HMRC has issued a strong rebuttal to counter claims that it is soft when it comes to chasing multinational companies who owe tax.
In its latest report, the UK Public Accounts Committee chaired by Barking MP Margaret Hodge, observed that the tax authority's approach was "much firmer" when it came to pursuing small businesses. However, when pursuing multinational companies, many of whom were e-commerce giants, Hodge commented that HMRC often "loses its nerve."
Furthermore, the PAC noted: "The lack of prosecutions against multinational corporations seems at odds with HMRC's stance on pursuing tax debt from small and medium-sized businesses in the UK."
The committee went on to note that changes to the controlled foreign company rules and the failure to close the loophole created by Eurobonds were two clear examples of where it has become easier for companies to avoid tax.
"If that is HMRC's real intent, then it should be open about it. When designing the tax regime for businesses, HMRC needs to strike the right balance between support and enforcement," Hodge added.
Hodge's comments follow growing concern that the UK government is struggling to collect a fair amount of tax from global internet companies, which have complex international tax arrangements. For example, it was revealed earlier this year that Google’s UK business paid just £6.09 million, or 1.5 percent, of tax in 2011 on turnover of £395 million. The previous year Google UK paid just £935,000 of tax on revenues of £239 million.
However, in its strongest rebuttal yet, the HMRC attacked the PAC for its "selective and misleading use of figures."
A spokesman told CFO World that over £50 billion of additional tax had been collected since 2010. "This figure includes £23 billion from large businesses."
"The HMRC has carried out 2,345 prosecutions for tax evasion in the last three years, halved the number of disclosed tax avoidance schemes and protected more than £2.4 billion from marketed tax avoidance schemes this year alone," he said.
Meanwhile, accounting bodies have come out in support of the HMRC. Chas Roy-Chowdhury, head of taxation at ACCA, said the PAC had taken the easy route and pointed fingers at a tax authority with a "squeezed budget."
"Blaming HMRC for not closing loopholes that exist in law suggests a misunderstanding of how the tax system works," Roy-Chowdhury said.
"While large corporations have the latitude to legally avoid tax, the public mood considers this practice unethical and inappropriate. However, it is up to government to clarify the rules and close any existing loopholes. HMRC is trying to fulfil its existing remit - to collect taxes," he added.