The Public Accounts Committee has published the report of its evidence session on corporate tax deals, which took place on 11 February, focusing specifically on HMRC’s recent corporation tax settlement with Google.
The report makes five main recommendations arising from the hearing.
The lack of transparency about tax settlements makes it impossible to judge whether HMRC has settled this case for the right amount of tax – HMRC should consult on the case for changing the rules that protect corporate taxpayer confidentiality to make the tax affairs of multinational companies open to public scrutiny. HMRC and HM Treasury should push for an international commitment to improve tax transparency and HMRC should be prepared to go it alone if necessary to provide the means for Parliament and interested parties to judge whether tax settlements reached are reasonable.
It has taken far too long to reach this settlement – HMRC should devote sufficient resources, and seek new powers if required, to ensure tax investigations are completed in a timely manner. HMRC needs to be clearer about the costs and benefits of its investigations. It should also seek the power to impose penalties on companies which do not cooperate fully with its investigations when tax is in dispute.
It is difficult for HMRC to penalise multinational companies for tax avoidance due to the scope for different interpretations of complex tax rules – the committee welcomes HMRC’s plans to strengthen the penalty regime so that it can penalise habitually aggressive tax planners and expects HMRC to implement these changes as soon as possible and enforce them rigorously.
The international tax rules are not working, such that HMRC seems unable to collect a fair share of corporation tax from global companies with activities in the UK – HMRC should lead the way in pressing for changes in international tax rules to prevent aggressive avoidance by multinational companies. The committee urges HMRC to work with other tax authorities to ensure that changes to international tax rules take into account the way in which internet based companies operate.
The committee is concerned that HMRC appears to have settled for less corporation tax from Google than other countries are willing to accept – it expects HMRC to monitor the outcome of other tax authorities’ investigations into Google, and re-open its settlement with Google if relevant new evidence becomes available. HMRC should also examine the approach adopted by other tax authorities to see what lessons it can learn, should they succeed in securing larger tax settlements from Google.
In response, HMRC said that it 'does not settle for a penny less than is due under the law' from multinationals. 'Last year we brought in an additional £7bn by rigorously enforcing the tax rules that apply to large businesses.'
HMRC said it understands the appetite for further information into how it pursues the tax payable by multinationals, and is 'committed to being as open and transparent as we can within the constraints of our statutory duty of taxpayer confidentiality'.
'There will also be a legal requirement for large businesses to publish their tax strategy for UK activities plus a new "special measures" approach which will target those large businesses with a persistent record for aggressive tax planning. The penalty rules will change this year to better support those who play by the rules and the PAC has welcomed that.'
As regards HMRC's role in pressing for change at an international level, the department said: 'The UK has played a leading role in the OECD to strengthen international standards and to make global tax laws work better and we will continue to do so.'
The Public Accounts Committee has published the report of its evidence session on corporate tax deals, which took place on 11 February, focusing specifically on HMRC’s recent corporation tax settlement with Google.
The report makes five main recommendations arising from the hearing.
The lack of transparency about tax settlements makes it impossible to judge whether HMRC has settled this case for the right amount of tax – HMRC should consult on the case for changing the rules that protect corporate taxpayer confidentiality to make the tax affairs of multinational companies open to public scrutiny. HMRC and HM Treasury should push for an international commitment to improve tax transparency and HMRC should be prepared to go it alone if necessary to provide the means for Parliament and interested parties to judge whether tax settlements reached are reasonable.
It has taken far too long to reach this settlement – HMRC should devote sufficient resources, and seek new powers if required, to ensure tax investigations are completed in a timely manner. HMRC needs to be clearer about the costs and benefits of its investigations. It should also seek the power to impose penalties on companies which do not cooperate fully with its investigations when tax is in dispute.
It is difficult for HMRC to penalise multinational companies for tax avoidance due to the scope for different interpretations of complex tax rules – the committee welcomes HMRC’s plans to strengthen the penalty regime so that it can penalise habitually aggressive tax planners and expects HMRC to implement these changes as soon as possible and enforce them rigorously.
The international tax rules are not working, such that HMRC seems unable to collect a fair share of corporation tax from global companies with activities in the UK – HMRC should lead the way in pressing for changes in international tax rules to prevent aggressive avoidance by multinational companies. The committee urges HMRC to work with other tax authorities to ensure that changes to international tax rules take into account the way in which internet based companies operate.
The committee is concerned that HMRC appears to have settled for less corporation tax from Google than other countries are willing to accept – it expects HMRC to monitor the outcome of other tax authorities’ investigations into Google, and re-open its settlement with Google if relevant new evidence becomes available. HMRC should also examine the approach adopted by other tax authorities to see what lessons it can learn, should they succeed in securing larger tax settlements from Google.
In response, HMRC said that it 'does not settle for a penny less than is due under the law' from multinationals. 'Last year we brought in an additional £7bn by rigorously enforcing the tax rules that apply to large businesses.'
HMRC said it understands the appetite for further information into how it pursues the tax payable by multinationals, and is 'committed to being as open and transparent as we can within the constraints of our statutory duty of taxpayer confidentiality'.
'There will also be a legal requirement for large businesses to publish their tax strategy for UK activities plus a new "special measures" approach which will target those large businesses with a persistent record for aggressive tax planning. The penalty rules will change this year to better support those who play by the rules and the PAC has welcomed that.'
As regards HMRC's role in pressing for change at an international level, the department said: 'The UK has played a leading role in the OECD to strengthen international standards and to make global tax laws work better and we will continue to do so.'
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