Britain’s most senior tax inspectors will be grilled by MPs today over HMRC’s failure to stop a legal tax avoidance scheme that loses them more than half a billion pounds in tax every year.
The Public Accounts Committee also intends to question the officials over the extent to which HMRC was lobbied by big business to keep open a legal loophole which allows companies to send profits out of the UK tax free as interest on loans taken from their owners. A PAC source said they were expecting the hearing to overrun due to the scale of questions that HMRC had to answer.
Ian Swales, a Liberal Democrat member, said: “One of the points we will be asking about, following the exposé in The Independent, is what rules the Inland Revenue follows around the scale of offshore capitalisation that’s allowed and the level of interest rates that are allowable? The problem is endemic now.”
Last week a joint investigation by this newspaper and Corporate Watch revealed more than 30 companies, including the Channel Tunnel rail link, Camelot and major High Street chains, are using a tax avoidance scheme that sees UK companies load up on debt from their overseas owners and use the interest to slash their taxable UK income. The payments are sent to the owners tax-free because the loans are made through offshore stock exchanges such as the Channel Islands that qualify, under HMRC regulations, for the Quoted Eurobond Exemption.
Without the exemption, the owners would have to pay a 20 per cent “withholding” tax and most of the tax savings from the interest deductions would be cancelled out.
Last year, HMRC considered restricting the exemption to stop it being used for such “intra-group” lending, but decided to keep it open after lobbying by financial and accountancy firms.
A spokesman for HMRC said: “The Government took all the replies to the consultation into account. The substance of the responses is set out in the response document published in October 2012.”Reuse content