The Public Accounts Committee (PAC) have published their report on Corporate tax settlements, following Google and HMRC’s appearance before the committee on 11 February 2016, which sets out an overview of the key points discussed during the hearing and the PAC’s conclusions and recommendations. Several of the PAC’s recommendations are already being dealt with by the OECD’s BEPS recommendations, which the UK fully supports and is starting to implement. For example, the PAC recommends that HMRC pushes for an international commitment to improve tax transparency and leads the way in pressing for changes in international tax rules to prevent aggressive tax avoidance by multinationals. Both of these points go to the heart of the OECD’s project, but what remains to be seen is whether compliance with and support of the OECD’s project is sufficient for the PAC.
For example, the PAC recommends that there is consultation on whether the rules on taxpayer confidentiality should be changed to allow more public scrutiny of the tax affairs of multinationals. There have been various calls for various different levels of transparency over recent years, and whilst we consider that some level of public scrutiny is inevitable, it is doubtful that this would give the level and nuance of detail that would be necessary for an external party to make a judgement on the appropriateness of a tax settlement.
The report also notes that it welcomes HMRC’s plans to strengthen the penalty regime. Even with the proposed changes to the regime, there will still be a relatively narrow range of circumstances in which a penalty will arise. To increase the instances of penalty payments a more fundamental change to the regime would be required, and this is likely to adversely impact the overall competitiveness of the UK as a place to do business.
Finally, the recommendations also consider the manner in which HMRC deal with enquiries. The PAC recommends that HMRC are clear about the costs and benefits of its investigations and that enquiries are dealt with in a more timely manner, devoting sufficient resources to their resolution. This balance is challenging for HMRC – it is only at the conclusion of an enquiry when the settlement is known that they can assess the “cost-benefit” ratio of the enquiry. There is also the suggestion by the PAC that HMRC re-open the Google enquiry if other tax jurisdictions appear to reach a more favourable settlement. In our view this would only be feasible and worthwhile if it is clear that new information as to the underlying fact pattern has come to light which is also relevant to Google in the UK.