ACCOUNTANTS and tax experts have criticised HMRC’s latest policy paper on multinationals and their tax affairs, with one critic believing the department is going out of its way to provide “political cover” for tax abusing businesses.
HMRC stated in the policy paper that it needed to address the “intense public and political debate” that has surrounded itself following the £130m deal it struck with Google over the search engine giant’s taxes back in January.
The policy paper attempts to explain the general rules associated with international companies paying corporation tax in the UK, defining terms such as ‘permanent establishment’ and ‘dependent agent’, as well as explaining the rules around digital companies trading within the UK, which includes the likes of Google, Amazon and Facebook.
HMRC goes on to talk about its involvement with the OECD and its BEPS initiative, stating that “the UK has led the way in initiating and implementing” the project, adding that further work on guidance on the principles for attributing profits to permanent establishments is also in progress. This contradicts the beliefs of a number of advisers who felt the Google tax deal undermined the BEPS initiative.
‘A lot of problems with this statement’
Experts have been struck by language used by HMRC within the paper. When attempting to explain how and where websites and group companies pay corporation tax, HMRC says “this is not tax avoidance: it is simply the way that corporation tax works”.
Jolyon Maugham QC described the wording as “contradictory”, as he believes that the policy paper is an attempt by HMRC to redefine tax avoidance to exclude Google, Facebook and Amazon. “There are a lot of problems with this statement,” said Maugham.
“The most glaring of them is that it has as its consequence that there is no such thing as tax avoidance. If the structure works it’s not tax avoidance. And if the structure doesn’t work, by definition it doesn’t avoid tax, and so it can’t be tax avoidance either.”
Chas Roy-Chowdhury, head of taxation at the ACCA, told Accountancy Age that he believes the statement from HMRC is “literally correct” and thinks the department has done the right thing in releasing this document. “I think this [policy paper] isn’t for multinationals but for people in the street, it’s attempting to explain how international tax works.
“HMRC can’t respond to every single complaint from the public over corporation tax, so they need to put their own argument out there instead of having politicians vilifying HMRC over how little corporation tax multinationals pay to help their own political agenda,” continued Chowdhury, who believes that the policy paper is a “simple and impartial way” for HMRC to get their points across.
Elaine Clark, managing director of cheapaccounting.co.uk doesn’t welcome the policy paper, claiming that HMRC are trying to restore credibility following its run-in with the Public Accounts Committee over the Google deal.
“I’d describe this as a CYA Policy Statement – cover your arse,” said Clark.
“This does very little to restore faith in HMRC. Maybe if they spent less time writing this rubbish and more time closing the loopholes we’d be better off.”
An HMRC spokesman said: “We are simply stating that under tax law, companies within a group are taxed independently on the profits from their economic activities and assets.
“This is entirely in line with international standards and does not impact on our determination to tackle artificial tax avoidance structures. It is only right that HMRC explains the basis on which profits are taxed, particularly where there is keen public interest.”
MTD represents 'the single most significant change to the UK’s system of taxation in recent times', says Knill James partner Nick Rawson. So, how prepared are SMEs for digital tax reporting?
The SME community voices concern about the chancellor's measures in the Spring Budget
Following chancellor Philip Hammond’s Spring Budget speech, we explore the key takeaways for businesses and individuals
Unincorporated businesses under the VAT threshold given an extra year to prepare before MTD becomes mandatory