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Osborne declares tax avoidance ‘morally repugnant’…

July 15, 2012

Bearing in mind George Osborne’s statement in the commons he would have taken care to ensure that newly appointed Chairman of HMRC, Ian Barlow has experienced a Damascene conversation, see:

From Private Eye No. 1318 13th to 26th July 2012, page 30

 

HMRC – Meet the Jolly
Dodger

 

ANY doubt that the condemnation of David Cameron and George Osborne of “morally wrong” and “morally repugnant” tax avoidance was so much humbug was dispelled last week with the appointment of a new chair for the HM Revenue and Customs board. Step forward lan Barlow, who has built a career on tax scheming every bit as contrived as comedian Jimmy Carr’s dodge – but far more costly to the UK.

 

Barlow was head of tax at accountancy firm KPMG from 1993 until 2001 and then became senior partner in London until200S. Over this period he was directly responsible for selling some of the most aggressive tax avoidance schemes on the market,
many of them already exposed by the Eye. Here is a taste of some that made it into the courts …

 

• In 2000, KPMG set up a £4m-a-year VAT dodge for a fruit machine company called RAL Holdings, a management buy-out from the Rank empire. Under the scheme machines in 127 amusement arcades were leased to a Guernsey subsidiary. The idea was to escape “output tax”, even though the machines continued to be used in Britain, while still reclaiming the “input tax” they attracted. Internal KPMG papers admitted: “In our view HM Customs & Excise will regard these planning arrangements as ‘unacceptable tax avoidance’ and will seek to challenge the arrangements”. It did; and the courts sided with the taxman.

 

• Later the same year the firm orchestrated what was known as a “round the world” scheme in which the former chairman of privatised train company FirstGroup, Trevor Smallwood, sold his shares in the company through a trust that, KPMG claimed, moved from Jersey to Mauritius and back to the UK in the same tax year to exploit a loophole in capital gains tax rules. “The whole point … was to sell the shares and to realise the gain and to avoid tax on the gain,” explained a tribunal. The courts concluded that the trust in fact never left KPMG’s Bristol office and the scheme failed.

 

• Early in 2001, with Barlow still at the tax helm, KPMG put a wealthy client, dotcom entrepreneur
Jason Drummond, into a complex scheme to shelter a multi-million pound gain. The plan involved
buying rights to other people’s life insurance policies before surrendering them, creating tax
losses that would wipe out Drummond’s otherwise taxable gains. So impressed was KPMG and its tax boss Barlow that, in the words of a tax tribunal, they adopted it as “a preferred strategy for their’ clients”. Tribunal chairman Stephen Oliver QC was less bowled over. The scheme had “no purpose … other than the facilitation of the tax avoidance strategy” in which the players were “acting out a charade”. The courts duly rejected the scheme.

• Early in 2002, the firm was at it again, flogging an immensely complex scheme involving loans to
offshore trusts which were then traded at losses to offset the taxable incomes of 64 punters led by
property big shot Graham Edwards and totalling £156m. A tax tribunal concluded: “The scheme is
entirely artificial and the appellants had no commercial purposes in entering into it other than
generating an artificial loss to set against taxable income”. Again it was rejected by the courts, and
Barlow and KPMG were beginning to look like not just aggressive tax avoiders, but incompetent ones at that.

 

• It wasn’t just wealthy individuals KPMG was keen to help dodge their dues. The firm was also a
consultant to Barclays on some of its most aggressive schemes, including a 2007 cross-border
seam codenamed Project Brontos over which bankers are currently facing prosecution in Italy.

 

To complete the picture, Barlow arrives at HMRC with an ongoing conflict of interest. He is a
non-executive director of PA Consulting, which is currently locked in legal battle with HMRC over an offshore trust scheme.

 

As a dyed-in-the-wool tax dodger, before it became unfashionable he wasn’t shy about it.
“There is no meaningful distinction to be drawn between acceptable tax planning and unacceptable
tax avoidance,” he declared in 1999. “Tax is an artificial construct of legislation. If parliament
deems something unacceptable, it can legislate against it. What is left is acceptable.” Exploiting
loopholes, however, artificial is fair game: so no room for “moral repugnance” there. What next?
Bob Diamond for the Bank of England no doubt …

 

Avoiding the truth

 

SERIOUS trouble could be brewing for top brass at HM Revenue & Customs – including outgoing tax boss Dave Hartnett – over its dodgy tax deals, as MPs on the public accounts committee refuse to do what they are supposed to and give up after they have been repeatedly stonewalled.

 

After telling the National Audit Office (NAO) to look more closely at the infamous Vodafone and
Goldman Sachs tax settlements with the help of retired judge Sir Andrew Park (see last Eye), the
MPs summoned Hartnett and HMRC’s new permanent secretary, Lin Homer, to explain glaring
inconsistencies in accounts of the deals.

 

The principal concern over the multi-billion pound Vodafone let-off was that Hartnett had
agreed a cosy deal with its finance director Andy Halford without consulting his specialists or
lawyers on the chances of winning the argument over the offshore scheme in the courts.

 

This was at best a monumental dereliction and it was one Hartnett and his chief lawyer Anthony
Inglese have been desperate to cover up since the Eye first exposed it. To do so, they have repeated
mantra-like what they thought was a winning obfuscation: that “lawyers were involved
throughout” the case. Hartnett first used the line to answer Tory Treasury select committee member
lesse Norman last year and lnglese repeated it three times when asked by Tory PAC member Stephen Barclay last November whether lawyers advised on the settlement.

 

The formulation now looks too clever by half, since with Park’s help the NAO reported that HMRC
“did not seek legal advice on whether the [Vodafone dispute 1 should be settled, or on the terms on which it should be settled. Lawyers were not involved throughout the settlement negotiations … ” Clearly lawyers were not involved throughout, which as PAC chairman Margaret Hodge noted, puts Inglese in a spot of bother. His statements were made after he had been put on an oath to tell “the whole truth” because Hodge’s committee was fed up with the taxrnen’s prevarications.

 

Lin Homer, fudger-in-chief, tried unsuccessfully to make out that it was all semantics. She was put
down by Tory member Richard Bacon – “This is not one of those areas where a lot of angels need to
do a lot of dancing on the head of a pin” – before Hodge floated “a possible reference to the attorney- general” over Inglese’s evidence and a dark veil was drawn over the matter, for now.

 

Similar concerns emerged over Hartnett’s risible claim, again to Jesse Norman, that “we did not
collect a penny less from Vodafone than we thought we could”. Even the NAO conceded that the eventual deal was “lower than the tax liability that would have been established if the department won in litigation”.
Hartnett now claimed: “I was referring to the amount of cash we were collecting.” This, was highly
improbable as Norman’s question was explicitly about the whole settlement – £O.Sbn cash up front
and £0.45bn over five years – and in any case merely served to confirm that the deal was about what Vodafone was prepared to pay, not what the courts might have told it to.

 

When Homer tried applying more of the buttery stuff – “we do not settle for a lesser amount than we believe we would reasonably expect if we litigated” – Hodge, not for the first time, lost patience. “You don’t take legal advice and then you tell me to believe that you think you will lose the point in
litigation. It is an incredible position.” Indeed it is – as the Eye has been pointing out for two years.

 

PS: Unless he is called back very soon, the meeting was Hartnett’s swansong. Asked about his
future plans he mentioned “advising the governments of developing countries”. Lucky them.

 

 

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