Changes to the international tax system are needed to tackle ‘profit-shifting’ and protect tax revenues, a senior HMRC official has told Sky News.
Jim Harra, director general for business tax, was discussing with Jeff Randall last night national and international efforts to tackle tax avoidance and ‘to make sure that corporates pay their fair share’.
Randall suggested to Harra that many people feel that the system is ‘rigged in the sense that small businesses and individuals are hounded and big businesses seem to be able to cut deals’.
‘That’s certainly not what we do,’ Harra said. ‘I can understand the perception but our aim is to be even handed with everyone.’
HMRC has lots of disputes with large companies, he said. ‘We aim to settle those by agreement if we can, and we litigate if we can’t settle them by agreement.’
But HMRC does have different approaches to large and small businesses, he added. ‘Large companies pose a much greater risk of tax avoidance and clever tax planning, which means that we have to man-mark them much more than we do with small businesses.’
Multinationals can make choices about where in the world they locate their activities, he said. HMRC’s large business service has 1,200 people dealing with ‘just the top 800 companies in the UK’, and another 2,000 deal with the next largest set of businesses.
Changing the rules
Harra noted that some large businesses try to ‘structure their affairs so that as much economic activity as possible takes place in low-tax jurisdictions’.
Randall asked: ‘If they are doing it legally, which clearly they are, what are you going to do about it?’
Harra replied: ‘Ultimately all that HMRC can do is enforce the law, although we do also work hard with large businesses to encourage them to have responsible, conservative tax planning – not least because it damages their reputation if they don’t, as some of them have found to their cost.’
Randall asked: ‘Do we need to change the rules? I understand you can only arbitrate on the rules.’
Harra said: ‘Yes we do need to change the rules, we need to make sure those rules keep up to date with changing business practice, and in particular in the case of multinationals we have to do that at an international level. Things like the transfer pricing rules and tax planning opportunities which involve profit-shifting offshore – we’ve got to do that with other countries.’
That would not be easy, he accepted: ‘There is work already underway in the OECD on the erosion of the tax base and on profit-shifting, and the UK together with France and Germany has committed additional funds to that work to speed it up.’
‘We would advise ministers’
Last October Harra told MPs on the Commons treasury committee that it was ‘entirely right that we expect multinationals to pay tax in the jurisdictions where they are generating their profits through their economic activities there’.
He added: ‘Where the rules are what we need, we are there enforcing them. If we believe that the rules can be enhanced, we would advise ministers about that.’
Lin Homer, HMRC chief executive, told the committee that whether multinational companies were paying a fair share of tax was a matter for MPs to discuss with ministers rather than with HMRC. She was required to give policy advice to ministers – she did not think she was required to give such advice to parliament directly.
International programme
Tax Journal suggested to HMRC today that if it was now saying publicly that the rules needed changing, people might ask why it had not made the case for reform earlier.
A spokesman said: ‘Jim was explaining the government’s stated position concerning proposed changes to the tax system such as [the proposed general anti-abuse rule] and work at an international level to develop options for countering base erosion and profit shifting (BEPS) following an announcement by the chancellor on 23 November. HMRC and HM Treasury will take a prominent role in the international programme of work being undertaken by OECD.’
In a joint statement on 23 November George Osborne and his German counterpart Wolfgang Schäuble called for ‘concerted international cooperation to strengthen international standards for corporate tax regimes’. The OECD will report shortly to G20 finance ministers, who will meet in Moscow next week.
Changes to the international tax system are needed to tackle ‘profit-shifting’ and protect tax revenues, a senior HMRC official has told Sky News.
Jim Harra, director general for business tax, was discussing with Jeff Randall last night national and international efforts to tackle tax avoidance and ‘to make sure that corporates pay their fair share’.
Randall suggested to Harra that many people feel that the system is ‘rigged in the sense that small businesses and individuals are hounded and big businesses seem to be able to cut deals’.
‘That’s certainly not what we do,’ Harra said. ‘I can understand the perception but our aim is to be even handed with everyone.’
HMRC has lots of disputes with large companies, he said. ‘We aim to settle those by agreement if we can, and we litigate if we can’t settle them by agreement.’
But HMRC does have different approaches to large and small businesses, he added. ‘Large companies pose a much greater risk of tax avoidance and clever tax planning, which means that we have to man-mark them much more than we do with small businesses.’
Multinationals can make choices about where in the world they locate their activities, he said. HMRC’s large business service has 1,200 people dealing with ‘just the top 800 companies in the UK’, and another 2,000 deal with the next largest set of businesses.
Changing the rules
Harra noted that some large businesses try to ‘structure their affairs so that as much economic activity as possible takes place in low-tax jurisdictions’.
Randall asked: ‘If they are doing it legally, which clearly they are, what are you going to do about it?’
Harra replied: ‘Ultimately all that HMRC can do is enforce the law, although we do also work hard with large businesses to encourage them to have responsible, conservative tax planning – not least because it damages their reputation if they don’t, as some of them have found to their cost.’
Randall asked: ‘Do we need to change the rules? I understand you can only arbitrate on the rules.’
Harra said: ‘Yes we do need to change the rules, we need to make sure those rules keep up to date with changing business practice, and in particular in the case of multinationals we have to do that at an international level. Things like the transfer pricing rules and tax planning opportunities which involve profit-shifting offshore – we’ve got to do that with other countries.’
That would not be easy, he accepted: ‘There is work already underway in the OECD on the erosion of the tax base and on profit-shifting, and the UK together with France and Germany has committed additional funds to that work to speed it up.’
‘We would advise ministers’
Last October Harra told MPs on the Commons treasury committee that it was ‘entirely right that we expect multinationals to pay tax in the jurisdictions where they are generating their profits through their economic activities there’.
He added: ‘Where the rules are what we need, we are there enforcing them. If we believe that the rules can be enhanced, we would advise ministers about that.’
Lin Homer, HMRC chief executive, told the committee that whether multinational companies were paying a fair share of tax was a matter for MPs to discuss with ministers rather than with HMRC. She was required to give policy advice to ministers – she did not think she was required to give such advice to parliament directly.
International programme
Tax Journal suggested to HMRC today that if it was now saying publicly that the rules needed changing, people might ask why it had not made the case for reform earlier.
A spokesman said: ‘Jim was explaining the government’s stated position concerning proposed changes to the tax system such as [the proposed general anti-abuse rule] and work at an international level to develop options for countering base erosion and profit shifting (BEPS) following an announcement by the chancellor on 23 November. HMRC and HM Treasury will take a prominent role in the international programme of work being undertaken by OECD.’
In a joint statement on 23 November George Osborne and his German counterpart Wolfgang Schäuble called for ‘concerted international cooperation to strengthen international standards for corporate tax regimes’. The OECD will report shortly to G20 finance ministers, who will meet in Moscow next week.
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