Tax transparency debate identifies radical reforms are needed

Wed 09 Jul 2014

Yesterday Mazars co-hosted a debate at the House of Commons with ARC (Association of Revenue and Customs) ‘How can public understanding and tax transparency shape policy and the role of a trusted adviser?’.

The event was chaired by Margaret Hodge MP and the panellists were Tim Davies, UK head of tax at Mazars LLP, Tony Wallace, President of ARC, Shabana Mahmood MP, Nigel Mills MP and Grace Stevens, Director of Group Tax for Legal & General Group. The debate was attended by a wide ranging group of stakeholders, creating a unique forum for discussion where a lot of important issues were covered.

By way of background, over recent times there has been an unprecedented level of media attention on tax avoidance involving celebrities and well known multinationals – and the role of tax advisers as a result. Despite the economy improving, there is no indication that this level of public interest is diminishing. The question at the heart of the debate, as posed by Tim Davies, is what response is appropriate?

A number of themes emerged from the debate, but the most commonly voiced concern was that the UK tax system is far too complex. Indeed, it was described by Nigel Mills MP, a former tax adviser himself, as ‘unfit for purpose’. Its very complexity can give rise to loopholes which can be exploited. Not only should legislation be simpler, but the purpose and intent of the legislation should be clear. For example, if Parliament creates a new tax relief, it should be clear about how that relief is intended to be used. The current inadequate level of political scrutiny of draft tax legislation (‘done on the cheap’) was also identified as a concern by Shabana Mahmood MP.  Having a dedicated tax committee to properly scrutinise tax law could be the way forward here.

However, there are some acknowledged barriers to simplicity. One is the trade off between simplicity of legislation and avoidance. The other is that, in order to have a fair tax system, with fairness comes complexity.

The lack of understanding by the public about what both tax professionals and HMRC do was also voiced as a concern. It is not surprising that the British public do not understand tax, but misreporting has also been partly responsible for creating the current level of mistrust.

On the question of transparency, Nigel Mills’ view is that UK companies should publish their tax returns as well as their accounts. Grace Stevens felt that whilst there is nothing wrong with a business managing its tax affairs, there is a sea change in what the public now consider to be acceptable. She outlined how L&G already publish additional tax information in their financial statements and their CSR statement (such as their risk rating with HMRC, number of disclosed tax schemes entered into and SAO status). However, there is only a point in providing more data if it is both useful and consistent (thus allowing comparability between companies) and if the company benefits somehow as a result (e.g. by this additional disclosure influencing consumer spending behaviour).

Having considered the complexity of UK tax legislation and transparent reporting by companies, another angle explored concerned those who devise and/ or sell tax avoidance schemes. For example, tax avoidance schemes are often devised by leading counsel. There is no equivalent to the medical profession where a bad doctor can be struck off. In the US, tax avoidance advice must be provided in a set format: if it is not, the adviser himself may become liable. Tim Davies outlined Mazars’ suggestion for a trusted tax adviser charter as a means of giving consumers comfort about the quality of the tax adviser they engage with.

Conclusion

This unique debate created a forum for stakeholders to identify problem areas and suggest possible ways forward. We believe the insights shared have been extremely valuable and we are grateful to all of those who attended the debate and shared their views.