There has been considerable media coverage of the tax affairs of multinational corporations, particularly on the conclusion of HMRC’s enquiry into Google. It has been widely reported that Google has agreed to pay £130m in back taxes after an open audit of its accounts by the UK tax authorities and the Public Account Committee (PAC) is scrutinising that outcome closely. Representatives of Google and senior HMRC officials appeared before the committee on 11 February.
HMRC had set out stall ahead of PAC committee - dispelling myths
In advance of this hearing HMRC issued a fact-sheet designed to “help dispel myths which have arisen about how HMRC ensures compliance among multinationals.” It cited its recent success via an intense focus on compliance and how it has secured over £100 billion of compliance revenues since 2010 - £38 billion of which came from large business compliance work and over £3.2 billion from challenging transfer of pricing arrangements of multi-national companies.
HMRC does not do “sweetheart deals”
Confirming that it routinely has big business within its sights, HMRC reported that “at any given time we have about two-thirds of the UK’s 800 largest businesses under investigation”. It congratulated itself for taking on multinational corporations and that it “usually” wins. The fact-sheet does, however, underline that the quickest and most cost-effective result for the Exchequer is to end a dispute “ by agreement.”
Focusing specifically on Google, it acknowledges that “commentators” have estimated that “Google’s UK corporation tax is equivalent to an effective tax rate of around 3% on the group’s profit’s arising in the UK”, but reacts defensively to this stating “this calculation does not reflect how tax law works”. Robustly arguing that there are no “sweetheart deals”, the fact sheet confirms that in accordance with published guidelines on resolving disputes, HMRC has taxed all of Google’s profits chargeable to tax in the UK for the period in question, at the full statutory rate of tax. Arguments that were rehearsed in the hearing.
Focusing on aggressive tax planning
HMRC is under great pressure to tackle aggressive tax planning and media and political attention is on the way in which some multinationals exploit the complexity of the international tax system to reduce their tax liabilities. It announced early this week that it had collected more than £2 billion in disputed tax from tax avoiders, under rules introduced by the government in 2014. The Accelerated Payments notices system, whereby, users of tax avoidance schemes pay disputed tax up-front while their tax-affairs are investigated, instead of waiting until they are concluded.
The UK is also at the forefront in encouraging tax authorities across the world to share intelligence about multinationals’ tax affairs and is actively engaged in the G20 – OECD proposals against tax base erosion and profit shifting (BEPS). Indeed, EU proposals to tackle anti-abuse measures issued earlier in the month also included a proposal for national authorities to exchange tax-related information on multinational companies' activities, on a country-by-country basis.
There is speculation as to who will replace Dame Lin Homer as HMRC chief in April, but what seems clear is that whoever takes the helm will be under the same Treasury pressure and Parliamentary scrutiny to advance the Government’s commitment to stop tax evasion, tackle tax avoidance and ensure companies pay their fair share of tax. Having closed the consultation on the Finance Bill 2016, proposed in December 2015, we await the outcome of the debate and potential legislative proposals. Particularly those providing criminal sanctions for abuse of off-shore tax havens. In the meantime advisors and individuals need to be alert to the trend for HMRC to aggressively pursue those who try to avoid tax increasingly via criminal law means.