UK paves the way for public country-by-country reporting but stresses multilateral approach

Tax transparency campaigners have welcomed the UK government’s decision to accept a Finance Bill amendment that will enable HM Treasury to make regulations requiring large multinationals to publish country-by-country reports of their profits and taxes. The government, however, stressed that it intends to seek international agreement on a reporting model before using the new power.

Customers and taxpayers expect big companies to “play fair by them and by the country in which they operate,” Labour member of Parliament Caroline Flint said during a House of Commons debate on September 5. “It sometimes seems as though we are trying to catch jelly.”

Read more: My news story at Tax Notes 7 September (paywall) published by Tax Analysts.

UK tax practitioners question 15% corporation tax target

After Chancellor of the Exchequer George Osborne said that he wants to set a target rate of less than 15 percent, tax practitioners suggested that further reductions in the U.K.’s corporation tax rate are not a top priority for businesses and may not have the desired effect.

Osborne is planning to “slash corporation tax” in order to woo businesses deterred from investing in a post-Brexit Britain, the Financial Times said in a July 3 report, noting that the move could alienate voters.

The Confederation of British Industry welcomed the announcement. “The chancellor is right to be considering moves that support economic growth and send out the signal that the U.K. is open for business at this critical time,” said CBI chief economist Rain Newton-Smith.

Read more: My news story for Tax Notes, 6 July (paywall) published by Tax Analysts. Stephanie Johnston contributed to this story.

Tax is ‘fast becoming the most toxic issue’ for successful companies

Britain’s corporate tax system is “broken”, according to Patrick Hosking, financial editor of The Times (paywall). “Nothing reflects this better than a tiny heart-shaped squiggle that is starting to appear in the advertising of British blue chips.”

The squiggle is the Fair Tax Mark logo, and SSE plc is the first FTSE 100 company to use it. The company has placed advertisements over the past few months in The Times, The Mirror, The Economist and elsewhere. One recent ad says that “at SSE we believe that everyone should pay their fair share of taxes”. Continue reading

Luxleaks tax disclosures serve the public interest – prosecuting the source does not

More than 70 politicians and tax transparency campaigners have signed a letter to the Guardian deploring Luxembourg’s decision to bring criminal charges against a former PwC employee believed to have passed to the media confidential rulings awarded by Luxembourg tax authorities.

As The Guardian noted last night, 20 news organisations around the world have published detailed investigations into the tax affairs of several multinationals based on leaked tax rulings that PwC obtained in Luxembourg for some of its clients. Continue reading

BEPS: Priorities and concerns (Tax Journal)

The G20/OECD project on measures to tackle base erosion and profit-shifting (BEPS) appears to be on track despite a very ambitious timetable. But the project is still in its early stages, and there are signs that expectations may be running a little too high.

New Zealand revenue minister Todd McClay declared on 3 July that the OECD Committee on Fiscal Affairs (CFA) had “approved the final recommendations for the first set of actions”. G20 finance ministers are to consider a report of the CFA, following its meeting last month to vote on a series of “deliverables” representing the outputs of several discussion drafts, public consultations and working groups. But the OECD is not expected to release any details before finance ministers meet in the Australian city of Cairns in September 2014.

Read more at Tax Journal.

Tax transparency, public understanding and a shared purpose

The role of greater transparency in improving public understanding of tax issues and enhancing confidence in the system was the subject of an informative and good-natured debate at the House of Commons on 8 July, hosted by Mazars and the Association of Revenue and Customs and chaired by Margaret Hodge MP, chair of the Commons Public Accounts Committee.

My report focuses in turn on some of the key issues relating to tax authorities, tax advisers and taxpayers – three groups forming what Mazars has called the “transparency triangle”.

Read more on the Mazars Tax Transparency blog.

See also recent Published work.

The state of the tax debate (2): The importance of constructive dialogue

This is the second of two extracts from my talk on “BEPS day”, part of the Summer Tax Programme at the Centre for Commercial Law Studies, Queen Mary University of London on Monday, 16 June.

The wider tax debate continues, and like a lot of political debate, the tax debate is highly polarised.

Terminology is a problem. How can we have a good debate when we can’t agree on what the words mean?

What do people mean by “avoidance”? [Avoidance is legal, evasion is not. Some avoidance may become evasion.]

Many people say BEPS is avoidance.

Some experts say no, it isn’t avoidance [although it may be “aggressive tax planning”] because multinationals are merely taking advantageous of incentives, or gaps in the system, and they’re clearly acting within the law.

If you follow the finance journalist Paul Lewis on Twitter you may have seen him using “evoidance” with an “e” (not “avoidance” with an “a”) to describe some companies’ tax arrangements.

It’s not helpful, surely, for well-known and respected journalists to make up words which are bound to confuse the debate further.

The tax barrister Jolyon Maugham and others challenged Paul Lewis on this last week, but they were pulled up by the campaigner Alex Cobham for focusing on the language rather than the story – while the public get angry, tax professionals focus on the meaning of words.

“Give peace a chance”

Over the weekend Jolyon Maugham on his blog, and Alex Cobham in his response [and see more recent comments], have effectively appealed for those involved in the online tax debate to “give peace a chance”. And that’s well worth a read.

A small number of tax professionals – it is only a small number – do seem to spend a lot of time venting frustration on blogs and Twitter at a lack of tax knowledge and understanding shown by some politicians, campaigners and journalists.

But are they being heard? Generally, tax professionals have about a few hundred followers on Twitter. Some have more than a thousand.

But the PCS union has 16,000 followers, and Richard Murphy 21,000. Paul Lewis has 74,000. UK Uncut has 71,000 on Twitter and 68,000 on Facebook.

Sharing knowledge, improving public understanding

There is a massive, legitimate public interest in combating tax evasion and avoidance.

For too long serious tax knowledge has been shared and closely guarded by the relatively small number of people who depend on that knowledge for their livelihood.

Tax professionals are forever complaining that public, media and politicians don’t understand tax. But it’s arrogant to dismiss their concerns on the basis that they don’t understand.

It would be good if more of the moderate voices spoke out, contributed positively to the debate and tried to help to improve public understanding.

This is what a small but growing number of tax professionals have been trying to do just that for some time, including for example Heather Self at Pinsent Masons, Paul Morton at Reed Elsevier and Rebecca Benneyworth at ICAEW.

Last week for example Heather Self, responding on Twitter to a radio news report about Uber’s tax affairs, said this in a tweet addressed to Radio 4:

“Under current international rules, probably no UK permanent establishment. Rules do need updating for digital business…”

The character limit is a problem of course but it’s amazing, sometimes, what you can do in 140 characters. We need to see more of this measured, constructive engagement.

Transparency and reputational risk

I mentioned on the blog last week that Mazars is also playing a part. A consultation on the firm’s draft Board Charter closes at the end of this month.

The Board Charter includes a draft tax policy for companies to consider. The firm says it may be appropriate, as a guiding principle, that:

“… the amount [of tax] paid by a business in each jurisdiction in which it operates should be fair having regard to the amount of activity undertaken and/or value created there.”

There it is, the “fair” word. It may be controversial, but let’s have a proper debate about it.

Some tax professionals have told me privately that they don’t like to see giant internet companies accumulating billions of dollars tax-free in tax havens.

I believe that this disapproval, like their disapproval of evasion (which is unequivocal), reflects a sense of what is fair.

And Mazars hosted the recent debate on the Fair Tax Mark, which I wrote up for Taxation magazine.

Of course there are some real concerns about the FTM but at that meeting there was a lot of common ground.

Some very recent initiatives

Earlier this month Heather Self shared a platform with Richard D North of the Institute of Economic Affairs and John Christensen, director of the Tax Justice Network, at a debate co-hosted by JustShare and Christian Aid.

The topic was “Paying Up: Is tax a question of ethics?” You can watch the debate on YouTube.

It’s interesting to compare Mazars’ Board Charter with the CBI’s statement of tax principles, published last year. The CBI suggested that:

“UK businesses should only engage in reasonable tax planning that is aligned with commercial and economic activity and does not lead to an abusive result.”

PwC launched a debate on the future of tax only last week, with a view to producing its own “white paper”.

Kevin Nicholson, PwC’s UK head of tax, said his firm wanted to hear from “everybody”.

And last Friday the ICAEW held a “Tax Assembly” to promote debate about the future of tax – hashtag #taxassembly.

Rebecca Benneyworth, chairman of the Tax Faculty, was so pleased with the outcome that she addressed a tweet to George Osborne:

“@George_Osborne Superb tax event today between tax professionals civil society and others #taxassembly @ICAEW all committed to tax reform”

[For more on the Tax Assembly, see the Finance Innovation Lab’s report.]

Fair Tax Mark

A few things have struck me about the FTM, some of which emerged during the debate at Mazars.

First, several leading tax professionals have given it a cautious welcome, and I think this reflects a recognition that greater transparency is needed. There is some disquiet on the question of fairness, and I think this is the real challenge.

The aim of the Fair Tax Mark is:

“to help a company show the world that it is making a genuine effort to be open and transparent about its tax affairs and pays the right amount of corporation tax.”

But what is the right amount?

The FTM uses a set of criteria to determine whether a business has adopted a fair tax policy. And the fair tax policy suggests that the company is:

“seeking to pay the right amount of tax but no more in the right place at the right time, where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes”

The word “fair” is problematic for two reasons:

First, tax law is complex, with a range of allowances, reliefs and exemptions provided as matter of government policy.

As the CBI statement of principles said, companies are entitled to respond to incentives and exemptions.

So it’s difficult to judge whether a company deserves the accolade “fair tax business” without having a detailed knowledge of the company’s tax affairs and a thorough understanding of the tax system.

The second reason is that tax is, by definition, political.

It’s always a big debating issue at election time precisely because there is, inevitably, a range of opinions as to the role of government and how the cost of providing public services, infrastructure, security etc. should be shared. This is democracy.

Tax law is necessarily complex in parts (as well as unnecessarily complex in other parts) and there are lots of quirks and anomalies, making it difficult to discern the underlying policy.

So how likely is it that there will ever be a consensus on what “fair tax” is?

We should see the FTM’s criteria for multinationals soon, and everyone should have the chance to comment on them before they’re implemented.

But it’s worth remembering that the FTM team is a group of individuals who have decided to try to bring something like Fairtrade into the tax arena.

It is just possible that someone else might decide to grown their own FTM, or perhaps a Tax Transparency Mark.

Online debate

I’ve listed here some of the key players in the online tax debate [in no particular order, except that generally “tax professionals” are in column 2] and I recommend that you tune in to what at least some of them are saying.

Richard Murphy Professional bodies / firms
Alex Cobham Heather Self
Martin Hearson Jolyon Maugham
Margaret Hodge Ben Saunders
Tax Justice Network Mike Truman
Christian Aid Judith Freedman
ActionAid Iain Campbell
Oxfam Jeremy Sherwood
Citizens for Tax Justice “Christie Malry”

I’ll share one thing that’s been troubling me.

We’ve seen several reports from Richard Murphy – and from NGOs such as ActionAid and Christian Aid – that have been challenged by tax experts and others.

For example, Richard Murphy’s recent report on the cost of tax evasion and shadow companies was criticised by HMRC as well as tax professionals. He estimated that the total UK tax lost because of unrecorded sales alone in 2011/12 “might have been £40bn”.

That’s more than HMRC’s estimate for the entire tax gap, £35bn.

HMRC said his methodology was seriously flawed.

What I wanted to see (even if I had to do it myself) was a detailed assessment of that estimate and of Richard’s warning about shadow companies.

But the report runs to 80 pages, the executive summary is 20 pages. I wouldn’t say it was clear and concise.

The problem is that if Richard is 80% right, it’s a scandal. Tax evasion is being greatly underestimated. But if he is 80% wrong, that’s also a scandal because – given the amount of press coverage and the limited response – the message may well undermine confidence in HMRC and the tax system.

It needs someone with the time, patience and expertise to review such reports honestly, on their merits, picking out strengths and weaknesses.

Perhaps a post-publication peer review?

But who would do that, and who would pay? If that’s a problem, remember that Richard is backed by the Joseph Rowntree Charitable Trust and others including the TUC and the PCS. His reports are routinely reported in the press, and he has a huge following.

So perhaps some of the energy that is expended by tax professionals in venting anger on Twitter could be harnessed into serious, detailed appraisal of this kind of research.

Richard has many critics among tax professionals, but my impression is that very often the criticism is a reaction to his debating style rather than the substance of what Richard has said. He does talk a lot of sense, but the purpose of much of his output is to hit back at his critics. He does tend to tar whole groups or organisations of people with the same brush.

For now, let me endorse what Jolyon Maugham told Richard on Twitter this morning [16 June]:

“You have a manner that can engage people’s destructive impulses.”

Government and parliament

Some of the tax professionals’ frustration with MPs is entirely understandable. If you haven’t listened in to the Public Bill Committee debates on the Finance Bill, I suggest that you don’t bother. Read the transcripts instead.

How much of the committee’s time has been wasted, I wonder, by MPs trying to score party political points instead of doing what they were there to do – to examine the detail of some far-reaching tax measures.

It’s often said that MPs made the law, so they should change it rather than complain about multinationals acting within the law.

But there are two reasons why that’s not the whole story.

First, much of the existing tax law was already there when the current MPs were elected.

Secondly, as I’ve already mentioned, the only lasting solution to BEPS is international agreement, followed by the required changes to domestic tax laws and international tax treaties.

Uncharted waters

To sum up, we are in uncharted waters but there are positive signs and reasons to hope that the tax debate will become less heated, more constructive, and that more tax professionals will get involved.

And if you’re running a business and a level playing field is what you’re looking for, then the BEPS project seems to be your best hope.

If it works, it will reduce the reputational risk that all multinationals now have to live with – no matter what their tax policy.