Ritchie's vain boast on country by country reporting

Posted by Christie Malry on March 11, 2013 at 9:29 pm


Perhaps [Dave Hartnett would] also like to explain why  he assumes the user of accounts aren’table to appraise local incentives? Are we not as clever as him?

When Ritchie himself can't even calculate tax properly, what hope is there for lesser mortals?

I blogged about the fundamental problems with country by country reporting some time ago. Those problems still remain. It's not a case of being clever; CBCR simply doesn't provide the information needed to make an informed opinion.

In the meantime, we can always rely upon Ritchie to make an uninformed one.

Ritchie admits to lying

Posted by Christie Malry on October 3, 2012 at 8:04 pm

I called him on it first, and the brave Lee T has taken Ritchie to task over his absurd 92% of accountants support gatecrashing Hartnett's party story.

Here's what Ritchie has to say for himself:

The answer to the question is that of course it was spin – wholly justifiable, entirely reasonable spin based on obvious extrapolation in a headline designed to get attention

So, let’s go back to it: get a life and “deal with it”

No, Ritchie

Posted by Christie Malry on October 2, 2012 at 11:03 am

In which Ritchie gets it wrong not once, but twice, in the same article.

92% of accountants think gatecrashing Hartnett was just fine

No, Ritchie. 92% of the 112 people who voted in the Accountancy Age poll thought gatecrashing Hartnett was just fine. There's no information about whether they were accountants or not. Online polls have a habit of being gatecrashed themselves by outside interests, so it's not impossible that some of the votes may have been cast by non-accountants sympathetic to UKuncut's cause.

So even the professions own rag thinks the protests were justified.

Times, they are a’changing.

No, Ritchie. Of the people who voted in their poll, 92% thought the protests were justified. Accountancy Age is not a democracy, so the poll outcome does not bind them to a policy. In fact, we happen to know that Accountancy Age does not consider the protests to be justified.

Can this man get anything right?

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Deal or no deal?

Posted by Christie Malry on December 20, 2011 at 9:45 pm

Oh my days. A lot of complete crud has been written in the last 24 hours about how appalling it is that senior staff at HMRC would even contemplate cutting deals with the companies it is supposed to be enforcing the existing tax law against. Especially in austere times, HMRC should be doggedly pursuing every legal challenge to ensure that it maximises the country's tax take.

This is, I'm afraid, a load of naive hogwash. There's a simple formula to determine whether it's worth proceeding with a tax case:

If L x s - (1-L) x S > C then it's worth proceeding with the case.

Where L is the likelihood of the case succeeding, s is the amount at stake, S is the amount of similar cases in other companies that will succeed or fall with this test case and C is the cost of bringing the case to court.

Of course, all of L, s, S and C are estimates. It requires enormous amounts of judgement to estimate suitable values for these variables.

The big risk is that, in bringing and losing the case, you open up the watershed to lots of other companies who had previously accepted HMRC's tax treatment but now find themselves in for a free tax refund courtesy of the brave company that brought the test case. For example, in the case of Vodafone, it rather suits HMRC to let Vodafone 'get away with it', even for a supposedly sizeable sum because, if HMRC loses, the entire edifice of CFC taxation might come crashing down, and with it many billions of pounds of tax revenues might need to be refunded. Given that the word on the street is that the UK's CFC legislation is on fairly shaky legal grounds, it's hardly a risk worth taking.

It's worth remembering the formula when you read the gibbering analyses of left-wing commentators. Because their hatred of big companies makes them oblivious to a very important fact about business: that the future is uncertain. Dave Hartnett may well have been doing dodgy deals. But anyone in his position would have needed to have taken a view about the likelihood of success, the amount at stake in the specific case, the amounts at stake in wider cases and the cost of legal action. Therefore, necessarily, there would always be a point at which it would be better to cut a deal than to stand and fight. The mere fact that the Goldmans and Vodafone deals were done cannot be used as ex ante evidence that Hartnett was bent.


Goldman Sachs whistleblower and the law

Posted by Christie Malry on December 10, 2011 at 12:00 pm

Twitter is getting very upset at this news:

A solicitor at HM Revenue & Customs who turned whistleblower to disclose that senior managers had quietly let off Goldman Sachs from paying millions of pounds in tax penalties is facing disciplinary procedures and possible prosecution for speaking out.

There's an awful lot of nonsense being written about this. So here are a couple of observations:

The Public Interest Disclosure Act

The concept of 'whistleblowing' has its own Act under UK law. It's called the Public Interest Disclosure Act 1998 (PIDA). I'm not a lawyer, but in broad terms the Act protects employees who make a 'protected disclosure' from any recrimination from their employer, after making the disclosure.

A protected disclosure is defined in section 43B of the Act; it is one which shows (a) a criminal offence has been, is being, or is likely to be committed; (b) a person is failing to comply with a legal obligation; (c) a miscarriage of justice has occurred, is occurring, or is likely to occur; (d) health and safety of an individual is endangered; (e) the environment has been, is being, or is likely to be damaged; or (f) information has been concealed in respect of any of (a) through (e). Where an employer takes recriminatory action against an employee who has made a protected disclosure, they may be liable for damages and PIDA made these damages potentially unlimited.

There's a load more information about PIDA over at the excellent Public Concern at Work website.

Mba's legal position

It all therefore hinges on whether Mba's disclosure is a 'protected disclosure'. This is a matter of law, and it looks like 43B(b) is his most likely defence. If it's deemed that Hartnett was failing to comply with a legal obligation, Mba is in the clear. If it's not, then he may struggle. But if he has made a protected disclosure, then HMRC making his time a misery will come back to haunt them. Or, rather, it will come back to haunt us, because ultimately taxpayers will foot the bill for any compensation that HMRC may have to pay.

Unfortunately PIDA doesn't protect employees from the negative actions that may be taken by future employers. So if Mba looks to get another job, there's not much he can do to stop employers from blacklisting him.  Although other employers may be impressed by such a public display of integrity.

Dave Hartnett and business judgement

Posted by Christie Malry on December 10, 2011 at 11:15 am

Today's prime Ritchiebollocks:

Erm, Ritchie,this isn't the way business works. We don't make individual employees liable for the losses of their employer, even in cases where you believe you are able to apportion liability to an individual. That's because it's frankly a totally stupid idea. Are we really to say that we should find the employee who - say - failed to tighten a bolt properly on Deepwater Horizon and send them a bill for tens of billions of dollars?

Equally, we aren't commencing a witch-hunt to identify precisely which miserable sod in the London 2012 organisation can be blamed for the tripling of the Olympic budget. Nor are we singling out a Department of Health civil servant to land them with an invoice for the NHS supercomputer overruns. Instead we establish lines of control and responsibility within organisations in order to reduce the risk that an employee goes off on a frolic on his own. In Hartnett's case, this includes lines of political accountability.

The very idea that we should seek to make individual employees liable for the economic outcomes of their business decisions is an extraordinarily right-wing - one could even say 'neoliberal' - point of view. I simply don't know why Ritchie espouses such a view. Other than, in the case of Hartnett, it fits his political narrative to say it. I don't think for one second he actually believes it.

Deconstructing Ritchie's defence of UKuncut

Posted by Christie Malry on March 18, 2011 at 12:23 am

Ritchie, true to his Irish roots, has posted a late night St Patrick's Day blog post that perhaps betrays one too many pints of Guinness. What's got his goat is an article that Tim Worstall has penned for the Institute of Economic Affairs. I haven't seen the article itself, only Ritchie's quotes from it. But he puts up a strong defence of the tax affairs of the four main targets of UKuncut - Vodafone, Topshop, Boots and Barclays.

Now, readers of this blog will know that I also consider the arguments that have been made by UKuncut and others are incredibly weak. Surprisingly weak, really. If your main thesis is that companies are on the take and that some £120bn of tax is lost annually to avoidance and evasion from all sources, don't you think they'd be able to come up with some watertight examples of tax avoidance, so we could all understand what they mean?  The fact that they can't suggests, to me at least, that it's all a load of profound Ritchiebollocks.

On Vodafone:

That’s why the UK Revenue were winning all the way through the courts was it? Because they were. And that’s also why Vodafone provided for a bill about twice what they paid, was it? Because they did? No, this is Worstall making the misrepresentations here. It’s undeniable that no one knows the full facts of this case - except that as Private Eye have repeatedly alleged, that Dave Hartnett, boss of HMRC, took his winning team off it and with the help of Deloitte negotiated a cut down deal announced a few days before George Osborne was promoting the company in India. The allegation is not about tax in that case at all – it’s about the deal that was done. Worstall completely ignores the real issue – or maybe seeks to misrepresent it.

It's a principle of English law that only the highest court matters. In broad terms, the lowest rung of the courts system can only enforce the law that's there. They're bound by precedent from previous cases, and especially by precedent from higher courts. The Court of Appeal takes the facts of the previous case as read and seeks to enquire whether the law has been applied properly. At the very highest level, the Supreme Court has much more latitude - for example, it can override past precedent. But even it must follow the law as laid down by politicians. For matters which concern European law there is also a European appeal mechanism.

The facts in Vodafone were particularly complex from a legal point of view. While what Vodafone had done was deemed tax avoidance under UK law, and therefore gave rise to a tax charge, that bit of UK law was technically in breach of European law. Whether the breach was reasonable would have been the subject of a very finely balanced legal argument. Certainly well above the heads of the lower courts, which is why they found in favour of HMRC. Had Vodafone decided to appeal to Europe, it's entirely possible that they might have won their appeal. This would have been catastrophic for HMRC, as they would have had to repay Vodafone and it would have opened the floodgates for claims from other companies, as well as rubber-stamping copycat tax avoidance structures.

With all of this in mind, Hartnett, perhaps having discussed the risks with the government, settled with Vodafone. This brings in a big amount of cash, without the risks of an appeal being taken to the European courts.

It's entirely appropriate that government departments, egged on by government, should have the autonomy to make judgements of this sort. And their decision-making process is open to scrutiny through the Parliamentary committee process. But Vodafone aren't to blame for seizing a fair settlement, which ends years of uncertainty and expensive legal bills. If anyone's to blame, it's HMRC. So UKuncut should lobby them, not disrupt the one shopping day a week that many ordinary people rely upon.

Ritchie's remark that Vodafone had provided for a bill that was "twice what they paid" is facile. As any accountant knows, the amount that companies are required to provide in their accounts is their best estimate of the amount that they will ultimately pay. As it's an estimate, it's bound to be wrong. It's no surprise that Vodafone's estimate ended up being larger than what they paid, because it's tough to make predictions, especially about the future.

On Boots:

Sure the deal was legal – no one said otherwise. But there’s widespread feeling that the UK is being taken for a ride on this issue of giving extraordinarily generous relief for borrowing: borrowing in this case expended to buy Boots and not incurred in the course of its trade. That does stand contrary to a principle of general tax law – that relief is not given as a matter of course when it is incurred to put yourself in a position to do a trade rather than n in the course of actually undertaking it. But legality is not disputed. It’s the way the law is being abused in the opinion of many that is being highlighted.

If it's the law itself that's at fault, then UKuncut must lobby government to change that law. It's totally unacceptable for protestors to disrupt companies who are doing what is expected of them - following the law. If Boots decided to not follow the law, there would be outrage.

That said, I welcome Ritchie's admission that the legality of what Boots's owners are doing "not disputed".

On Topshop:

All true, of course. And all utterly misleading. First, the UK has sought to challenge settlements from husbands on wives. Worstall ignores this. They have not in this case, but the law to do so exists. Second, Worstall ignores the fact that the protest highlights the offshore arrangements used – which are considered to be abusive in themselves by those protesting, and without which it is certain more tax would have been paid somewhere. So again Wortsall utterly misrepresents the basis for the protest.

So, while HMRC has challenged some of the dodgier husband/wife transactions, it hasn't done so in the case of the Greens. Why do you think that might be? Because, perhaps, their tax affairs are deemed to be in order?

It matters not a fig that 'those protesting' think that what the Greens are doing is wrong. HMRC hasn't seen fit to challenge them in the courts. Who do UKuncut think they are to second-guess that judgement?

Even Ritchie must admit that "more tax would have been paid somewhere" is a pitifully weak case for protest.

On Barclays:

The protest is fourfold. Firstly Barclays has form on tax avoidance. Second, Barclays hasn’t made losses. In that case, why has it got them available in the UK for tax purposes? Could this be because the UK has such generous relief for losses it decided to record those it had here? This is in itself a basis for protest. Third, the lack of transparency is an issue – we don’t know why Barclays paid so little tax. Country-by-country reporting of bank profits would resolve this. Fourth, Barclays enjoyed and still enjoys state subsidies. For example it has its depositors funds guaranteed. In that case to allow relief of losses already supported by the state is unreasonable and the law should be changed. Worstall misses all these points, I presume deliberately.

Oh dear, Ritchie, oh dear. The UK tax return takes as its starting point the profit (or loss) of a standalone UK company. Ritchie has directed us towards the consolidated income statement of Barclays, which includes all of its overseas subsidiaries, as well as a bunch of consolidation adjustments to remove intercompany transactions. You really can't derive an awful lot about the UK tax liability from the consolidated income statement, as The Guardian found to its peril when it published its stupid story about Barclays' 1% tax rate. I debunked that little myth here.

In order to get any understanding, you have to turn to the tax reconciliation note, which lists the main items that cause the actual tax charge paid by the entire group to differ from the hypothetical tax charge you'd get by multiplying the UK (or blended global) tax rate by the consolidated profits.

Given that Ritchie is so blind to the facts of this case, we must take his claim that Barclays has "form on tax avoidance" with a very significant pinch of salt.

We do know pretty well why Barclays paid "so little" tax. Country by country reporting is totally unnecessary. It's expensive, investors don't want it, companies don't want it and auditors don't want it. When protestors are so compulsively stupid, no amount of additional disclosure will make the blindest bit of difference.

If Barclays is indeed benefiting from a state subsidy, we can expect it to return to profitability sooner and to soak up all those brought-forward losses. It would be highly irregular to change the law retrospectively to catch a single group of taxpayers. It would perhaps even be deemed illegal, if challenged in the courts.

Looking through each of the criticisms in turn, it's clear that Ritchie's running on empty and that he has failed to land any punches on the main thrust of Worstall's argument - that the case of tax avoidance is simply unproven.

As a result, we can confidently conclude that it's very unlikely that the estimates of tax avoidance are anywhere near the levels purported by UKuncut and other tax campaigners.