Monday, 3 December 2012

Danny Alexander Taxes Patience

The Commons Public Accounts Committee is reported as suggesting that companies that avoid tax should be named and shamed. Danny Alexander has ruled this out on the grounds that it would breach taxpayer confidentiality. The PAC are long-standing critics of HMRC, and in particular the way that the lack of transparency over dispute settlements can mean both that certain companies are getting away with tax dodging and that HMRC are getting away with incompetence. As they said last year, in the wake of the Vodafone scandal: "We are particularly uneasy about the blanket confidentiality applied to cases raising governance concerns or where mistakes were made in reaching settlements, because we are unable to scrutinise what went wrong in these cases. Details of some of these cases only came to our attention because they appeared in the media. It is deplorable that we received more information from the media and from a whistleblower than from the Department itself".

Alexander's defence is only possible because taxpayer confidentiality is taken as read. Earlier this year, on the back of revelations about Bob Diamond's tax bill and questions about whether Tory ministers were personally benefiting from the cut in the top rate of income tax, there was some debate about the desirability of making everyone's tax returns public. The predictable backlash conflated this with an invasion of privacy, as if detailed bank statements were being posted online, while perhaps the most damning criticism was that this was the sort of thing they do in Scandinavia, so can safely be ignored by grown-ups.

Whether you agree with it or not, the point is that taxpayer confidentiality was always meant to protect the privacy of individuals. Alexander's use of it to defend the unscrupulous tax-planning of Starbucks and Amazon is part of a wider problem, the neoliberal tendency to demand that corporations should enjoy the rights of personhood (i.e. freedoms in the public sphere) but without the obligations of citizenship (e.g. multinationals by definition are not constrained by nationality). Tax has come to be seen as a contractual matter for large companies - something that they can freely negotiate with government beyond public scrutiny. The fact that HMRC have so internalised this attitude that they feel emboldened to defy a committee of the House of Commons is telling.

Comparing an individual's tax return with that of a company, and therefore the arguments for publication, is misleading. I'm personally not fussed about being able to see the tax returns of individuals, in part because the data would be pretty meaningless without a fuller context, which could not be provided short of a real invasion of privacy. That said, I think there would be a case for publishing a single number for total income tax and NICs, if only to allow us to spot the hypocrites who loudly criticise public expenditure as taxpayers while paying little or no direct tax themselves.

The issue with companies is less to do with how much Corporation Tax is paid, as there will be legitimate reasons for the quantum to vary (prior year losses, capital allowances etc), and you would expect HMRC to be tight on abuse in these areas, just as they are with VAT. What really matters is where revenue is generated and tax is paid. In other words, tax transparency is really an issue about multinationals who use transfer pricing and regulatory arbitrage. What we should do is insist that all company accounts provide a country breakdown of revenue, costs and tax paid. To be fair to the PAC, their review only referred to "naming and shaming" in the context of successful prosecutions for evasion (which is illegal, after all). It looks like Danny Alexander has conveniently decided that this presents a threat to taxpayer confidentiality more generally.


  1. On the confidentiality point, could there be a real benefit to the Revenue in keeping settlements confidential? Quite often there's some issue that a number of companies are arguing about. Say the Revenue aren't that confident of their point - they might want to settle, rather than set a precedent. If so, they don't want other co's to know the going rate for a settlement. And once they're down to the last few, the revenue might take a harder line because the downside of a case going against them is lower - they've already settled most. If so, they don't want Vodafone saying: "but you settled with Glaxo for x%."

    Now, whether the companies, rather than the revenue, actually keep their side of such confidentiality agreements is another matter...

    1. I think not. From my own experience, the negotiations revolve around a simple effort-reward calculation. HMRC simply don't have the resources to battle large corporates through the courts, even if they have the law on their side, and their own target-driven management need to get receipts booked within set periods.

      I once found myself in the situation, as the IT director of a UK Plc, of trying to provide technical support as our Tax expert tried to claim R&D capital allowances for a software project in a meeting with HMRC. I freely admitted that I didn't consider the software to constitute R&D at all, but despite this the man from the Revenue agreed to the claim so long as we cut it back by 30%. I was personally disgusted but the other two were happy: they'd both achieved their targets.

      The reason for confidentiality is purely to avoid shining a light on what is a simple bidding process. The corporate offers to pay x amount of tax, HMRC say they need y, they then split the difference and settle on z.