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HMRC misses around £5bn in tax avoidance a year (Reuters)

Parliament has attacked Britain's tax office HMRC over its incestuous relationship with tax avoidance accountancy giants, and said the "ridiculous conflict of interest" should be banned.

In the latest Public Accounts Committee (PAC) report into tax avoidance, the inquiry heavily criticised the HMRC over its inability to tackle corporate tax dodgers and the big accountancy firms that help big businesses pay as little tax as legally possible, through loopholes in the law.

PAC MPs called for clarity in and simplification of "hopelessly complex and outdated" tax law.

They also told the government to give HMRC the resources it desperately needs to clamp down on tax avoidance in Britain, which costs the Treasury £5bn in lost revenue.

"The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government," said Margaret Hodge MP, chairwoman of the PAC.

"They second staff to the Treasury to advise on formulating tax legislation. When those staff return to their firms, they have very inside knowledge and insights to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them. The poacher, turned gamekeeper for a time, returns to poaching.

"This is a ridiculous conflict of interest which should be banned in a code of conduct for tax advisers, as we have recommended to the Treasury and HMRC."

In November HMRC gave an award to Will Morris, director of global tax policy at General Electric (GE), the US's largest corporation, for helping it run the tax system in Britain - despite the company's prolific tax avoidance record in America.

The four big accountancy firms in the UK - Deloitte, Ernst & Young, KPMG, and PwC - make a combined total of £2bn a year from their tax work in the country. They employ 9,000 people in the UK to do this work, far outstripping HMRC's manpower.

Just six people work in the Office of Tax Simplification - described by the PAC report as "grossly understaffed" - which focuses on binning redundant tax rules.

Instead, the PAC said it should prioritise "radical simplification" of tax law which is the "key to fighting tax avoidance".

"Removing unused reliefs may be good housekeeping, but it does little to tackle the problem of complexity and does not prevent the continued abuse of some tax reliefs, such as those that encourage investment in films or donations to charity," said the report.

Hodge said that the committee had been told by the big four accountancy firms that they no longer concentrate on "aggressive" tax avoidance.

"These protestations of innocence fly in the face of the fact that the firms continue to sell complex tax avoidance schemes with as little as 50 percent chance of succeeding if challenged in court," she said.

Campaigners the Taxpayers' Alliance welcomed the PAC report.

"Our hideously complex tax code makes it easier for well-paid accountants to run rings around a taxman who is reliant on the external help of the big four," said Matthew Sinclair, chief executive of the TaxPayers' Alliance.

"The power to make our tax system simpler and fairer lies squarely in the hands of politicians. They must stop pontificating about individual cases and actually do something to reform the system which they designed and have been tinkering with ever since.

"The committee is right to say that radical action is needed to simplify the tax system. Strategic reforms are needed to get rid of redundant double taxes and end the need for countless complicated reliefs. Then taxpayers could have confidence that everyone was paying their fair share."

Some of the country's best known companies have come under fire for avoiding tax.

Executives from Google, Amazon and Starbucks all faced a grilling by the PAC over each of their tax arrangements, which sees them put little or nothing into the Treasury in corporation tax, despite the UK having some of the lowest levels in the Western world.

There was a public backlash to the revelation that coffee chain Starbucks had paid just £8.6m in corporation tax in its 13 years of existence on UK high streets, despite more than £3bn in sales.

Starbucks insisted it had made losses during that time, but it was accused of exporting its profits in an accounting fudge to avoid paying the tax it owed.

After negotiations with HMRC and a public outcry, including calls for a boycott, Starbucks agreed to pay £20m in corporation tax over two years.

"Having listened to customers and to the British public, Starbucks in the UK will be making changes which will result in the company paying higher corporation tax in the UK - above what is currently required by law," said UK managing director Kris Engskov.

"Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our inter-company charges."
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