Now this will be interesting

Taxman accused of ‘cover-up’ over Goldman’s bill
Britain\’s most senior taxman will be asked by MPs to reveal information about tax settlements with Goldman Sachs and Vodafone – or face accusations that he is mis-using confidentiality rules to “cover up his own mistakes”.

So they\’re going to haul Dave Harnett up before the committee and get him to explain the two \”deals\”, one to Vodafone and one to Goldmans.

Now, me, I hope he lays it all out for them.

There\’s roughly two stories here. From the Private Eye, UKUncut side, Harnett just let them off money they should have paid because he\’s a bastard who likes letting big companies off the hook. Or something.

Then there\’s people like me.

On Goldman, as best I can make out, (all of this is subject to the interesting possibility that I may be wrong) the Goldman story goes like this.

Dodgy business trying not to pay NI tried out by 22 banks and companies in 1997-2005. HMRC says, naughty, no you can\’t do that. HMRC gets the unpaid NI from 21 companies and does not charge them interest in 1997-2005. Goldman says, umm, nah, see you in court. HMRC goes through the court thing and wins. Goldman then coughs up the NI plus interest from 2005 to settlement. Goldman is not charged interest from 1997-2005. Like the other 21 companies.

Note that the Private Eye estimation of interest owed is around 100% of the total sum, which 12 years interest at HMRC late payment rates would be about right, around £20 million. The claim is that they were let off £10 million, about half this sum. Or, half the interest, or the interest for half the time. Or, Goldmans were treated just like the other 21 companies. No interest from 1997-2005.

One thing of interest here, one of the committee members has in fact read my explanation of this (which I agree, in the absence of public confirmation from any party, could be wrong) and thinks it an interesting one to test. So we\’ll have to see eh?

On Vodafone it will be even more interesting. For there never was a £6 billion bill in the first place. Just a made up number by Private Eye. And I have, finally, from the horse\’s mouth, been able to find out how they calculated it.

The argument, as you will recall, revolved around whether the Controlled Foreign Corporation (CFC) rules applied to subsidiaries based in the EU. If they did then Vodafone certainly owed something over and above the German and Luxembourg tax they had already paid on the money piling up in the Luxembourg subsidiary.

If the CFC rules did not apply then they didn\’t. That\’s really the crux of the case.

So, when Private Eye tried to work out how much they owed they looked at how much Vodafone were provisioning for such a tax bill. Up to and until the Cadbury case that was £2 billion.

The Cadbury case, recall, effectively said that CFC did not apply to EU subsidiaries. It was on this basis that Vodafone (according, as I say, to Private Eye\’s own estimations) stopped provisioning. And of course, as we know, Vodafone won on the basis of the Cadbury case in the Special Commissioners, the High Court and the Court of Apppeal judgement was more subtle. If it was only tax dodging then CFC might still apply, if there was a business case for the structure then CFC did not. At which point there was the settlement and we never found out what the Supremes thought of it all almost certainly because HMRC was frit of what the answer would be.

So how did Private Eye get to £6 billion? They just ran the provisioning through time as if Cadbury had never happened. That is, let\’s ignore that change in the law of the land when estimating the tax bill.

Which is an interesting one really. Just think how much \”the rich\” have been let off taxes since the top tax rate came down from 83% to 40 % then up to 50%. You know, ignoring those details like you only owe what tax the law says you owe?

So, I think it will be massively interesting as Hartnett is questioned by the committee once again. And of course, what I\’d really like to see is the full truth of both matters.

For, being fairly bullish, I think my explanation of what happened is closer to the truth than that either company was \”let off\” much of anything. Of course, being fairly bullish about this does expose me to hte possibility of deep embarassment come this afternoon: but that\’s what makes it all fun, isn\’t it?

Oh, and just a quick question about Ms. Armistead on the Telegraph:

Similarly, Vodafone paid just £1.25bn of a tax bill that was around £6bn for its takeover of Mannesmann in 2000.

Given that just none of this is about the takeover, rather, it\’s about the profits, interest, from the revenues after the takeoever, just why are the Telegraph employing this person to explain tax matters to us? Especially as there never was a £6 billion tax bill?

4 thoughts on “Now this will be interesting”

  1. Isn’t there, on the explanation above, still a question to be asked as to why Goldman were let off a bit of their bill (interest 1997-2005) even if nobody else paid it? After all, nobody else disputed the liability, so why shouldn’t Goldmans suffer a bit of downside for choosing to litigate? One can imagine a large number of possible answers to the question, but at the moment it is still out there.

    Tim adds: Entirely true. But “Goldman let off” and “Goldman treated like everyone else” are rather different headlines, aren’t they?

  2. I don’t know about the UK law, but for a time I worked for the NZ Treasury and had access to a sample of company and private tax payers’ records. To access that I had to swear an oath not to reveal that individual information ever, even if ordered by a NZ or international court, and there were no exceptions like “if the taxpayer gave you permission”.

    This occasionally led to problems when that obligation conflicted with the GAAP accounting laws which required clearly describing large risks to revenue or receipts. Lots of consulting with lawyers.

  3. Tracey W, pretty much the same here and there is a rule or maybe it is just a convention that neither politicians nor HMRC comment on the tax affairs of particular persons, so I look forward to Mr Harnett telling the committee to **** off.

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