HMRC assurance commissioner sets out policy on large tax disputes

Edward Troup's appointment was announced in February following a damning report into alleged 'sweetheart' deals between HMRC and large companies including Goldman Sachs and Vodafone by the House of Commons' Public Accounts Committee. He was appointed to protect taxpayers' interests, specifically in relation to high-profile tax settlements worth more than £100 million.

The new code of governance (21-page / 89KB PDF) reflects stakeholder feedback and clarifies some of the terminology used in an earlier draft which was published in July. It sets out how the Tax Assurance Commissioner and two other HMRC Commissioners will be involved in 'sensitive' cases which could have a far-reaching impact on HMRC policy, strategy or operations, or those where the tax at stake is above the £100m threshold.

The Tax Disputes Resolution Board, made up of directors from business areas across HMRC, will also make recommendations in these cases as well as in a sample of cases where the tax at stake is between £10m and £100m.

"Our processes must be proportionate to the point in dispute and consistent with managing the tax system in a way which is efficient for both taxpayers and for HMRC," Troup said in a statement. "We want our governance to support, and not impede, the efficient administration of tax. We aim to make things run as smoothly as possible, without introducing delays, drawing on the best practice we already have. And we will also aim to make clear to customers when there are governance steps to be taken in their case."

The way in which HMRC handles all tax disputes, subject to civil law procedures, is set out within its litigation and settlement strategy (LSS). In a public commentary document (47-page / 214KB PDF), published on its website, HMRC commits to resolve tax disputes in a way that is consistent with its view of the law while considering the most cost-effective solution to disputes. The LSS states that HMRC must settle for the full amount it believes a tax tribunal or court would determine in "strong" cases, and only "concede rather than pursue" in "weak or non-worthwhile" cases. It does not permit "splitting the difference" if the only possible outcome to a dispute is either that a taxpayer owes nothing or it owes the full amount.

Last October, the PAC identified "specific and systemic" failures in the way in which HMRC handled tax disputes with large companies. A report by the National Audit Office (NAO) in June into five such settlements concluded that each was "reasonable" and "successfully resolved multiple long-standing tax issues". However, the NAO said that it had "concerns" about the way HMRC went about reaching those settlements. The conclusions of the report were based on the recommendations of former High Court tax judge Sir Andrew Park, who examined five unnamed large settlements.

Tax expert Jason Collins of Pinsent Masons said that HMRC was under huge public pressure to show that it was collecting as much tax as possible from large taxpayers, including in response to new attacks on multinational companies including Starbucks and Google. However, he warned that the code could be seen as a "sticking plaster" hiding underlying problems with the LSS itself.

"It is very notable that [Sir Andrew Park's report] found that all the settlements he reviewed were good value for the exchequer even though not all the cases were compliant with the strategy," he said. "The strategy should allow HMRC the flexibility to recognise litigation risk in borderline cases; otherwise the parties can find themselves agreeing rather make-believe technical positions in order to find a middle ground which is compliant or, worse still, departing from the strategy terms altogether on the basis of it being an 'exceptional' case."

Allowing HMRC "discretion" to discount the tax due in "genuinely borderline cases" would be a much less "dangerous" course of action, he said. Such a process could be "very easily supervised", for example by having a panel of tax tribunal judges advise whether the settlement fairly reflects the litigation risk, he said.