A leaked document sent by HMRC’s former head of tax Dave Hartnett to the exchequer secretary reveals the scale of the government’s “sweetheart” tax deals, The Guardian reported today, as HMRC pr
A leaked document sent by HMRC’s former head of tax Dave Hartnett to the exchequer secretary reveals the scale of the government’s “sweetheart” tax deals, The Guardian reported today, as HMRC prepared to defend in the High Court its handling of a dispute with Goldman Sachs.
The front-page report refers to “individual secret agreements drawn up between tax officials and corporations to settle disputes”. HMRC maintains, however, that it is bound by law to safeguard taxpayer confidentiality.
Both company tax returns, and terms of the settlement of a dispute that does not go to tribunal, are confidential. Settlements can often relate to several years’ accounts, and the size of some settlements reflects the size of the businesses concerned and the value of transactions where disputes relate to matters such as transfer pricing.
Governance arrangements
As Tax Journal reported last June, the National Audit Office concluded that five large tax settlements examined by a former High Court judge were “reasonable”. The Commons public accounts committee (PAC) had warned in December 2011 that “systemic issues” surrounding HMRC’s handling of tax disputes must be addressed with “the utmost urgency”.
But the NAO found that the overall outcome for the exchequer was “good”, while there were concerns over how the settlements were reached.
The Guardian said previously unseen documents showed that “just four settlements” were worth £4.5bn between them. “The disclosures about the multibillion-pound scale of the government's deals come from a seven-page memo sent by Hartnett in December 2011 as he asked for public support from [David] Gauke in the face of growing criticism in the media and parliament,’ Rajeev Syal reported.
“[Hartnett] wrote: ‘In 2006, HMRC adopted a new approach to reaching tax settlements with large business through building constructive relationships and encouraging mutual openness and transparency, increasing certainty for business and reducing the time taken to resolve issues. Settlements of above £1bn are now not uncommon and £4.5bn … has come from just four settlements with bespoke governance."
‘How much did we not get?’
The Guardian quoted Margaret Hodge, chairman of the PAC, as saying: “If we got £4.5bn in, how much did we not get? That is what taxpayers will want to know, and I’ll be raising this with HMRC through the committee. Whilst it is in the interest of the government to collect monies, these are huge sums. If there were deals involved, we need to know that the companies paid a fair amount on the profits they made from their businesses in the UK.”
An HMRC spokesman said today: “The National Audit Office looked into the 'bespoke governance' settlements, finding they represented good value for the country and were properly carried out. However, since then we have significantly improved the transparency of the governance around our large business settlements.”
‘No perfect answer’
Hartnett said during a roundtable discussion hosted by Tax Journal, in April 2010, that HMRC’s litigation and settlement strategy had put an end to so-called “package deals” where several issues might be settled on the basis of an assessment of the chances of success should a dispute go to court.
“We'll never go back to package deals,” he said. “What we've had to stop is the case of people having left a business or a tax office and then everyone is in a big rush, 'got to settle this quickly', and a deal is done and everything gets settled for a chunk of money. Then glory be, history repeats itself in a few years' time. That just didn't work and people were compromising on interpretation of the law.”
He added: “Where things are really hard, and this is where the essence of a compromise might lie, is around the issue to which you are trying to apply the law. You don't compromise on the law, you try to make some sense of the issue, the underlying facts and the interpretation of the facts.”
In some transfer pricing cases, Hartnett said, there was “no perfect answer”.
“There might be a position where both sides are close enough together to reach a conclusion, but there is actually no perfect answer unless you use the courts to force out an answer. Talk to judges in transfer pricing cases and, unless you've found something very different to the other side, they'll split it down the middle,” he said.
Hartnett is a member of Tax Journal’s editorial board.
A leaked document sent by HMRC’s former head of tax Dave Hartnett to the exchequer secretary reveals the scale of the government’s “sweetheart” tax deals, The Guardian reported today, as HMRC pr
A leaked document sent by HMRC’s former head of tax Dave Hartnett to the exchequer secretary reveals the scale of the government’s “sweetheart” tax deals, The Guardian reported today, as HMRC prepared to defend in the High Court its handling of a dispute with Goldman Sachs.
The front-page report refers to “individual secret agreements drawn up between tax officials and corporations to settle disputes”. HMRC maintains, however, that it is bound by law to safeguard taxpayer confidentiality.
Both company tax returns, and terms of the settlement of a dispute that does not go to tribunal, are confidential. Settlements can often relate to several years’ accounts, and the size of some settlements reflects the size of the businesses concerned and the value of transactions where disputes relate to matters such as transfer pricing.
Governance arrangements
As Tax Journal reported last June, the National Audit Office concluded that five large tax settlements examined by a former High Court judge were “reasonable”. The Commons public accounts committee (PAC) had warned in December 2011 that “systemic issues” surrounding HMRC’s handling of tax disputes must be addressed with “the utmost urgency”.
But the NAO found that the overall outcome for the exchequer was “good”, while there were concerns over how the settlements were reached.
The Guardian said previously unseen documents showed that “just four settlements” were worth £4.5bn between them. “The disclosures about the multibillion-pound scale of the government's deals come from a seven-page memo sent by Hartnett in December 2011 as he asked for public support from [David] Gauke in the face of growing criticism in the media and parliament,’ Rajeev Syal reported.
“[Hartnett] wrote: ‘In 2006, HMRC adopted a new approach to reaching tax settlements with large business through building constructive relationships and encouraging mutual openness and transparency, increasing certainty for business and reducing the time taken to resolve issues. Settlements of above £1bn are now not uncommon and £4.5bn … has come from just four settlements with bespoke governance."
‘How much did we not get?’
The Guardian quoted Margaret Hodge, chairman of the PAC, as saying: “If we got £4.5bn in, how much did we not get? That is what taxpayers will want to know, and I’ll be raising this with HMRC through the committee. Whilst it is in the interest of the government to collect monies, these are huge sums. If there were deals involved, we need to know that the companies paid a fair amount on the profits they made from their businesses in the UK.”
An HMRC spokesman said today: “The National Audit Office looked into the 'bespoke governance' settlements, finding they represented good value for the country and were properly carried out. However, since then we have significantly improved the transparency of the governance around our large business settlements.”
‘No perfect answer’
Hartnett said during a roundtable discussion hosted by Tax Journal, in April 2010, that HMRC’s litigation and settlement strategy had put an end to so-called “package deals” where several issues might be settled on the basis of an assessment of the chances of success should a dispute go to court.
“We'll never go back to package deals,” he said. “What we've had to stop is the case of people having left a business or a tax office and then everyone is in a big rush, 'got to settle this quickly', and a deal is done and everything gets settled for a chunk of money. Then glory be, history repeats itself in a few years' time. That just didn't work and people were compromising on interpretation of the law.”
He added: “Where things are really hard, and this is where the essence of a compromise might lie, is around the issue to which you are trying to apply the law. You don't compromise on the law, you try to make some sense of the issue, the underlying facts and the interpretation of the facts.”
In some transfer pricing cases, Hartnett said, there was “no perfect answer”.
“There might be a position where both sides are close enough together to reach a conclusion, but there is actually no perfect answer unless you use the courts to force out an answer. Talk to judges in transfer pricing cases and, unless you've found something very different to the other side, they'll split it down the middle,” he said.
Hartnett is a member of Tax Journal’s editorial board.
