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OECD must develop workable plan after Google report

The House of Commons Public Accounts Committee has now published its report on tax avoidance by Google. Those hoping for a detailed discussion of the extremely complex issues identified by the PAC will be disappointed. After repeating earlier recommendations, most of the document is given over to reproducing the evidence given to the Committee. All eyes now turn to the Organisation for Economic Co-operation and Development (OECD) to develop a workable basis for taxing multinational businesses. We return to that theme below.

First, though, we have summarised four important PAC recommendations, along with our own comments.

1. Public confidence in Google will only be restored when it establishes a corporate structure that ensures Google pays tax where it generates profit.

The Baker Tilly surveys which we have published in our Weekly Tax Brief confirm that consumers have short memories. This suggests the storm over Google’s tax planning will quickly be forgotten.

2. HMRC needs to be much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax.

The PAC has repeatedly expressed concerns that HMRC is not adequately resourced to enforce the exceedingly complex UK tax code. The PAC and HM Treasury should therefore ensure that proper resources are made available to allow HMRC to do its job.

3. HMRC and HM Treasury should push for an international commitment to improve tax transparency, including by developing specific proposals to improve the quality and credibility of public information about companies’ tax affairs, and use that information to collect a fair share of tax from profits generated in each company.

There are two aspects to this.

If the structure of corporation tax in the UK is not felt to have kept pace with the digital era, then an international solution is required. This is an area which the OECD is uniquely well-placed to address.

If and when plans for tax transparency come into force, early disclosures may produce surprises for everybody. The PAC and campaigning groups alike should at that time support the process by encouraging those companies which are seeking to comply with transparency requirements, rather than vilifying those who may have produced old skeletons from the cupboard.

4. We expect the big accountancy firms to recognise that the public mood on tax avoidance has changed.

For the professionals firms – accountants and lawyers alike – good ethics are undoubtedly good business. For their part, clients may find themselves trying to strike a balance between corporate social responsibility on the one hand and managing their tax bills in much the same way as they would manage any other business expense.

Ultimately, the courts in the UK will determine, on a challenge by HMRC, whether a particular structure achieves the tax effect intended by the company.

This was posted in Bdaily's Members' News section by George Bull .