Following his first outing before the House of Commons’ Treasury Select Committee in March, and the publication of the Committee’s report in July (see my previous post), Dave Hartnett, the Permanent Secretary for Tax, returned on 12 September to answer further questions from MPs.  I have picked out a couple of highlights below which are worthy of comment. 

Admission of improper corporate settlement

The most striking revelation was the frank admission from Mr Hartnett that, “[t]here was one [case] where a settlement was approved without the whole of the High Risk Corporate Programme Board being consulted before the taxpayer was told that the case was settled“.  This is widely taken to be a reference to the settlement concluded with Goldman Sachs last year, alleged by some (such as Chuka Umunna MP) to have resulted in the banking giant being let off £10.8bn in tax for which it was potentially liable.

Unfortunately, the conversation did not go much further, and Mr Hartnett was unable to discuss details of the settlement (or admit the settlement referred to was indeed that with Goldman Sachs), due to taxpayer confidentiality.  Mr Hartnett was also pressed again on the much criticised Vodafone settlement and, specifically, on the question whether interest was waived on the tax eventually paid by Vodafone under the settlement, as has been rumoured.  Again, taxpayer confidentially intervened and Mr Hartnett was unable to confirm the true position. 

It is important that all taxpayers are treated equally by HMRC, large corporates and small taxpayers alike, and specific taxpayers should not be given preferential treatment or access to senior members of HMRC if that is not available generally. Transparency in the administration of any country’s tax system is of paramount importance to ensure that the rule of law is complied with. It is perhaps regrettable therefore that due to the apparent constraints of taxpayer confidentiality, Mr Hartnett felt unable to provide full and detailed answers to all of the very pertinent questions the Committee put to him.

Avoidance: muddying the waters

In an interesting exchange, Andrew Tyrie MP began by asking Mr Hartnett, “is it right or wrong that individuals and companies should structure their arrangements to minimise tax?“.  To this, Mr Hartnett replied, “[i]t depends whether you are asking me a moral question or a legal question“. 

Mr Tyrie went on to say, “[w]hat concerns me most of all about this whole debate is that we find ourselves stigmatising people doing something that is perfectly logical, reasonable and, indeed, inevitable, and we have to be very careful in this debate, have we not, to avoid ending up there“.  To this, Mr Hartnett replied, “I think that is absolutely right for individuals who do not set about avoidance that is complex or hidden or convoluted in some way“. 

Once again we see HMRC trying to draw a distinction between what they perceive to be “acceptable” and “unacceptable” avoidance.  The first point to note is that there is no legal basis for such a distinction, and unless and until Parliament enacts a GAAR telling us where the line is to be drawn such subjective expressions are unhelpful and create uncertainty.  Secondly, there is no legal basis for claiming that the complexity of arrangements entered into should be a reliable guide as to whether they are acceptable to HMRC.  Thirdly, lawful arrangements entered into with the aim of avoiding or deferring a tax liability, involve full disclosure of the transactions undertaken in order to rely on their legal effect in accordance with applicable legislation so as to generate the desired fiscal result; concealment, however, is the hallmark of unlawful evasion.