The House of Lords is calling for the Treasury to undertake a fundamental review of the UK's corporate tax regime, including proposals to strengthen parliamentary oversight of HMRC and a ban on the use of Big Four staff to help with developing tax rules.
The economic affairs select committee report Tackling corporate tax avoidance in a global economy: is a new approach needed? says the international tax system gives multinational companies too many opportunities to manipulate their affairs to reduce their global tax payments, which is undermining public trust in the tax system and damaging the economy.
It says HMRC is not being 'assertive enough' in its negotiations with multinationals and wants better parliamentary oversight of how the department reaches deals on tax with big companies, claiming that HMRC's duty of confidentiality to taxpayers limits the scope for querying its decision.
It wants the government to set up a joint committee of MPs and peers which can take testimony from HMRC in private, similar to the approach currently used for parliamentary scrutiny of the intelligence and security matters. This new committee would publish reports on concerns it has on the way HMRC deals with the tax of multinational companies.
The committee recommends that HMRC should be adequately resourced to deal more effectively with multinationals and their tax advisers, and calls for an end to the practice of HMRC employing seconded staff from the Big Four accountancy firms.
The committee also wants government to consider a new system of regulation for tax advisers with the threat of removing advisers' right to practise if they breach a regulatory code of conduct by promoting 'blatantly contrived' tax avoidance schemes.
Companies with large operations in the UK should be required to publish a summary of their corporation tax returns to ensure there is clarity on what tax has been paid and to enable parliament and the public to see when action against tax avoidance is needed.
Lord MacGregor, chairman of the House of Lords select committee on economic affairs, said: 'We recognise that the government is taking the lead in pursing international agreement to reduce tax avoidance but it is unclear whether these reforms can be achieved in two years. We have therefore made a number of recommendations for specific reforms the government should consider on its own to deal with abuses.'
Heather Self, partner at law firm Pinsent Masons, described the Lords' report as 'probably unworkable'.
She said that the Treasury has indicated that it wants to have a competitive business tax system, with robust enforcement, which 'must be the right way to attract mobile capital to invest in the UK.'
'Asking the Treasury to undertake a full review of the corporate tax system within the next year is likely to be a distraction from the work needed to contribute to the OECD BEPs project. It is surely more important for the UK to decide on its negotiating stance as it participates in key multilateral discussions on the international tax rules.
'Focusing on abuse, and particularly income which is not taxed anywhere, is likely to be more productive than radical overhaul of a system which works well for government and taxpayers most of the time,' said Self.
