Large business initiative suffers low uptake

Sir David Varney, former chairman of HMRC

A key corporate tax initiative, aimed at giving multinationals early certainty over their affairs, has dealt with just 18 cases in as many months.

The advance agreement unit was set up by former HM Revenue & Customs chairman David Varney in 2006 to provide big business with a ‘system of advance rulings’ to offer ‘certainty’ over their tax arrangements in relation to investments and restructuring.

But figures obtained by Accountancy Age under the Freedom of Information Act reveal that just 18 requests for rulings have been submitted since the unit was launched in October 2007.

The certainty provided by advance agreements on complex tax issues was seen by the CBI as offering ‘a significant package which will make a real difference in taking forward the relationship between business and HMRC’.

Varney’s review followed complaints from business of a deteriorating relationship with HMRC in the wake of a raft of anti-avoidance and disclosure rules introduced in 2004 and 2005. Critics inside HMRC claim the political need for a business-friendly review was greater than any real demand from business for initiatives such as advance agreements.

An HMRC spokesman said: ‘It is wrong to suggest that the number of applications received means the procedure isn’t working. We have received very positive feedback generally on the advance agreements unit’s work and, in particular, on the certainty it provides for the businesses dealt with.’

Another possible reason for the low demand for advance agreements is the economic deterioration since 2007. The unit was expected to benefit multinationals investing in the UK, but direct foreign investment almost halved from £98bn in 2007 to £52bn in 2008.