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Inland Revenue Matters: Offshore tax avoidance (1)
by Susie Hughes at 11:39 28/07/03 (Political News)
The Treasury Select Committee has issued a damning report 'Inland Revenue Matters' on the conduct of the Inland Revenue and the Paymaster General Dawn Primarolo.
The Committee has a remit to examine the work of the Inland Revenue on a regular basis. On this occasion the report covered three matters in particular: restricting the use of offshore tax structures by bidders to procurement contracts; the implementation of the new tax credits; and the suspension of National Insurance Contributions Deficiency Notices. The Committee heard oral evidence from Sir Nicholas Montagu, Chairman of the Inland Revenue and Paymaster General Dawn Primarolo.

Shout99 examines each sections in a series of articles. The first looks that the Mapeley case where an offshore company bought a number of Inland Revenue properties andthe Government was heavily criticised at the time for entering into such a tax avoidance arrangement.

After having heard an update from Dawn Primarolo and her top Civil Servant, the Committee found that the conflicting evidence was unacceptable and said: We now expect the Paymaster General, as minister responsible for the Inland Revenue, to act urgently to clarify the position.

Restricting the use of offshore tax structures
In February 2003 the Committee produced a report on the handling of the joint Inland Revenue and Customs and Excise STEPS PFI project involving the transfer of some 600 Inland Revenue and Customs and Excise properties to part of the Mapeley Group, an offshore company registered in Bermuda, in return for an up front cash payment of 220 million, together with a further 150 million in the form of discounted service prices.

At the time the Committee accepted "that Mapeley was entitled to minimise its tax liabilities and the evidence that the avoidance of tax in this case was legal." However, the Committee considered that "the Inland Revenue, responsible for implementing the Government's policy of reducing tax avoidance, should of all departments have been alert to the difficulties of being party to a deal that transferred ownership of its properties to an offshore company."

The Inland Revenue and Customs and Excise maintained that procurement law prevented them excluding bidders from using an offshore tax structure. The Committee had previously recommended that procurement guidance be reviewed to ensure that it contains comprehensive advice on this matter and that "further advice is sought and published so as to clarify whether it is possible to exclude bidders using an offshore tax haven in similar circumstances, and to restrict final beneficial ownership to companies registered in countries that have signed the agreement on Government Procurement. In particular, advice should be sought as to whether specifying this exclusion in the tender advertisement makes it lawful."

The Government agreed to issue further guidance that would "ensure that departments have the discretion to consider restrictions to procurement processes to reflect the Government's stated objectives for tax transparency and openness, where they can be justified in terms of the objectives of the project and are consistent with international obligations. Because of the particular responsibility falling on the Treasury and Revenue Departments in this respect, Treasury ministers will implement this guidance for those departments by restricting successful bidders from taking advantage of offshore tax havens."

In the latest report, members of the Committee sought an update and explanation.

Sir Nicholas Montagu
Sir Nicholas Montagu was asked to explain his earlier evidence that procurement law prevented the Inland Revenue and Customs from excluding bidders from using an offshore tax structure.

He said that the structure and tax arrangements of bidders should be considered in the future - but that lawyers had agreed that it would have been unlawful to prevent Mapeley from using the offshore structure they adopted.

Sir Nicholas also said that it is not possible to have a blanket prohibition of companies taking part in tax avoidance, as this is likely to be too difficult to define and advice was that it would be unlawful to discriminate between bidders by excluding just one form of tax avoidance.

The Paymaster General
Paymaster General, Dawn Primarolo was questioned about Sir Nicholas' evidence including that it could be read as suggesting that the Government response was wrong in stating that Treasury ministers would restrict successful bidders from taking advantage of offshore tax havens as this could not legally be achieved. The Paymaster General said she stood by the Government's response. She subsequently, supplied a note but the Commitee concluded that this referred only in general terms to the information already supplied to the Committee and did not resolve the apparent contradiction in the evidence we have received.

Conclusion

The Committee was highly critical of the seemingly contradictory information. It concluded:

In response to our critical report on the handling of the STEPS PFI project, the Government said it would implement new guidance in the Revenue Departments which would in future restrict successful bidders for Government contracts from taking advantage of offshore tax havens. The evidence from Sir Nicholas Montagu, Chairman of the Inland Revenue, in which he referred to further legal advice he had obtained, suggested to us that this could not be done. When we put this to the Paymaster General, she told us that she stood by the Government's original response to the Committee.

The conflicting evidence given to the Committee by the Chairman of the Inland Revenue and the Paymaster General has not resolved the vital question of whether in future the tax haven status of bidders for Government contracts can or cannot be taken into account. Clearly this is unacceptable. We now expect the Paymaster General, as minister responsible for the Inland Revenue, to act urgently to clarify the position.

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Susie Hughes Shout99.com 2003


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