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Tax avoidance continues to be a problem, say MPs Ban 'insider' tax accountants from government - MPs
(about 2 hours later)
UK tax authorities should be doing more to deal with tax avoidance, an inquiry by a committee of MPs has said. A ban on external accountants working inside government, to stop them telling clients about tax loopholes they have found, has been urged by MPs.
The Public Accounts Committee said HM Revenue & Customs (HMRC) is involved in a "never-ending game of cat and mouse" with the big accountancy firms over the issue. The recommendation is in a report on tax avoidance by the Commons Public Accounts Committee.
The Committee argued that the firms have an "unhealthily cosy relationship with government". The MPs said HM Revenue and Customs (HMRC) was in a "battle it cannot win" against the accountancy firms who have thousands of people giving advice.
It also said UK tax law is "hopelessly complex and outdated". HMRC said it was "aggressively fighting" tax avoidance and "winning".
The Public Accounts Committee said HMRC appears to be fighting a battle it cannot win in tackling tax avoidance. In its latest report on tax avoidance, the committee turned its attention to accountancy firms after previously criticising multinational companies, including Starbucks, Amazon and Google, for the amount of corporation tax they paid.
Companies can devoted many more resources to minimising their tax liabilities than the tax authorities can to try to ensure they pay more. The MPs said accountants were being seconded to work in the government to advise on changes to tax law but using the position to glean inside knowledge and tell businesses how to avoid tax. The MPs want the practice stopped.
Tax avoidance is the legal use of the tax framework to reduce the amount of tax payable, whereas tax evasion is against the law. Specialists in the field sometimes use the term "avoision" to refer to grey areas. 'Conflict of interest'
Margaret Hodge MP, Chair of the Committee of Public Accounts, said HMRC are at a distinct disadvantage. They also called for a ban on firms being used by the public sector if they had been selling tax avoidance schemes.
"Our inquiry has exposed the continuing weakness of HMRC in its efforts to deal with tax avoidance," she said. Committee chairwoman Margaret Hodge said the practice represented a "ridiculous conflict of interest".
"Among those ranged against it are the big four accountancy firms, which earn £2bn each year from their tax work in the UK. They employ nearly 9,000 people just to provide tax advice to companies and wealthy individuals, much of which is aimed at minimizing the tax paid. Between them they boast 250 transfer pricing specialists whereas HMRC has only 65 people working in this area." "The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government," she said.
HMRC said that the government had announced last year that it will invest a further £77m to expand the Revenue's anti-avoidance and evasion work. The committee's report suggested that tax officials were outnumbered by well-resourced accountancy firms in key areas, such as businesses transferring their profits overseas in order to pay less tax.
"The facts show that we are not only aggressively fighting battles against tax avoidance, but we are winning them," HMRC said in statement. It said the "big four" accountancy firms employed about 9,000 staff and earned £2bn a year from their tax work in the UK.
Poachers turning gamekeepers The report said: "We have seen what look like cases of poacher turned gamekeeper, turned poacher again, whereby individuals who advise government go back to their firms and advise their clients on how they can use those laws to reduce the amount of tax they pay.
The Committee also called for an end to the system where staff from accountancy firms are seconded to the Treasury to advise on formulating tax legislation. "We are very concerned by the way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax."
"When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them. The poacher, turned gamekeeper for a time, returns to poaching," Mrs Hodge said. The committee said HMRC was involved in a "never-ending game of cat and mouse" with the big accountancy firms over the issue.
"This is a ridiculous conflict of interest which should be banned in a code of conduct for tax advisers, as we have recommended to the Treasury and HMRC," she added. It also said UK tax law was "hopelessly complex and outdated".
The Institute of Chartered Accountants in England and Wales (ICAEW) pointed out that there is already international cooperation to tackle tax avoidance through the Organisation for Economic Cooperation and Development (OECD), as well as efforts in the United States where legislation will shortly be passed that will tighten up disclose regulations on foreign banks with American account holders. However, the Treasury described some claims in the report as absurd.
HMRC said that the government had announced last year it would invest a further £77m to expand the revenue's anti-avoidance and evasion work.
An HMRC spokesman said: "The facts show that we are not only aggressively fighting battles against tax avoidance, but we are winning them.
"Since the end of 2012, we have won 11 tax tribunal cases against avoidance schemes, two of which were against large corporates.
'Strong professions vital'
"In the last three years alone, we have litigated more than 50 major avoidance cases, protecting billions of pounds of tax in the process."
The Institute of Chartered Accountants in England and Wales (ICAEW) said there was already international co-operation to tackle tax avoidance through the Organisation for Economic Cooperation and Development.
"The role of accountants is to help their clients pay the right amount of tax under the law," ICAEW said."The role of accountants is to help their clients pay the right amount of tax under the law," ICAEW said.
"When it comes to strengthening tax systems, strong accountancy professions are just as vital as strong national rules and tax authorities. "When it comes to strengthening tax systems, strong accountancy professions are just as vital as strong national rules and tax authorities. Accountants can help improve and strengthen tax rules."
"Accountants can help improve and strengthen tax rules," Tax avoidance is the legal use of the tax framework to reduce the amount of tax payable whereas tax evasion is against the law.
Specialists in the field sometimes use the term "avoision" to refer to grey areas.