Overview: corporate worries

Corporate tax departments could be facing their private equity moment. The
National Audit Office has revealed that as many as a third of large corporates
pay no tax.

Like the Treasury Select Committee with private equity, MPs on the Public
Accounts Committee are pledging to investigate.

What’s happened…

The NAO released a report in July on the taxman’s collection of corporation
tax from large businesses. Among its findings was the observation, squirreled
away, that a third of corporates under the large business service’s aegis paid
no corporation tax, and a further third paid less than £10m.

The finding has surprised many, including tax professionals. Some insist
‘this is not an avoidance story’, but it may be hard to entirely dispel the
suggestion.

Companies have many ways of mitigating their corporation tax bills, and
supporters argue they pay many other taxes besides.

But a feeling that interest relief may be being used by multi-nationals and
private equity in a way that speaks of a failure in tax and economic policy is
exercising politicians.

‘More and more companies are using financial engineering to avoid paying the
social rent they owe this country,’ said left-wing firebrand and PAC member
Austin Mitchell.

Dr John Pugh, a Lib Dem on the committee, said the committee had a programme
of work but ‘this is one report we could legitimately select’, adding: ‘We
necessarily look at the gamekeepers rather than the poachers but we need to
examine the failure of the tax system.’

What’s going to happen…

The PAC has to decide when it gets back from recess in October what it wants
to look at. It does not look at all NAO reports, so it would have to pick this
one. MPs are already showing interest.

The PAC has the power mainly to call government officials.

In that regard, it may want to ask the recently appointed head of the LBS,
Melanie Dawes, some questions.

There are broader economic questions too. When all British companies have
been sold off to multi-nationals, it is thought the scope for avoidance through
interest relief is greater. Should the Treasury be trying to build more national
giants, perhaps?

The PAC can also call outsiders, though unlike the private equity debate,
there are few figureheads who MPs would want to quiz. Might tax advisers get
called in?

It could be an awkward few months for large corporates and those that advise
them.