commons

Spring Budget 2023

15th March 2023 by Alex Dunnagan

Nothing for HMRC compliance despite huge returns on investment
Increases in sentencing for tax fraud and potential new tax offence– only useful if HMRC successfully prosecutes
Tax to be simplified – we’re still not sure exactly how
R&D reformed yet again
Generous reforms to audio visual reliefs – still not dealing with the problems

On Wednesday 15 March, the Chancellor Jeremy Hunt unveiled his Spring Budget 2023. While numerous news outlets have covered the major stories of the budget, at TaxWatch we are casting a forensic eye over the lesser covered tax stories.

Nothing for HMRC compliance

While this budget talks of “tackling the tax gap” it does not actually provide the necessary resources to do so. There is an investment in HMRC’s debt management capability, £47.2m, but nothing for compliance work.

HMRC’s compliance work has a return on investment of 18:1, meaning for each pound spent, HMRC can expect to recover £18 in additional tax revenue.[1]

In a Treasury Select Committee session on 23 November 2022, Emma Hardy MP (Labour) put this figure to Jeremy Hunt, who responded saying: “That is why he [Jim Harra, head of HMRC] got an extra £79 million. I hope he maintains that 18:1 ratio. If he can do even better, I will consider giving him even more money because it is very, very important that we do that.”[2]

It would appear that since HMRC has not increased the ROI on compliance work in the past five months, the Chancellor has not considered it a good use of funds to invest more in tackling the tax gap through compliance work.

Tax simplification – but what does it mean?

In ‘The Growth Plan 2022’, the then Chancellor Kwasi Kwarteng announced the closure of the Office for Tax Simplification. At the same time the plan stated that the government was going to “set a mandate to the Treasury and HMRC to focus on simplifying the tax code.”[3]

It was not exactly clear then what this meant, and it still isn’t clear now.[4] Earlier this month the Treasury Committee called for the Chancellor to explain why he believes the Office of Tax Simplification (OTS) should be abolished. We are still waiting on a formal response.

The Spring Budget provides some clue as to what steps are to be taken by HMRC and the Treasury to achieve this simplification. Pensions have seen an increase in the Annual Allowance and the removal of the Lifetime Allowance, reducing the number of taxpayers that need to report. There will also be a consultation around how sole traders calculate their income tax, and a review of HMRC guidance forms for small businesses. The government is also set to publish a discussion document on modernising HMRC’s income tax services.

Tackling Promoters of tax avoidance and increasing sentences for tax fraud

It was announced that the maximum sentence for the most egregious cases of tax fraud would double from 7 to 14 years. While all well and good, this needs to be accompanied by an increase in the number of investigations and ultimately prosecutions. Put simply, in order for there to be a deterrence effect, these criminal powers have to be used.

The government is also set to consult on the introduction of a new criminal offence for promoters of tax avoidance. It’s important that if and when a new offence is introduced, the government conducts follow up work to ensure that its used. There have been multiple occasions in the past where legislation is introduced, only to never be used.[5] Despite the Corporate Criminal Offence coming into force in September 2017, we are still yet to see a single prosecution utilising this legal power.[6]

R&D reform (again)

It wouldn’t be a budget without some kind of reform to the R&D reliefs.

After the Autumn statement 2022 reductions in the SME (small and medium enterprises) scheme benefits, there were promises to look at the needs of ‘R&D intensive’ businesses. In this budget these are defined as those businesses where the expenditure on qualifying research and development (under the existing schemes) is 40% or more of their total profit and loss expenditure. On the face of it, this announcement increases the benefits under the SME scheme for those businesses falling under the definition. However, it only increases the payable tax credit rate from 10% to 14.5%, the rate it currently is, and retains the lower additional reduction at 86% announced in the Autumn statement (previously 130%). This is therefore at best retaining the same benefits for a proportion of businesses conducting R&D, but continuing with the reduction for many.

This new announcement also brings in additional complexity to a relief which is already the target of abuse by advisers persuading businesses to claim amounts that are not due highlighted in TaxWatch’s recent report[7]. The reduction in scheme benefits at least partly arose out of concerns about this abuse. It seems likely that many of these firms are currently studying the new definition of R&D intensive businesses to try to find a way to present information such that their claimants qualify for the higher rates.

Additionally, for those businesses who are genuinely involved in advances in science and technology, the additional definition will likely lead to more complexity in an already complex claims process. This is hardly keeping in spirit with the direction to simplify the tax code. These changes will also result in more aspects of claims for HMRC to enquire into, at a time when HMRC appear to be incapable of handling current enquiries consistently and effectively.

The lack of any further investment in HMRC compliance (see above), despite calls for this from many different directions, suggests there will be little in the way of reduction of abuse of these reliefs and a greater compliance burden on legitimate R&D businesses for some time to come.

Reforms to audio visual reliefs

Film, TV and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions from 1 April 2024.[8] There are large increases to the rates at which these reliefs will be paid, with relief increasing to 34% (from the current 25% on 80% of costs, meaning maximum of 20%). There are also further tweaks around qualifying expenditure.

What these reforms don’t do, is address the issues already present within these reliefs. The first issue is affordability. TaxWatch research found these reliefs are costing far more than anticipated, with the vast majority of these reliefs going to large multinational corporations. Video Games Tax Relief was estimated to cost just £35m a year when it was introduced, yet in 2021-2022 cost a record £197m – more than five times as much as anticipated.[9] The vast majority of this relief is going to large multinational companies.

The reforms don’t create new opportunities for avoidance, but they don’t deal with the current profit shifting that we see with the reliefs. There are examples with both Film Tax Relief and Video Games Tax Relief where companies are claiming hundreds of millions in relief, only to offshore the intellectual property. With this IP sitting outside the UK, foreign companies then distribute the product, with the revenues – and ultimately taxable profits – sitting offshore. The UK will continue to spend hundreds of millions of pounds subsidising entertainment products, with the corporation tax receipts these products generate ending up in foreign jurisdictions.

[1] Different areas of compliance have different returns, though this is thought to average out at 18:1. A Public Accounts Committee report on HMRC performance published in January 2023 used this return on investment ratio, https://committees.parliament.uk/publications/33390/documents/182713/default/

[2] Treasury Committee Oral Evidence Session, House of Commons, 23 November 2022, https://committees.parliament.uk/oralevidence/11933/pdf/

[3] The Growth Plan, HM Treasury, September 2022,

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1105989/CCS207_C

[4] In an evidential submission to the Public Accounts Committee, we recommended that the government should provide clarity about what it means when it talks of “simplifying the tax code”- Managing tax compliance following the pandemic, Written evidence submitted by TaxWatch, Public Accounts Committee, 26 January 2023, https://committees.parliament.uk/writtenevidence/115783/pdf/

[5] In 2016 the government introduced a measure to name and shame aggressive tax avoiders. In 2019, we revealed that not a single company had been listed http://13.40.187.124/hmrc_special_measures/. The Government also introduced a Procurement policy note in 2013 which sought to exclude companies engaged in tax avoidance from bidding for government contracts. In 2022 after sending FOIs to over 40 government departments, we found that this mechanism had never once been used.

[6] As at 01 January 2023, HMRC currently has 9 live CCO investigations. No charging decisions have yet been made. https://www.gov.uk/government/publications/number-of-live-corporate-criminal-offences-investigations/number-of-live-corporate-criminal-offences-investigations

[7] R&D – still changing after all these years, TaxWatch 14 March 2023, http://13.40.187.124/r_and_d_press_release

[8] TaxWatch recently submitted evidence to a HM Treasury Consultation looking at audio visual reliefs, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1142803/M5082_Government_response_to_consultation_on_audio_visual_tax_reliefs_.pdf

[9] “It is estimated that this generous new corporation tax relief will provide around £35 million of support per year to the sector.”, Video games companies to begin claiming tax relief, HM Treasury, 19 August 2014, https://www.gov.uk/government/news/video-games-companies-to-begin-claiming-tax-relief

Tax avoidance can be tax fraud – says government and MPs

29th April 2021 by George Turner

In response to critics that have questioned why HMRC has not done more to bring criminal prosecutions against the enablers and promoters of tax avoidance schemes, the government’s standard response has been to state that “there is no criminal offence of promoting or marketing tax avoidance schemes.”

Now, a recent debate in the House of Commons has confirmed a significant shift, with MPs and Ministers recognising that the promotion of tax avoidance often involves fraudulent conduct which can leave promoters liable for several criminal offences.

Tax avoidance and tax fraud

That the promotion of tax avoidance is often linked to fraud is a position that TaxWatch has been advocating for some time.

Speaking at the FS tax conference in November 2020, our Executive Director set out that

“many, and in my opinion the majority of tax avoidance schemes could easily fall foul of the law on cheating. Where there has been an active attempt to conceal the scheme, or a failure to disclose information relating to a scheme, that is clearly fraud.”

It was at this conference that the Director of HMRC’s Fraud Investigation Service revealed, in response to the comments by our Executive Director, that HMRC is conducting multiple criminal investigations into the tax avoidance schemes used by an undisclosed number of multinational companies to avoid tax. This was reported by the FT in January 2021.²

TaxWatch was invited to give oral evidence to the House of Lords Economic Affairs Finance Bill Sub Committee, which published its report on 19th December 2020. This report backed TaxWatch’s calls for HMRC to start more criminal investigations into the promoters of disguised remuneration tax avoidance schemes, including looking at historic cases.

Our Executive Director also responded to the Government’s call for evidence on tackling disguised remuneration tax avoidance, which ran from 21 July to 30 September 2020, In its response the government reflect the views of TaxWatch and others by stating:

“A number of respondents felt that promoters of schemes are not deterred by financial penalties and sanctions. They supported greater use of existing criminal powers including prosecuting promoters for fraudulent conduct.”³

The Government’s response accepted TaxWatch’s analysis on the legal position with regards to the promotion of tax avoidance schemes and marked a fundamental shift from the position that “there is no criminal offence of promoting or marketing tax avoidance schemes”:

“The Government recognises that the design of arrangements that are sold as avoidance schemes may in fact enable fraud.”⁴

The Finance Bill debate

On Tuesday 20 April 2012 MPs met to scrutinise the detailed provisions of the Finance (No. 2) Bill in a Committee of the Whole House.⁵

The most substantive amendment of the day,⁶ in the name of members of the All-Party Group on Anti-Corruption and Responsible Tax, sought to amend schedule 29 of the bill so that anyone subject to the Promoters of Tax Avoidance Schemes (POTAS) regime, and promoting or enabling abusive tax arrangements, should be deemed to have been acting dishonestly unless they can show that they acted in good faith and believed the arrangements to be reasonable.

This would mean, in respect of the criminal offence of cheating the public revenue, that a person would automatically be treated as dishonest where it had been demonstrated that they had promoted abusive tax arrangements as defined in the General Anti-Abuse Rule (GAAR) and there would be no requirement for any prosecution to prove dishonest conduct.

While opposing the amendment on a technicality, the Government re-emphasised it’s recognition “that the design of arrangements that are sold as avoidance schemes may in fact enable fraud.”

According to the Financial Secretary to the Treasury – Jesse Norman PM:

“I fully agree that promoters who break the law should face the consequences of their actions. That is why the Government are putting so much emphasis on anti-avoidance measures and measures against promoters of tax avoidance in the Bill and elsewhere. We should be under no illusions about this. It is not honest to market tax schemes or arrangements that are known not to work and that at their heart feature false statements.

However, cheating the public revenue is the most serious tax offence, carrying a potential sentence of life imprisonment. It is therefore right that the prosecution should have to prove its case beyond a reasonable doubt—the usual standard of proof in a criminal case—and to demonstrate that the person has been dishonest in order to secure a conviction of cheating the public revenue. We all want fraudulent operators to be brought to book, but shifting the burden of proof for such a serious crime on to the defendant to prove their innocence is at odds with the principles of our criminal justice system and would undermine the right of a defendant to remain silent. The burden should be on the prosecution to prove dishonesty to the criminal standard of proof. That is fundamental to the rule of law.”⁷

We believe that tax avoidance schemes “at their heart feature false statements” as a matter of course.

The Shadow Financial Secretary to the Treasure, James Murray MP , welcomed the amendment, stating ([c.896]:

“This kind of change is crucial if we are to shift towards more criminal prosecutions for the promoters of tax avoidance schemes, and to shift the gear of the Government’s approach.

At the moment, where tax avoidance has occurred, the system lands liabilities on the tax payers, who are usually not tax experts and may have been falsely told that a tax avoidance scheme is lawful.

In contrast, the promoters of tax avoidance schemes are allowed far too often to get away with it. We therefore welcome any efforts to strengthen penalties for the promoters of failed tax avoidance schemes.

But we have seen nothing from the Government today to raise the stakes and to make greater use of the powers HMRC already has to bring criminal prosecutions against the promoters of fraudulent tax schemes.”

“We know that HMRC recognises its power to use criminal investigation approaches to tackle the promotion and enabling of tax avoidance schemes, but in a letter the Financial Secretary sent me in January this year, he admitted that, since the formation of HMRC’s fraud investigation service in 2016, only 20 individuals have been convicted for offences relating to arrangements that have been promoted as tax avoidance. An average of around four people a year does not feel like a concerted effort.”

The principles behind the amendment attracted cross party-support on the back benches.

Andrew Mitchell, co-chair of the all-party group on anti-corruption and responsible tax [c.898] stated:

“Advisers who set up these schemes often have an aura of authority, because they are lawyers, accountants and professional people, which those whom they advise may not be.

I want more to be done to ensure that, where these bad schemes of tax evasion are put together by professional advisers, they do not get off scot-free while the people they put into these devices, or talk into going into them, take the rap. It is not right that they should just lose the fees that they earn, which I think is currently the position: we should toughen the financial penalties.”

Dame Margaret Hodge, co-chair of the all-party group on anti-corruption and responsible tax [c899-900]

“I simply say this to the Minister: he may have reservations about the technicalities of our proposals, but he should at the very least accept the principle that underpins them and say so today.

Big corporations and high net-worth individuals who engage in tax avoidance schemes and financial crime do not dream up these schemes on their own; they are invented and developed by the huge army of tax professionals—accountants, lawyers, banks and advisers—who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help but actively encourage people not to pay their rightful contribution through tax to the common purse for the common good….

If advisers and promoters involved in a scheme know that the scheme does not work, they are committing the criminal offence—mentioned by the Minister—of cheating the public revenue. They are breaking the law, so they should be pursued, charged and convicted with a criminal charge. That does not happen now”.

Kevin Hollinrake, the Member of Parliament from Thirsk and Malton talked about his own experience of being approached by tax avoidance merchants during his career in business. He went onto say that reputable accountants would not market schemes if they were aware that their activities might end up with jail time. [c903-904]:

“It was probably 15 years after we set up our business that our own accountants came to us—we were making reasonable profits by then—and suggested that we take advantage of a tax avoidance measure, and a pretty aggressive one in our view. This was not a particularly unusual accountants—it had a decent reputation locally – but so much money potentially runs through these schemes that some promoters inevitably see an opportunity for themselves.

I must tell the House that we told our adviser that we did not want to take part in such a scheme, and there were two reasons: we believed that people should pay their tax—that we should all pay a fair amount of tax—but also that any person who takes up such measures should be afraid that HMRC will one day come along and say, “Those measures were not appropriate.” By that time, a lot of the money that they think they have saved has gone out in costs to promoters and the rest of it, and they are left with a huge bill.

Had the person who promoted that scheme to us—our accountant—thought that he would potentially end up on jail, I do not think he would have come to us and told us about it. This was a reputable local person, and perhaps he did not even think that tax avoidance at that point was fraud. Nevertheless, it certainly can be fraud, and in many cases it is. If we are willing to hold people to account, ultimately through a criminal prosecution—as HMRC can, of course, as the Minister pointed out earlier—there would be a lot less of this kind of promotion and a lot fewer of these activities.”

Catherine West, the MP for Hornsey and Wood Green cited TaxWatch’s recent report into criminal prosecutions for tax crimes, as compared to criminal prosecutions for benefits crime [c 908]:

“The scale of tax offences is clear, with a recent TaxWatch report finding that between 2009 and 2019, the UK prosecuted 23 times as many people for benefits offences as for tax offences—that theme has been echoed in today’s speeches—despite the fact that the value of tax fraud is nine times higher than that of benefit fraud. …

We know that a lot of this work is about priorities, and we need to prioritise criminal prosecutions so that there is not a decrease in taxation, as there has been of 39% since 2015. We need to look at the balance of the DWP employing 3.5 times more staff in compliance than HMRC. We know that we have to improve that balance, because quite simply there is much more money to be found in illicit finance and among tax avoiders than from those eking out a living on universal credit or personal independence payments.”

Ruth Cadbury, one of the co-chairs of the APPG on the loan charge, criticised the government for not doing enough to hold loan scheme promoters to account [c 910]:

“We need an effective tax avoidance policy that criminalises those promoting tax avoidance, rather than going for the workers inadvertently caught up in them, as this Government and HMRC have been doing with the loan charge in particular. That is the wrong target. While ordinary people who are victims of mis-selling are facing ruin and bankruptcy, the Government have done too little, too late to go after those who promoted the schemes.”

The whole debate can be seen here: https://parliamentlive.tv/event/index/79ba64da-407e-49d9-b8d7-ed56d11ab6ff?in=10:36:31&out=10:43:21

Too good to be true?

In seeking to warn people against using tax avoidance schemes, the government has frequently said that “if it looks too good to be true it probably is”. The increasing recognition from the Government that the “design of arrangements that are sold as avoidance schemes may in fact enable fraud” is a much more powerful message. It tells the public why tax avoidance schemes are “too good to be true”.

Photo credit: Parliament by James Newcombe

1 @LCAG_2019, Twitter, 19 July 2019, https://twitter.com/i/status/1152149052097585153

2 ‘HMRC pursues multiple criminal investigations in corporate tax disputes’, Financial Times, 11 January 2021 https://www.ft.com/content/e7ef0ec3-f4de-40f9-ad95-0e7587ac7e2d

3 Call for evidence: tackling disguised remuneration tax avoidance, Summary of Responses, HMRC, March 2021, paragraph 2.34 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/972080/Call_for_evidence_tackling_disguised_remuneration_tax_avoidance_-_summary_of_responses.pdf

4 Ibid, paragraph 2.34. Emphasis supplied.

5 https://hansard.parliament.uk/commons/2021-04-20/debates/D1535D18-E261-4112-8739-964CE7F5F994/Finance(No2)Bill

6 Amendment 77.

7 Column 896. Emphasis supplied.

Loan Charge Parliamentary Debate

20th March 2020 by Alex Dunnagan

A debate was held in the House of Commons yesterday on the Government Response to the Sir Amyas Morse Review of the Loan Charge. Ahead of this we published an explainer on what disguised remuneration is here, and a more detailed briefing here. David Davis, Ruth Cadbury, and Julian Lewis were able to secure the debate on the motion “That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.”

The Loan Charge is an anti-tax avoidance measure introduced in the 2016 budget to address tax lost to the Treasury from loan based disguised remuneration schemes.

These schemes involved employees and contractors being paid in loans. As loans do not incur income tax, those using the schemes ended up getting their earnings tax free. The only cost to using a loan scheme was the fees charged by the operators of around about 13%.

As a result, loan scheme users ended up keeping far more of their income than those who paid tax in the usual way.

David Simmonds MP lays out the issue in that “the schemes themselves were lawful because it was lawful to receive a loan, but the money the constituent received was tax-free only if it was genuinely a loan”. Simmonds goes on to say that as 20 years have since elapsed, that there was no evidence that these were genuine loans, hence HMRC’s interest in the schemes. He then goes on to say that taxpayers raised the issue with him that they find it hard to believe that anybody thought that they could describe their pay on a tax return as a “loan”, and because of this never have to pay any income tax on it.

HMRC argues that these loans should really be classed as income because no one had any expectation that they should be paid back, and as such should always have been liable to income tax.

The Financial Secretary to the Treasury, Jesse Norman, described these schemes as “contrived tax avoidance in which people are paid in the form of a loan with no interest and no intention or requirement to pay the loan back.” Many of the schemes saw money routed through offshore companies and trusts.

Norman summarised the case for the charge in saying “it has cost the Exchequer hundreds of millions of pounds a year, and that, of course has two effects. It deprives public services of the money they need to operate, and it forces other taxpayers to pay more in order to make up the shortfall.”

The charge has become one of the most controversial pieces of tax legislation in recent times. A cross-party group of MPs, the Loan Charge All-Party Parliamentary Group has led the fight in campaigning against the Charge. In January of last year the Treasury was forced to agree to review the loan charge proposals, following an amendment to the Finance Act tabled by the Liberal Democrats MP Ed Davey. The former Comptroller and Auditor General Sir Amyas Morse was tasked to lead the independent review

A number of recommendations from Sir Amyas’ report were accepted last December, including halving the time period in which the loan charge would apply, from 20 years to ten. However, many campaigners and Members of Parliament do not believe these measures go far enough. MP’s have argued that the law was not agreed upon until 2017, and are urging the government to go further, with one of the key criticisms being the retrospective nature of the charge.

Adam Smith was frequently quoted in the debate, given that the Financial Secretary to the Treasury had written a book on the economist. The Conservative MP for New Forest West, Sir Desmond Swayne, said that following the principals of taxation put forward by Smith, tax should not be retrospective.

The Financial Secretary to the Treasury disagreed with the characterisation of the tax as retrospective. Mr Norman said of the Loan Charge “it taxes a loan outstanding at a future date. It does not change any law previously on the statute book.”

Peter Dowd MP, speaking on behalf of HM Opposition, stated that Smith also argued to “Take from the taxpayer only that which is needed for the public realm”, and that if people do not pay their taxes, everyone else has to pay more.

Dowd went on to frame the loan charge within the conditions HMRC is facing, referencing that “A third of its staff have gone since cuts in 2005 and later in 2010. Any increases in the cash amounts available to HMRC for its running have, in effect, been blocked”.

While Christian Matheson MP argued “nobody in this House disputes the fact that it was tax avoidance”. This does not appear to be a view shared by all, with Paul Holmes MP stating “the people this affects are not tax avoiders”, and Bob Stewart MP describing his constituents who entered into these schemes as “decent and honest”.

Kevin Hollinrake MP said that those people using such schemes should have been aware that entering into a scheme where you can lower or eradicate your tax bill was wrong. In an intervention during the speech of David Davis, Hollinrake said “If something looks too good to be true, it usually is? In my business, we have been brought this kind of scheme a number of times by our advisers over the last 30 years, maybe with a barrister’s letter saying, “Don’t worry. It’ll be fine. You can reduce your tax bill hugely by adopting this scheme.” We have always rejected them because we knew the risk.”

Both the advisers who ran the schemes and HMRC came in for criticism during the debate. It was argued that instead of charging the individuals that took out these loans, that HMRC should instead be pursuing the advisers who sold them. Paul Holmes MP stated, “many people were advised by financial advisers and are now being penalised because of the late realisation and intransigence of HMRC”. David Davis went further, in calling the advisers and employers who facilitated the loans “villains”.

In Norman’s final remarks, he summarised the argument as thus “If one asks the average man or woman in this country, I think they would say, “Everyone should pay their fair share of taxes. People are responsible for their own tax affairs. Real loans get repaid; if someone offered you a loan for which no repayment, no tax and no interest was due, it would probably be too good to be true.” And so it is.”

Despite this – the motion from the Back Bench committee asking that the loan charge only applies to loans taken out after 2017 was agreed to. Where this leaves the government is unclear.

The debate is available on Parliament Live here.

Photo by The New York Public Library on Unsplash

Netflix tax affairs debated in the House of Commons

4th February 2020 by Alex Dunnagan

An adjournment debate on Netflix’s tax affairs was held in the House of Commons last night in response to research conducted by TaxWatch. Rt Hon Dame Margaret Hodge, Labour MP for Barking and chair of the All Party Parliamentary Group on Responsible Tax, called Netflix’s tax structure “scandalous, intolerable, and unfair.”

Dame Margaret called for video streaming services to be included in the government’s new Digital Services Tax. Currently, the DST excludes companies like Netflix from the charge.

She went on to say that as a great deal of Netflix’s intellectual property is developed in the UK, with the aid of creative tax reliefs, it is only right that the profits generated are subjected to UK corporation tax. Dame Margaret questioned why the eligibility criteria for creative industry tax relief cannot be adjusted to insist that any company receiving credits must declare their revenue earned in the UK via a UK company.

Dame Margaret gives Brazil as an example of a country that successfully taxes Netflix – by using a withholding tax – asking “If Brazil can tax Netflix, why can’t we?”

Financial Secretary to the Treasury, Rt Hon Jesse Norman MP, thanked Dame Margaret for raising the issue, calling it an “interesting and important topic that is of great public import”. In response to the points raised he said: “The Government does recognise that some multinational businesses have sought to avoid paying their fair share of tax in the UK by entering into contrived arrangements to divert profits to low tax jurisdictions.” However, he stressed that by law, ministers are “never privy to information about the tax affairs of specific companies or individuals.”

In response to the suggestion that Netflix is paying no UK tax while receiving creative reliefs, Mr Norman stated that businesses should be “incentivised” to invest in the UK’s creative economy.

Mr Norman went on to say “It is equally right that HMRC should subject large businesses to an appropriate level of scrutiny and my understanding is they are actively investigating around half of the UK’s large businesses at any given time.”

Responding to the point regarding the DST, Mr Norman stated that in order to include Netflix, tax rules would have to be rewritten, as the DST is currently aimed at search engines and social media, and that “the DST is intended to be a temporary measure pending agreement of a long-term global solution”. This is in reference to the OECD’s digital tax plans for multinationals, which are not yet set in stone.

With regard to taxing intellectual property, Mr Norman said “under international tax rules, the UK is entitled to tax the shares of a company’s profits that relate to those production activities…so she should not have concern on that front”

In response to the example of Brazil, Mr Norman makes reference to a tax charge on offshore receipts in respect of intangible property. While this has the potential to be an important tool in stopping multi-nationals from shifting profits offshore, as we pointed out last year, the fact that it is restricted to non-treaty jurisdictions is a severe limitation.

Our recent research revealed that despite having 11.62 million subscribers in the UK last year, generating an estimated £1bn in revenues and £68.5 million profit, Netflix Services UK is unlikely to have faced any tax liability because revenues from UK subscribers are booked in the Netherlands and the company in the UK receives tax credits under the creative industry tax relief scheme.

However, as disclosed by the company, Netflix’s 2018 UK tax return is currently under examination by HMRC.