Tax avoidance: cracks in the offshore crackdown
With UK Uncut planning protests in Starbucks and MPs calling on the government to “get a grip” on corporate tax avoidance, the issue has never been higher on the political agenda.
After grilling representatives from Starbucks, Google and Amazon, the public accounts committee has now published a damning report on the efforts of HM Revenue & Customs (HMRC) to stop multinationals avoiding UK tax by shifting profits between subsidiaries in different countries.
But there was an immediate riposte from the Treasury with the announcement of a new “clampdown on tax dodgers”.
A bewildering flurry of numbers ensued: either £77m or £154m of extra investment, depending on which news report you read. Estimates of potential savings range from £2bn to £10bn, while HMRC claims it has already scooped £29bn of “additional revenues” from large businesses in the last six years.
We found that: the Treasury changed its mind about this announcement within 24 hours; there’s little detail about how corporate tax avoidance specifically will be addressed; and HMRC has been evasive about its record on taking on big multinationals.
We’re not picking on the Mail – about half of the papers said the same thing, and no wonder, as the Treasury sent out a press release on Sunday promising “£77m a year for each of the next two years”.
In fact, the real sum of money to be dished out was half that sum - £77m over two years, as confirmed by a second press release on Monday.
We don’t know whether this was a slip of the pen on the part of the civil servant who wrote the first release, a Thick of It-style screw-up, or a last-minute decision to hold back another announcement about even more money in the autumn statement on Wednesday.
In any event, all this talk of “extra investment” has to been seen in the wider context of the deep, long-term cuts to HMRC that we’ve seen in recent years.
HMRC’s budget fell by 14 per cent between 2005/06 and 2009/10, an average cut of 3.6 per cent a year, and full-time equivalent posts fell from 97,073 in April 2005 to 66,992 in November 2010.
Then the coalition announced further budget cuts of 25 per cent in real terms by 2014/15. But there was a last-minute reprieve, with the chancellor handing back £917m as long as the tax inspectors promised to collect an extra £7bn a year.
Now they will get another £77m over two years as long as they bring in an additional £2bn. But this isn’t “extra investment”, it just means the cut is not as deep as first envisaged.
HMRC has been at pains to defend its record here, saying: “We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years… These figures speak for themselves.”
We were promised a breakdown of this number, but none has been forthcoming yet. So it’s not immediately clear what HMRC is on about here.
The authority publishes estimates of how much tax it thinks is not being paid each year, but the total estimates for unpaid corporation tax are less than £29bn in six years.
We can only speculate that what HMRC is really saying here is that it has been doing what you would expect it to do: monitoring how much tax companies who are paying, and challenging them when they pay too little.
Clearly, that’s a good thing, but it’s what we pay our tax authorities to do. How are these “additional revenues”? Additional to what? And do the figures really “speak for themselves”? Is £29bn more or less money than was collected in the previous six years? We don’t know.
What about actually taking on big multinationals that use offshore subsidiaries to minimise their UK tax bill?
The satirical magazine Private Eye has led criticism of HMRC’s record in this area, repeatedly alleging that the taxman aggressively pursues individuals and small businesses, but gives the biggest corporations an easy ride.
The magazine claims that since 2004, the authorities have not pursued a single big firm for the kind of aggressive tax avoidance that is making MPs and voters angry.
HMRC refutes this, and has given us details of five cases where they have taken big companies all the way to a tribunal or a higher court for corporate tax avoidance.
That’s five rulings in the last couple of years from the 783 biggest firms HMRC deals with ”for accounting periods ending in or after 2004″. So not nothing, but not a flurry of writs either.
Still, at least we got a straighter answer than the public accounts committee got this summer, when HMRC preferred to talk about thousands of ”items of litigation” and ”issues under enquiry” rather than five court cases.
As far as this latest “crackdown” is concerned, the emphasis seems to be more on super-rich individuals rather than on the corporate/offshore world.
The government is promising to boost the team that focus on wealthy individuals by at least 100 extra staff. The promise to bring in “more people and additional legal support” to target multinationals is more vague. How many people? We don’t know.
How much of this extra £2bn the Treasury hopes to raise will come from individual millionaires, and how much will be from corporate tax-dodgers? There’s no official estimate.
Earlier this year we asked HMRC how much money they have actually managed to claw back from specifically targeting offshore structures, and after much to-ing and fro-ing the final answer was pretty modest: “Two offshore campaigns which raised around £500m on their own.”
But then, as Starbucks summed up the situation in written evidence to the public accounts committee: “Each jurisdiction is competing for tax revenue dollars as well as competing to attract business to their jurisdiction.”
By Patrick Worrall