There is ‘little transparency’ for the taxpayer over the way that tax disputes with large companies are resolved, the Commons Public Accounts Committee said as it reported that HMRC had not answered some of its specific questions because of taxpayer confidentiality.
HMRC told the Committee, in supplementary written evidence, that there were 22 businesses where the total value of tax ‘under consideration’ in respect of all issues in dispute was greater than £250 million.
The total tax under consideration for those businesses amounted to almost £15 billion, of which about a third was expected to be determined in court. The BBC’s Newsnight observed that the tax in dispute was ‘equivalent to about 20% of the money the government is trying to save through cuts to public services’.
Around 90% of issues relating to the largest businesses are resolved by agreement between HMRC and the taxpayer, HMRC said.
‘While we recognise the department's obligation to ensure taxpayer confidentiality, the department should consider the scope for increasing transparency in the area of large and complex tax cases and for assuring parliament and the public that due process in the resolution of these cases is being followed,’ the Committee said in its report on HMRC’s 2009/10 accounts.
The National Audit Office confirmed two weeks ago that it is in the 'early stages' of scoping a review of HMRC's procedures for resolving tax disputes. The NAO indicated that while HMRC’s recent settlement with Vodafone, along with other cases, would have been taken into account in deciding to launch a review, the NAO had ‘long been aware’ of a need to look at the control framework surrounding the settlement of investigations.
The NAO will have access to confidential papers but will not be reporting on specific cases. The Public Accounts Committee said it now looked to HMRC ‘to co-operate fully’ with the NAO review.
HMRC’s Litigation and Settlement Strategy (LSS) states that where its legal advice is strong it should not accept settlements for less than 100% of the tax and interest due, the Committee said.
‘The department maintains that it does set out to prove the tax liability, serve its assessment and then collect what is due. The department told us that the final decision on how to resolve each tax dispute has to be taken by two Commissioners [of HM Revenue and Customs] and must involve legal advice,’ it noted.
‘The department did not answer some of our specific questions on tax disputes on the grounds that it has a legal duty not to disclose taxpayer details, except in certain limited circumstances. This applies to all taxpayers, whether they are an individual or a publicly quoted company. This inevitably makes it difficult to obtain assurance that the department resolves tax disputes appropriately.’
HMRC emphasised that tax ‘under consideration’ for a specific issue ‘does not necessarily reflect HMRC's final view’ of the liability. ‘Initially, it will represent the maximum amount of tax potentially at risk from the issue in dispute, making no allowance for losses, reliefs or different legal interpretations. The tax under consideration can and does change as the facts of the issue are discussed with the customer and the legal issues are examined,’ it said.
HMRC added that its approach to the resolution of civil tax disputes was published on its website in 2007. The LSS ‘is presently under review but the basic principles will not change’.
There is ‘little transparency’ for the taxpayer over the way that tax disputes with large companies are resolved, the Commons Public Accounts Committee said as it reported that HMRC had not answered some of its specific questions because of taxpayer confidentiality.
HMRC told the Committee, in supplementary written evidence, that there were 22 businesses where the total value of tax ‘under consideration’ in respect of all issues in dispute was greater than £250 million.
The total tax under consideration for those businesses amounted to almost £15 billion, of which about a third was expected to be determined in court. The BBC’s Newsnight observed that the tax in dispute was ‘equivalent to about 20% of the money the government is trying to save through cuts to public services’.
Around 90% of issues relating to the largest businesses are resolved by agreement between HMRC and the taxpayer, HMRC said.
‘While we recognise the department's obligation to ensure taxpayer confidentiality, the department should consider the scope for increasing transparency in the area of large and complex tax cases and for assuring parliament and the public that due process in the resolution of these cases is being followed,’ the Committee said in its report on HMRC’s 2009/10 accounts.
The National Audit Office confirmed two weeks ago that it is in the 'early stages' of scoping a review of HMRC's procedures for resolving tax disputes. The NAO indicated that while HMRC’s recent settlement with Vodafone, along with other cases, would have been taken into account in deciding to launch a review, the NAO had ‘long been aware’ of a need to look at the control framework surrounding the settlement of investigations.
The NAO will have access to confidential papers but will not be reporting on specific cases. The Public Accounts Committee said it now looked to HMRC ‘to co-operate fully’ with the NAO review.
HMRC’s Litigation and Settlement Strategy (LSS) states that where its legal advice is strong it should not accept settlements for less than 100% of the tax and interest due, the Committee said.
‘The department maintains that it does set out to prove the tax liability, serve its assessment and then collect what is due. The department told us that the final decision on how to resolve each tax dispute has to be taken by two Commissioners [of HM Revenue and Customs] and must involve legal advice,’ it noted.
‘The department did not answer some of our specific questions on tax disputes on the grounds that it has a legal duty not to disclose taxpayer details, except in certain limited circumstances. This applies to all taxpayers, whether they are an individual or a publicly quoted company. This inevitably makes it difficult to obtain assurance that the department resolves tax disputes appropriately.’
HMRC emphasised that tax ‘under consideration’ for a specific issue ‘does not necessarily reflect HMRC's final view’ of the liability. ‘Initially, it will represent the maximum amount of tax potentially at risk from the issue in dispute, making no allowance for losses, reliefs or different legal interpretations. The tax under consideration can and does change as the facts of the issue are discussed with the customer and the legal issues are examined,’ it said.
HMRC added that its approach to the resolution of civil tax disputes was published on its website in 2007. The LSS ‘is presently under review but the basic principles will not change’.
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