lots of money, but it is increasingly regarded as unethical and unacceptable.’
Professional bodies have backed the government’s efforts to tackle aggressive avoidance. Practising tax experts have been engaged in consultation on the proposed general anti-abuse rule, and gave a broad welcome to the revised draft GAAR published yesterday.
Responding to criticism aired on the Today programme, the big four firms of accountants stressed ‘their global role and their requirement to respond to the needs of their clients’. Ernst & Young told Tax Journal that the firm’s clients sought advice on ‘a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.
Tax academics have stressed the difference between the aggressive schemes that the GAAR is designed to deter and the use of tax havens and low-tax jurisdictions to manage a multinational’s effective tax rate within the law.
‘Unjustified scrutiny’
Richard Jordan said: ‘Margaret Hodge continues to be gaining traction in her comments on tax professionals and I strongly believe we will be next on the agenda for unjustified scrutiny. Rather than alienating tax professionals, HMRC could be working with us to help weed out those companies that aggressively avoid tax. Government engagement and discussion with sector representatives of the professional advisers – for example at the Society of Trust and Estate Practitioners (STEP) and the Chartered Institute of Taxation – would be far more fruitful than professional bashing in the press.’
Jordan is a member of the UK technical committee at STEP. He told Tax Journal that he did not regard the tax planning under scrutiny at Amazon, Google and Starbucks as aggressive avoidance. ‘If you want to change that, you have to change the law,’ he said. But he welcomed the fact that the issue of what is morally acceptable tax behaviour was now ‘centre stage’, and called for a sensible discussion about ‘how to change behaviours’.
If HMRC asked tax professionals to go on record and denounce certain types of activity, many of the leading firms would do so, he said: ‘Pre-ordained, packaged tax schemes are wrong.’
MPs are wrong to suggest that HMRC is not adequately tackling tax avoidance, and their criticism of multinationals is an ‘unprincipled attack on the rule of law’, a leading tax lawyer has said.
David Goldberg QC argued in a letter to The Times that the Commons public accounts committee (PAC) had set up its own standard for HMRC and criticised the department for not achieving that standard. ‘But the standard set up has no basis in fact or in law,’ he said in response to an article written by PAC chairman Margaret Hodge.
HMRC ‘must pursue aggressive tax avoiders more vigorously’, Hodge wrote. ‘It’s not just a matter of resources; it’s also about culture and attitudes.’
Last week’s PAC report was highly critical of tax arrangements at Amazon, Google and Starbucks. ‘We were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimise their tax obligations, are defensible,’ the PAC said.
All three companies defended their tax arrangements but Starbucks made a public commitment to pay more corporation tax than required by law. ‘Specifically, Starbucks will not claim tax deductions for royalties and standard intercompany charges. Furthermore, Starbucks will commit to paying a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years,’ Kris Engskov, managing director in the UK, said in an open letter.
The Financial Times reported that Starbucks had said ‘it would not claim tax deductions for royalties, coffee purchases, interest on intercompany loans, or capital allowances, and would not carry forward tax losses’.
‘Principle, not demotics’
However, Goldberg suggested that the PAC had exceeded its remit: ‘It is beyond the competence of the committee to determine whether a particular taxpayer has paid the “right” amount of tax; the proper job of the committee is to examine, against the standards of good administration, whether HMRC is doing its job.’
Hodge had adopted ‘far too broad a conception of tax avoidance’, Goldberg added. ‘A company which pays tax on its profits, computed by deducting from its receipts the expenses incurred to earn them, cannot be said to have avoided tax.’ A stand needs to be made ‘for principle, not demotics’, he warned.
Increasing public pressure on companies such as Starbucks ‘seems to be throwing taxes in to disarray’, said Richard Jordan, a partner at the law firm Thomas Eggar. He warned that Starbucks’ commitment ‘does not represent a reasonable way to pay taxes and sets a dangerous precedent.’
Tax professionals
As Tax Journal reported last week, Hodge told the BBC’s Today programme that accountancy firms ‘supporting anybody in trying to avoid tax in an aggressive way’ should be denied access to government contracts.
In her Times article Hodge said she questioned ‘whether the public will continue to tolerate the current practices of the big accountancy firms, banks and tax lawyers’.
She added: ‘Helping people to avoid tax may make you lots of money, but it is increasingly regarded as unethical and unacceptable.’
Professional bodies have backed the government’s efforts to tackle aggressive avoidance. Practising tax experts have been engaged in consultation on the proposed general anti-abuse rule, and gave a broad welcome to the revised draft GAAR published yesterday.
Responding to criticism aired on the Today programme, the big four firms of accountants stressed ‘their global role and their requirement to respond to the needs of their clients’. Ernst & Young told Tax Journal that the firm’s clients sought advice on ‘a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.
Tax academics have stressed the difference between the aggressive schemes that the GAAR is designed to deter and the use of tax havens and low-tax jurisdictions to manage a multinational’s effective tax rate within the law.
‘Unjustified scrutiny’
Richard Jordan said: ‘Margaret Hodge continues to be gaining traction in her comments on tax professionals and I strongly believe we will be next on the agenda for unjustified scrutiny. Rather than alienating tax professionals, HMRC could be working with us to help weed out those companies that aggressively avoid tax. Government engagement and discussion with sector representatives of the professional advisers – for example at the Society of Trust and Estate Practitioners (STEP) and the Chartered Institute of Taxation – would be far more fruitful than professional bashing in the press.’
Jordan is a member of the UK technical committee at STEP. He told Tax Journal that he did not regard the tax planning under scrutiny at Amazon, Google and Starbucks as aggressive avoidance. ‘If you want to change that, you have to change the law,’ he said. But he welcomed the fact that the issue of what is morally acceptable tax behaviour was now ‘centre stage’, and called for a sensible discussion about ‘how to change behaviours’.
If HMRC asked tax professionals to go on record and denounce certain types of activity, many of the leading firms would do so, he said: ‘Pre-ordained, packaged tax schemes are wrong.’
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