Now Ritchie accuses HMRC of corruption

It’s a quite gorgeous throwing of the teddy out of the pram as well:

Most multinational businesses are not single companies, but a group of companies, only some of which will be operating in the UK.

For example, sometimes a company from outside the UK sells to UK customers via the internet. Another group company in the UK provides warehousing, distribution or other services and support to the selling company. Where this takes place, the UK service company will be taxed only on the profits of its own business, ie the services it provides to the selling company.

This is not tax avoidance: it is simply the way that Corporation Tax works, ie it applies to individual companies.

Let’s be blunt: such an arrangement is only adopted for one reason, and that is to avoid tax. There is not another motive on earth that can or might justify such an obscure structure, despite which HMRC say this is not tax avoidance. It is instead ‘simply the way that Corporation Tax works’.

But as Jolyon points out, and as I agree, that definition is utterly at odds with the new definition of what is not tax avoidance when the new definition of what is not tax avoidance now effectively says that whatever interpretation can be applied to the law, irrespective of motive or artificiality, just is how corporation tax now works and, as a consequence to be accepted. This effectively defines avoidance out of existence.

Worse, this claim is not true. This revives The Duke of Westminster case as well as Ayrshire Pullman and even Partington which were the foundation stones of UK tax abuse for so many tears until Graham Aaranson, I and a few others hoped we had consigned them to history via the Guidance Notes to the General Anti-Abuse Rule, which specifically say that they have no role in modern UK tax law (pages 5 and 25). Except now HMRC seem to say they have.

So let’s make three things clear. HMRC’s comments here are wrong because they are contrary to the GAAR guidance, which has the force of law.

Second, they’re wrong because their own guidance on tax avoidance says they are.

And third, in offering them now HMRC needs to make clear a) why it has done so b) what pressure was brought to bear on them to do so c) state why they think their tax gap measure has any credibility remaining after doing so when they are now the only people in the country who think that the activity of companies like Google are tax compliant.

And if the Board cannot get adequate explanation as to why this has happened the whole top management of HMRC needs to be removed. Lying about tax is unacceptable, especially when done by a tax authority, and that is what is happening here.

So, will Ritchie fire himself because lying about tax is a terribly naughty thing to do?

Here is the current state of the law. This is from the Luxembourg UK tax treaty but all the others are very much the same:

(1) For the purposes of this Convention, the term “permanent establishment” means a
fixed place of business in which the business of the enterprise is wholly or partly carried
on.
(2) The term “permanent establishment” shall include especially:
(a) A place of management;
(b) A branch;
(c) An office;
(d) A factory;
(e) A workshop;
(f) A mine, quarry or other place of extraction of natural resources;
(g) A building site or construction or assembly project which exists for more than
six months.

(3) The term “permanent establishment” shall not be deemed to include:
(a) The use of facilities solely for the purpose of storage, display or delivery of
goods or merchandise belonging to the enterprise;
(b) The maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of storage, display or delivery;
(c) The maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of processing by another enterprise;
(d) The maintenance of a fixed place of business solely for the purpose of
purchasing goods or merchandise, or for collecting information, for the
enterprise;
(e) The maintenance of a fixed place of business solely for the purpose of
advertising, for the supply of information, for scientific research or for similar
activities which have a preparatory or auxiliary character, for the enterprise.

This covers what Facebook, Google, Amazon and all are doing. And HMRC is not allowed to operate against such international tax treaties because they are, quite literally, the law of the land as agreed to by Parliament.

What’s actually going on here is The Murphaloon deciding what he thinks people should be paying in tax and then getting upset when reality doesn’t agree.

Diddums, eh?

31 thoughts on “Now Ritchie accuses HMRC of corruption”

  1. Increasing amounts of fist typing coming from the shed in Norfolk.

    I liked “Are HMRC planning to ignore country-by-country reporting?” which translates as “How dare HMRC ignore ME”.

  2. The GAAR includes this qualifying statement in the ‘How to identify abusive arrangements’ section:

    ” As a result in broad terms the GAAR only comes into operation when the course of action taken by the taxpayer
    aims to achieve a favourable tax result that Parliament did not anticipate when it introduced the tax rules in question and, critically, where that course of action cannot reasonably be regarded as reasonable. ”

    The actions of Amazon and others is not unreasonable given what the law says.

  3. Ritchie’s writing is getting worse. He needs to have something done to help.

    A frontal lobotomy perhaps

  4. He is the Witchfinder-General of tax; once he has decided a victim is guilty of taxcraft there is no escape.

  5. Ah, but if you read him carefully he’s not accusing HMRC of being corrupt in law. No, this is the new Ritchie definition of “corporately corrupt”.

    As Daisy says, his accusation is as good as a conviction. Burn the evaders! Burn them with the flames of the righteous!

  6. “”For example, sometimes a company from outside the UK sells to UK customers via the internet. Another group company in the UK provides warehousing, distribution or other services and support to the selling company. Where this takes place, the UK service company will be taxed only on the profits of its own business, ie the services it provides to the selling company.”

    Let’s be blunt: such an arrangement is only adopted for one reason, and that is to avoid tax. There is not another motive on earth that can or might justify such an obscure structure”

    Jesus H F***ing Christ. Did this guy get dropped on his head as a baby and then subsequently every 2 weeks for the rest of his life? I can think of several reasons immediately that have nothing to do with tax for why a company would do this.

  7. I do recall an arrangement once, long ago in a far off land under which an Irish company held the rights to, and sold Trivial Pursuit to, customers in the UK via, I think UK persons, which were related to it.

    It’s certainly not an exact parallel by any means, but R Murphy was intimately involved in that Double Irish Dutch Sandwich obscene tax evading merry-go-round, was he not?

  8. @Mal Reynolds

    If you read the comments it appears that what you, I or anyone else might read into the above is not what Murphy meant

    Although his comment followed immediately from the HMRC example, he was in fact referring to Google’s arrangements..

  9. He seems to suggest that the Deke of Westminster case is no longer a legal precedent as a result of his work on the GAAR. Can anyone give an opinion as to the validity of this?

  10. But he’s not railing against evaders – people breaking the law – hes railing against avoiders – people complying with the law. I avoid tabacco tax by not smoking. I avoid income tax by being the beneficiary of a benevolent government that keeps raising the personal allowance. If he wants to force me to start smoking he can step outside and have a conversation.

  11. “Let’s be blunt: such an arrangement is only adopted for one reason, and that is to avoid tax.”

    Technically, there is nothing in the law that would invalidate an arrangement simply because of its purpose.

  12. Alex- quite a lot of tax law invalidates arrangements because of their purpose, if that purpose is to avoid tax.

    I once very nearly ran the following argument:

    – Client wants to do ABC
    – Tax consequence of ABC is £X
    – However, if ABC is done to avoid tax, then anti-avoidance rules apply so tax liability is £Y (where Y>X)
    – I asked for clearance from HMRC that the rules wouldn’t apply; they wouldn’t give it
    – So if client did ABC, it would be in the knowledge that the anti-avoidance rules would apply and so the liability would be £Y
    – They would not therefore be expecting a liability of only £X
    – So they would not be intending to avoid tax
    – So the anti-avoidance rules would not kick in
    – The liability would therefore be £X

    The argument rather breaks down because you have to self-assess at £Y, and HMRC are not going to enquire in order to bring it down to £X. But logically it makes as much sense as any of this stuff does 🙂

  13. Diogenes – the GAAR guidance rejects the Duke of Westminster principle as obsolete, and as Murphy says the GAAR guidance has to be taken into account when looking at how the GAAR is applied (I don’t think this is quite the same as “has the force of law”, but then IANAL).

    However, I’m not clear how Murphy decides that saying “some tax planning is effective” is restating Duke of Westminster.

  14. From the ridiculous to the sublime:

    Bing appear to be using an image of psilocybin mushrooms on their search page today

  15. Thanks for that, Pellinor. It looks as if the drafters have done their usual clumsy work and it will have to be clarified in the courts to the vast enrichment of the legal profession. Twas ever thus.

  16. @Pellinor: Tax treatments are not voided because their is a tax avoidance purpose, but they may be voided if there is not another allowable purpose (i.e.if an expense is not incurred for the purpose of a trade). This does not preclude valid business activities which have a business purpose and a tax avoidance purpose.

  17. Alex, I guess that means Ramsay, and Furniss and Dawson, are still potentially in the mix. Exciting times for judges await us. It took 30 years for Lord Cooke’s ruling on joint enterprise to be called out. How long before the GAAR is deemed inoperable in law?

  18. @diogenes: Yes, but there are several later refinements to the case law, particularly McGuckian and MacNiven v Westmoreland Investments where the HoL ruled that ‘one cannot disregard a transaction which comes within the statutory language, construed in the correct commercial sense, simply on the ground that it was entered into solely for tax reasons’.

  19. Ales…the legal folks know how to seek their economic rent. Apart from Jo Maugham, which is, no doubt, why he is so indignant

  20. Is soapy Jo allowed to say JMRC is corrupt without being subjext to sanctions? His blog is getting close to the line, surely…

  21. Bloke not in Cymru

    Don’t know if it’s still running, but if In the past I took advantage of a the scheme to take part of my pay in childcare vouchers, a transaction that would serve no purpose other than to avoid tax I would be an evil tax avoider.

  22. Also a local service company would find it much easier to employ local people from a legal / paperwork / currency point of view as opposed to a non UK legal entity. So actually there are good reasons – very good reasons – that have nothing to do with tax at all.

  23. Alex – the usual wording these days is that anti-avoidance kicks in if tax avoidance is “the main purpose, or one of the main purposes” of the transaction.

    In many cases having a genuine commercial purpose isn’t enough, if tax avoidance can still be said to be one of the main purposes.

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