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.
Filed under: Current issues, Other blogs, Taxation with tags banks, barclays, boots, dave hartnett, george osborne, hmrc, idiots, institute of economic affairs, richard murphy, tax avoidance, tim worstall, topshop, ukuncut, vodafone
5 Comments »
