UK Announces Comprehensive Tax Compliance Plan
Wednesday, December 5, 2012
UK Chancellor George Osborne has announced a number of initiatives designed to
crack down on tax avoidance amid mounting criticism of "aggressive"
tax planning by multinational corporations.
The announcement comes ahead of the Chancellor's Autumn Statement this week
and shortly after the Public Accounts Committee (PAC) issued a highly critical report
on HM Revenue and Customs's (HMRC's) ability to deal with large corporations
which generate significant income in the UK but which appear to pay little or
no tax there.
In particular, companies such as Google, Amazon and Starbucks have come under
fire from the PAC as a result of a number of hearings during which their tax
affairs were revealed and slammed as "immoral." HMRC's response was
criticized as lacking determination and appearing too lenient, and the department
was urged to "get a grip" on the situation.
It appears that Osborne's latest initiative is designed to help HMRC do just
that. The Treasury will award GBP77m (USD123.6m) in new funding to HMRC,
so that it can expand its anti-avoidance and evasion activity. In particular,
the money will be used to focus on the crackdown on offshore evasion and avoidance
by wealthy individuals and by multinationals. According to the Treasury, this
should result in an additional GBP2bn per year in tax that it says would have
otherwise gone unpaid.
As part of the reform, additional staff and legal support will be given to
HMRC to speed up its work in identifying and challenging multinationals’
transfer pricing arrangements, and to further strengthen HMRC's risk assessment
capability across the large business sector. The aim is to ensure that multinationals
do not shift profits out of the UK and therefore pay the tax due in accordance
with UK tax law. A new "centre of excellence" will be set up within
HMRC, and will look at how the department can best use data to identify offshore
tax evasion, review its legal powers and work with other tax administrations
to close the net on such evasion.
HMRC's Affluent Unit will also be expanded, with 100 extra investigators and
additional risk and intelligence staff provided to target avoidance and evasion
by the wealthy. There will be an increase in the number of specialist personal
tax inspectors to tackle offshore evasion and avoidance of inheritance tax using
offshore trusts, bank accounts and other entities, focusing in particular on
the agents and tax intermediaries involved. HMRC's capacity to tackle aggressive
avoidance schemes, including long-running cases involving partnership losses, will be enhanced,
leading to settlement opportunities that offer a good deal to the Exchequer.
Also announced by Osborne is what he calls a ground-breaking agreement with
the US. The agreement, the first of its kind, will significantly increase the
amount of information on potentially taxable income automatically exchanged
between both countries and further enhance HMRC’s ability to tackle offshore
evasion. Steps will be taken to close the net on the marketers of aggressive
tax avoidance schemes, including the introduction of new information disclosure
rules and HMRC sanctions for the "cowboy" advisers who sell such schemes.
Osborne said of the package: "The government is clear that while most
taxpayers are doing their bit to help us balance the books, it is unacceptable
for a minority to avoid paying their fair share, sometimes by breaking the law.
We are determined to tackle this problem and HMRC are making good progress,
but we are giving them additional tools to bring in more. The action we are
announcing today will help HMRC close in not only on those who seek to avoid
or evade tax, but on the dubious ‘cowboy’ advisers who sell them
the schemes and dodges they use to cheat the law-abiding majority."