MPs to investigate UK tax system following Google tax deal

The House of Commons Treasury Committee has launched an inquiry into the UK tax base and UK tax policy to protect that base, in the wake of the Google tax settlement.

The recent announcement that HMRC reached a settlement with Google over back taxes amounting to some £130m has caused concern in some quarters. The Scottish National Party deputy leader Stewart Hosie has even referred the deal to the European Commission to investigate under its State Aid powers. Now, in a move which may induce deja vu in many, the Treasury Committee has responded by launching an inquiry into the amount of tax paid by multinationals (MNEs) in the UK.

Background

The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration and policy of HM Treasury, HM Revenue & Customs, and associated public bodies. The Committee has announced that it has launched an inquiry into “the shifting sands of UK tax policy and the tax base”.

In launching the inquiry, the Chairman of the Treasury Committee suggested that the “complexity of tax law is turning what should be a straightforward principle - that everybody should pay the correct amount of tax - in to a piece of elastic”.

The inquiry is not directed at Google, but will investigate the UK’s shrinking corporate tax base more widely and whether HMRC is doing enough to tackle avoidance. Some might consider that the inquiry is unnecessary and point to recent developments at Organisation for Economic Co-operation and Development (OECD) and G20 level with the Base Erosion and Profit Shifting (BEPS) project, which would, no doubt, have affected the level of tax paid by Google in the UK.

However, the inquiry is also to consider whether there needs to be an even more radical shakeup of the tax system, and whether business taxation could be based on turnover rather than profits. As such, the scope of the enquiry goes beyond the recent OECD BEPS project, which will impact on the scope for MNEs to avoid taxes by using base erosion and profit shifting techniques.

Nevertheless, some will question the need for such an enquiry given the recent developments at intergovernmental level which will introduce greater transparency and more effective international rules to prevent avoidance by MNEs through the BEPS project. And many of the witnesses, who will have also appeared at the notorious Public Accounts Committee hearings, may wonder what is to be gained by trawling over the same ground again so soon.

Public responses

As part of the enquiry, the Committee is inviting public submissions on a wide range of questions concerning the making of tax policy, the role of HMRC and HM Treasury and the UK tax system.

In particular, the Committee invites comments on the following points:

The making of tax policy

• To what extent, if at all, has the Treasury complied with the principles of tax policy?
• Have the entities involved in tax policy (HM Treasury, HMRC and the Office for Tax Simplification) performed adequately?
• Does the Treasury have the expertise to design tax policy? Does it make effective use of HMRC advice?
• What simplification measures, whether or not considered already by the OTS, now need examination?

The problem of the shrinking tax base

• To what extent is the UK’s corporate tax base being eroded as business is increasingly conducted globally?
• Are there particular sectors that are more mobile and do those sectors make a disproportionate contribution to overall tax yield?
• What other changes are occurring in the UK tax base, and how should the UK Government react to these changes?

Radical solutions to the problem of the shrinking tax base

• Given the inevitability of some sort of tax gap and of differences in interpretation of the "correct amount of tax", should the Government address the problem of the shrinking corporate tax base through more radical changes to the tax system?
• If so, what type of corporate tax structure could ensure that revenue is collected in accordance with the principles of tax policy and in a way which minimises the risk of base erosion? For example, should business taxation be based on turnover rather than profits?
• Should the Government consider other forms of taxation (such as the proposals of the 2020 Tax Commission) when considering how to raise tax in the future, particularly from businesses and wealthy individuals?
• Is there a case for a wholesale review of capital taxation?

Other mitigations of the problem of the shrinking tax base (addressing tax avoidance and non compliance)

• Have the recent initiatives (General Anti-Abuse Rule, the accelerated payments regime and notifications under the Disclosure of Tax Avoidance Schemes) been effective in tackling avoidance?
• To what extent will projects such as the OECD’s BEPS project and common reporting standards help in tax collection?
• What further international cooperation is required?
• March 2015 Budget contained a challenge for the tax professional bodies to take a greater lead in setting and enforcing clear standards around the facilitation and promotion of avoidance. Is that likely to succeed in encouraging more responsible behaviour from tax advisers? Do tax advisers need to be regulated?
• What, if anything, should be done to maintain or improve a culture of compliance or a sense of tax morality among the full range of taxpayers?

The administration of tax

• Has the merger of the Inland Revenue and Customs and Excise been a success, and have there been too many subsequent reorganisations within HMRC?
• Are the Treasury’s and HMRC’s plans for "Making Tax Digital" (as set out in the "roadmap" published on 14 December 2015) adequately designed and acceptable?

Public submissions on the inquiry are invited to be submitted through the Treasury Committee’s inquiry page.