Lloyds in £1bn tax dispute with HMRC over Irish losses

Bank reveals it is in a £1bn tax dispute with HMRC over the way it has used losses from its Irish buisness to cut its tax bill

Lloyds Banking Group faces a £1bn tax demand from HMRC related to billions of pounds of loss taken in Ireland by the state-backed lender as it wound down its defunct Irish subsidiary.

The lender revealed it was warned in the second half of last year that the UK tax authorities were not happy with its treatment of Irish losses to offset its tax bill, prompting a legal dispute between Britain’s largest retail bank and HMRC.

If the case is decided in HMRC’s favour, Lloyds has said its tax bill will rise by £1bn, with the bank forced to pay a further £600m of tax, as well as write off a £400m deferred tax asset that it would currently be able to write off against future profits.

In a statement to investors the bank said: “The group does not agree with HMRC’s position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due.”

The disclosure of the tax dispute came as Lloyds published its full-year results, which showed the lender had made a pre-tax statutory profit of £415m, reversing a loss in 2012 of £606m.

On an underlying basis, which strips out provisions such as the £3.1bn set aside for payment protection insurance compensation costs, the bank made a profit of £6.2bn.

The profit is the bank’s first in three years and led Antonio Horta-Osorio, chief executive of Lloyds, to confirm he would accept a £1.7m all-share bonus for 2013. The bonus will be deferred until 2019 and will be subject to several performance hurdles linked to the future performance of the business.

As well as Mr Horta-Osorio’s own bonus, Lloyds confirmed it had put aside an overall staff bonus pool worth £395m, equating to an average payout to each of the bank’s staff of £4,500.

Sir Win Bischoff, chairman of Lloyds, said the payment of the bonuses was “proportionate and fair”, adding that the payouts at the bank were “lower than anyone else”.

In an unscheduled update this month, Lloyds pre-released its underlying profit and PPI provision figures as they differed materially from market expectations.

Mr Horta-Osorio said Lloyds had been transformed into a “normal bank”, five years on from its state-funded rescue that saw the taxpayer take a 39pc stake in the bank, since reduced to 33pc.

Lloyds is in the process of preparing a prospectus for a second sale of the state’s holding in the bank that is expected to see the Treasury authorise a further disposal of the shares within months, including a first offer of the stock to the general public.

Mr Horta-Osorio said: “We have continued to improve the bank and the price [of the shares] is substantially above the price at which the first tranche was sold in September, 75p, and the bank is ready to sell another tranche, but it is absolutely up to the UK Treasury to decide when and how to do it.”

Shares in Lloyds fell on Thursday, closing the trading session down 2.72pc at 81.26p, valuing the bank at £41.2bn. However, even at this share price the stock is well above the Treasury’s break even point of 73.6p.

As part of the continuing turnaround of the lender, Mr Horta-Osorio said work had begun on an updated strategy for the bank that will map out its objectives for the next three years. The Lloyds chief said the plans would be published before the end of the year.

“Over the last three years we have reshaped, strengthened and simplified our business to create a low-risk efficient retail and commercial bank that is focused on our customers and on helping Britain prosper. This progress has seen the Group return to statutory profit in 2013 and despite our legacy issues, further strengthen our capital position,” said Mr Horta-Osorio.

He added: “As a result we expect to apply to the regulator in the second half of the year to restart dividend payments. This will be another important milestone on our journey to rebuild trust and confidence in our Group”

Lloyds will in the summer launch the £1.5bn float its 631-branch TSB subsidiary through a listing on the London market.

However, after spending £1.6bn to create the business as part of a European Commission ordered disposal necessitated by its 2008 bailout the sale is not expected to generate a profit for the bank.

The TSB business, previously known as Project Verde, had originally been expected to be sold to the Co-op Bank, but the troubled lender was eventually forced to pull out of the deal as the extent of its own capital problems became clear.

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Britain's tax system 'not fit for purpose

Britain's tax system is not “fit for purpose” and must be overhauled if companies are to pay their “fair share” of tax, leading UK chief executives have warned.

Sparking the start of a fightback on tax by businesses, PwC’s Annual CEO Survey has revealed that 73pc of UK bosses believe the present tax system is unfit for the 21st century, and 72pc say efforts to reform it will be in vain.

Business leaders believe it is up to politicians to sort out the system but have little confidence that processes backed by Prime Minister David Cameron will bear fruit.

Globally, the PwC survey revealed that 75pc of CEOs questioned believe that paying a “fair share” of tax was important to their company.

“There’s been a lot of criticism around the tax arrangements they [companies] have put in place,” Ian Powell, UK chairman of PwC, told The Telegraph on the eve of the annual World Economic Forum in Davos.

But actually, it’s become a political question, because as long as countries are trying to use tax rates as a way to bring jobs into their own country, you are going to get tax arbitrage.

“What CEOs are asking for is: can we get some clarity on this, and can we get more consistency on tax arrangements, which would make it a lot easier for them to handle their affairs.”

More than two-thirds of UK chief executives said they believed current OECD attempts to reform the international tax system would be unsuccessful in the next few years, far higher than the average of 40pc across the globe.

Multi-national companies such as Amazon and Google have come under fire in recent years and have been criticised by MPs for how they handle their international tax affairs and for a lack of transparency.

However, the survey showed that 66pc of UK chief executives believed that companies with international divisions should be required to publish the revenues, profits and taxes paid for each territory in which they operate.

Google boss Eric Schmidt has made it clear that his company abides by all tax laws and that it is up to politicians to change the rules - an opinion backed by the survey.

Mr Cameron made tax reform the centrepiece of both his appearance at Davos last year and the most recent G8 summit in Northern Ireland, of which the UK was president.

Although the UK survey results were based on a small sample of 43 CEOs, it highlights that tax policies and competitiveness of tax regimes are becoming increasingly important issues and that CEOs want them to be urgently addressed.

“Virtually every business that operates on an international basis now operates through the internet,” said Mr Powell. “The tax arrangements that are in place at the moment make it virtually impossible to allow companies to know where they should be paying tax, not what tax they should be paying.”

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Tackling your tax return: the pain-free guide

The deadline for filing is less than three weeks away – yet 40% of those in HMRC's sights have yet to fill in their tax return. We look at how to ease the pain

This weekend, thousands of people will be digging out their P60 certificate, bank documents and various other bits of financial paperwork after reluctantly concluding that they can't put off doing their tax form any longer.

Around four million people have not yet filed their self-assessment taxreturn – and the 31 January deadline is looming. By midnight on that date, you need to have filled in your form and returned it to HM Revenue & Customs, together with payment for any tax you owe for the 2012-13 financial year.

In all, more than 10 million people are due to file a return by the end of this month, and HMRC is currently receiving about 80,000 completed returns per day. Some of these are from people new to self-assessment or who haven't filled in a form for years, but have now been dragged back into the regime because of the new rules on child benefit that affect those earning more than £50,000 a year.

Even if you don't owe tax, you can't escape a fine if you miss the deadline. If your name is down to do a return and you are late, you will automatically be hit with a £100 penalty. There are additional penalties if you keep delaying, which could add up to £1,600.

You are too late to file a paper return now – you can only do so online. To send an online tax return you must be registered for HMRC online services, and that involves getting an "activation code" by post, which will take a few days to arrive. HMRC says that if you register by 21 January you should be able to meet the deadline for filing 10 days later.

Here, we round up some of the top tips for filling in your form, highlight the common mistakes and identify some of the things you may be able to claim for. We also look at how you may be able to free yourself from the annual chore of filling in a tax form.The form includes new boxes asking how much child benefit you received between 7 January and 5 April last year, and how many children you have. If you claimed the benefit between those two dates, you'll have received £263 for one child, £438 for two, and £612 for three.

The high income tax charge is 1% of the amount of child benefit for each £100 of income between £50,000 and £60,000, and it is based on your "adjusted net income", which is your total taxable income (ie, basic salary, plus any benefits such as a company car, plus any savings, dividend or rental income), minus things such as pension contributions and charitable giving. In other words, people can deduct the money they contribute to their pension from their headline salary, and in many cases this will be several thousand pounds per year – which may be enough to take them below the vital £50,000 threshold.

This means there are likely to be quite a few parents earning more than £50,000 – perhaps £53,000-£54,000, or even more in some cases – who, unbeknown to them, can continue to claim child benefit without having it clawed back later. There is a calculator you can use atgov.uk/child-benefit-tax-calculator

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HMRC 'lost nerve' over big tax avoiders, say MPs

Report highlights how Treasury is owed £35bn in missing tax payments and says HMRC pursued small firms, not global giants

British officials have "lost their nerve" in tackling tax avoidance by global corporations and have presided over a £35bn tax gap as they pursue easy prey such as small businesses and individuals, a committee of MPs says.

In a report that highlighted how the Treasury is owed missing tax payments of £35bn, the public accounts committee added that HM Revenue and Customs has left the state with another multibillion pound shortfall by failing to gather £2.6bn of an expected windfall from Swiss banks.

The findings follow a series of damning reports into HMRC by the committee which have addressed its failings over taking on tax-avoiding corporations such as Google, Starbucks, Vodafone and Amazon.

On Wednesday Vodafone, one of Britain's leading multinationals, made a rare gesture of tax transparency by breaking down its payments on a country-by-country basis.

The company revealed that it paid "little or no corporation tax" in the UK but its direct tax payments – including business rates and national insurance – had dropped by nearly 20% to £275m last year.

Last year HMRC, led by chief executive Lin Homer, promised to launch an unprecedented campaign to increase tax collection, particularly from large corporations.

But in a report released on Thursday the planned income from the Swiss accounts were written into Chancellor George Osborne's budget estimates in last year's autumn statement and said it was "astonished" at HMRC's failure to account for the shortfall.

HMRC brought in £475.6bn in revenue for the government in 2012-13, an increase of £1.4bn over the previous year.

But in real terms, after inflation was taken into account, tax income fell last year, compared to 2011-12, while the "tax gap" – between the amount owed to the Exchequer and the amount collected – grew by £1bn to £35bn in 2011/12.

The shortfall was widely seen as an embarrassment for the coalition at a time when it wanted to be seen as clamping down on wealthy firms and individuals.

Margaret Hodge, the chair of the committee, said that HMRC had not clearly demonstrated it was on the side of the majority of taxpayers and had failed in its ambition to crack down on tax avoidance.

"The tax gap as defined by HMRC did not shrink, but in 2011/12 grew to £35bn. Yet that measure does not capture all the tax government should be collecting. For instance, this figure does not include all the tax revenue lost to aggressive tax avoidance schemes.

"HMRC holds back from using the full range of sanctions at its disposal. It pursues tax owed by the smaller businesses but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations.

"It predicted that it would collect £3.12bn unpaid tax from UK holders of Swiss bank accounts and this figure was built into budget estimates, but in 2013-14 it has so far secured just £440m. We were astonished that HMRC could not give any reasons for such a shortfall."

The report said HMRC needed to show that it was dealing "robustly" with individuals and companies who deliberately mislead it. It noted that just one individual out of 16 identified targets on the so-called Lagarde list of Swiss account holders with potential UK tax liabilities had been successfully prosecuted.

The lack of prosecutions against multinational corporations seemed at odds with HMRC's stance on pursuing tax debt from small- and medium-sized businesses in the UK, the committee noted.

In a reference to widespread criticism of tax arrangements at Amazon and Google, the committee pointed out that tax officials have yet to test how existing tax law impacts on global internet-based companies.

The findings were rejected by HMRC, which accused the committee of "selective and misleading use of figures", particularly when calcuating the tax gap. A spokesman said MPs had highlighted the increase in money which had not been collected instead of calculating a percentage of uncollected tax, which has actually gone down.

"HMRC seeks to collect the tax that is due from all taxpayers, so that everyone pays their fair share in accordance with the tax laws passed by parliament.

"We have secured more than £50bn of additional tax from our compliance work since 2010, including £23bn from large businesses," he said.

Meanwhile, Vodafone revealed that its direct contribution to the UK from taxation dropped 18.6% to £275m in the year 2012-2013 from £338m a year before. The figure includes corporation tax as well as business rates, employers' national insurance and many other items.

Vodafone said it paid "little or no corporation tax" in Britain because its profits in the UK were relatively small at less than £300m and were dwarfed by capital spending of more than £1bn on its UK network and interest costs in excess of £600m paid to British banks.

The company set out the tax it paid in 27 countries compared with a year earlier in unusual detail for a British company. Its biggest direct tax bill was in Turkey, where it paid £454m. Vodafone said it wanted to be open about the tax it paid after it was attacked over its contribution in the UK.

The company said: "As the UK government wants more investment in UK infrastructure and jobs, it allows all businesses to claim relief for the cost of assets used in the business against their profits when determining their corporation tax bills.

"The government also provides relief to all businesses for the cost of interest on their debts to UK banks and financial institutions. Vodafone is no different to any other UK business."

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HMRC confirms Google investigation during committee hearing

Officials are examining whistleblower's evidence but what effect, if any, it will have on firm's tax structuring remains unclear

Top HMRC officials effectively confirmed they were investigating the UK tax affairs of Google on Monday, giving evidence to the indomitable Margaret Hodge and her public accounts committee. Away from the Palace of Westminster, meanwhile, Google privately confirmed to the Guardian that an HMRC review of its intra-company dealings between operations in the UK, where many sales staff are employed, and Ireland, where UK sales are booked, was ongoing. In fact, it has been ongoing since at least 2010, or 2009 according to the recollection of Google's northern European boss Matt Brittin.

Not only is the investigation still live, but HMRC bosses on Monday confirmed their inquiries had been assisted by piles of documents received, via Hodge and her committee, from an ex-Google staffer turned whistleblower. "We have taken evidence from him and we took it very seriously," said Jim Harra, HMRC head of business tax. Without referring directly to Google, he added: "We always act upon it if there is evidence of non-compliance."

Harra's tone was in contrast to previous commentary from HMRC chief executive Lin Homer, who was unable to appear before MPs. At a hearing in May, however, she had bristled at suggestions from Hodge that the MPs were better able to get to the truth of Google's tax affairs than HMRC. "We see – but sometimes understand more fully – some of the issues that to the general public can look surprising," she told MPs through gritted teeth in May. "That is probably why some of what appears in public, while being known to us, may not lead to the same results that you would expect it to."

On Monday night, Google was still insisting privately that there was nothing in the whistleblower's evidence to suggest the search firm had underpaid UK tax.

Meanwhile, HMRC have clearly decided they want to be seen to be using this new information – but it remains to be seen if it can really help torpedo Google's tax structuring. Don't hold your breath.

Article Source : http://www.guardian.co.uk
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HMRC chiefs face grilling by MPs over lost tax

Officials will be urged to prosecute more evaders as giant firms' schemes left out of avoidance figures

The credibility of HM Revenue and Customs' £35bn estimate of Britain's "tax gap" – the amount lost from the public purse to evasion, avoidance and payment failure – is expected to face fierce challenge when three top officials appear before a parliamentary committee on Monday.

MPs on the public accounts committee, chaired by Margaret Hodge, are expected to ask why the complex tax policies of Google, Amazon and Starbucks do not register in official avoidance figures. When HMRC this month published its tax gap figures for 2012, it said the amount lost to what it narrowly defines as tax avoidance was just £4bn, the same amount as the previous year.

Other factors – including £5.1bn lost to evasion, £5.4bn to the hidden economy and £4.3bn to companies and individuals failing to take reasonable care – were all more costly than avoidance, HMRC claimed.

Tax fairness campaigners have criticised HMRC for excluding from its tax gap calculations what many, including the prime minister and chancellor, have described as tax abuse. MPs investigating the complex world of big-business tax engineering have accused HMRC of getting too close to large companies and tax advisers, and of failing to crack down on what they describe as abuses. The politicians are expected to ask why a more robust approach is not being taken towards multinationals, particularly internet and technology groups, whose business models frequently lend themselves to aggressive tax engineering. Other European countries, led by France, have raided offices of high-profile corporations including Google, Microsoft and LinkedIn.

This month the former energy secretary Chris Huhne attacked HMRC for its willingness to reach settlements with suspected tax evaders holding tens of thousands in Swiss bank accounts. He also said tax evaders using Liechtenstein had been offered "amnesty-lite" deals. In both cases, HMRC's approach contrasted with that of authorities in France and Germany.

In the past week there have also been reports of companies, including many British energy groups, exploiting tax-haven stock exchanges to qualify for a UK tax break known as the "quoted eurobond exemption". Ministers' plans to close loopholes in this area last year were ditched after an HMRC consultation.

On Sunday Chris Leslie, shadow chief secretary to the Treasury, said: "David Cameron needs to explain why he decided not to close down this tax loophole, which we know some energy companies are using to avoid millions in tax."

Among the officials appearing before MPs will be Edward Troup, HMRC's senior tax professional, responsible for overseeing settlements in sensitive tax disputes.

Alongside him will be Jim Harra, head of business tax, who is expected to repeat his insistence that HMRC is doing a good job and any loopholes exploited by the likes of Google and Amazon are a matter for international bodies such as the G20 and OECD, not for HMRC.

Jennie Granger, head of enforcement and compliance, is expected to face tough questioning on why HMRC agreed settlements with tax evaders rather than prosecuting. MPs will also want to know why more cannot be done to extract financial penalties from big accountancy firms shown to have marketed tax schemes

Granger is expected to maintain that HMRC's efforts to tackle marketed tax avoidance schemes continue to bear fruit, pointing to a win rate of eight out of 10 tax avoidance cases in 2012-13, producing more than £1bn in tax receipts.

That view is in contrast to the analysis of Amyas Morse, comptroller and auditor general of the National Audit, who noted that there were 41,000 open case relating to marketed avoidance schemes, suggesting that HMRC had "yet to demonstrate whether it could successfully manage this number down".

Granger has already defended HMRC's record. In July she said: "Compared to other countries that publish tax gap estimates, and allowing for differences in methodologies, we believe that the UK's tax gap is towards the lower end of the range."

She insists her tax inspectors are well resourced and able to "man mark" the largest firms operating in the UK. She claimed they brought in £20.7bn of revenues last year, a record total, with £8bn coming from large business.

Article Source : http://www.guardian.co.uk
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Vodafone in multimillion tax deal over Irish office

Previously unreported settlement with HMRC came in wake of dispute over tax paid by subsidiary

Vodafone made a previously unreported multimillion-pound settlement with HM Revenue & Customs in the wake of a dispute over the tax paid by an Irish subsidiary created to collect royalty payments for using its brand.

The UK-based mobile phone group used an Irish subsidiary, which employed no staff between 2002 and 2007, to collect hundreds of millions of pounds a year in royalty payments from operating companies and joint ventures around the world. By 2007, Vodafone Ireland Marketing Ltd, a company registered to an industrial estate in the Dublin suburb of Leopardstown, was reporting a turnover of €380m (£320m) a year.

During a four-year period, these royalty payments, collected from most countries except the UK and Italy, have helped Vodafone send more than €1bn worth of dividends to the low tax jurisdiction of Luxembourg from Dublin. The dividends, which include a final payment of €142m due to be delivered this year, came from profits made after taking advantage of Ireland's low corporation tax rates.

In an arrangement which echoes those made by Apple in Ireland, Vodafone moved senior marketing managers to Dublin to protect global royalty revenues from UK taxation, and trigger a lower Irish corporation tax bill from 25% to 12.5% of profits. This was significantly lower than the UK corporation tax rate, which between 2008 and 2010 was 28% of profits.

Accounts filed in Dublin show that in 2009, HMRC settled a dispute with Vodafone over its Irish tax returns. The overall size of the settlement has not been revealed, but it involved Vodafone reclaiming €67m from the Irish government in tax that should have been paid in the UK. Vodafone, the world's second largest mobile phone company by revenue, has paid no corporation tax in Britain for two successive years, despite paying £2.6bn in international taxes in 2012.

The company confirmed its Irish settlement had never been separately disclosed in its annual reports, and was not connected to a £1.25bn payment to HM Revenue and Customs in 2010 to settle a much publicised dispute over the use of a Luxembourg subsidiary. A spokesman for HMRC refused to confirm whether any settlement over Vodafone's Irish tax affairs had been made, saying it was prevented by law from discussing the affairs of individual taxpayers.

Vodafone went to great lengths to protect its Irish income, eventually relocating a section of its global marketing team from the UK to Dublin in 2007. The transferred staff were responsible for handling such high profile sponsorships as the operator's longstanding deal with Formula 1 and the Champions League.

The Irish brand subsidiary was wound down after the staff were brought back to the UK in 2011. According to a company spokesman the unit's activities have transferred to a UK company which pays all its profits into the British plc and is taxed under UK rules.

The disclosure comes as MPs revealed the British mobile phone group, which is under fire for its minimal corporation tax payments in this country, has emerged as the largest supplier of mobile phones to the government. More than 30 departments and public bodies, including the prime minister's office, have signed contracts worth £14m a year with Vodafone.

In a stand against tax avoidance, ministers updated laws in April to ensure companies whose tax returns have been challenged by HM Revenue & Customs on grounds of tax abuse can be disqualified from working for the government.

Vodafone strongly rejected any suggestion of tax avoidance and said there have been no allegations of wrongdoing from HMRC. The company said its disputes with the UK taxman over its tax arrangements in Ireland and Luxembourg would not block it from government contracts under current rules, but MPs argued there was a principle at stake.

By 2007, a Vodafone subsidiary registered to an industrial estate in Dublin was reporting a turnover of €380m (£320m) a year."The fact that government departments are using companies which have been challenged about the tax they owe clearly shows that current tax laws need reform," said Labour MP Pamela Nash, whose parliamentary questions helped reveal the extent of Vodafone's government work.

The rules which eventually came into force have been described by tax experts as narrow in scope, and Vodafone says they would not have applied to its HMRC settlements, even if they had been in force at the time.

"Vodafone has long been a major supplier to central UK government departments and we have always complied in full with all procurement criteria defined by government," the company said in a written statement.

"In all respects and at every point, Vodafone has conducted itself with the highest integrity and in full compliance with the law."

Vodafone's status as the dominant supplier of mobile phones to government departments was exposed by a series of parliamentary questions asked by Conservative and Labour MPs. Questions were put by Nash, by Labour MPs Dai Havard and Jenny Chapman, and Tory MPs Gary Streeter and Mike Freer.

Steve Barclay, a member of the Commons Public Accounts Committee, which has previously tackled Vodafone's tax affairs, said: "The government now needs to close any existing tax loopholes to ensure that large companies, such as Vodafone, are not legally able to avoid paying their fair share of tax. The need for swift action is particularly highlighted when it is public money that is paying for these substantial contracts with private companies."

Vodafone is the largest or only mobile supplier to a raft of departments, including the Cabinet Office, which covers David Cameron and Nick Clegg's offices, the Treasury, including HMRC, the Department for Business, Innovation and Skills, the Ministry of Defence, the Department of Health, and the Department for Work and Pensions.

Many of the contracts are based on commercial terms agreed between the Cabinet Office and Vodafone in a Memorandum of Understanding that runs from 2010 to 2014. While rival networks EE and O2 have some government work, EE is pushing for more open competition in the awarding of mobile contracts by ministries.

A Cabinet Office spokeswoman said: "Since 2010 we've radically changed the way government buys goods and services to make the most of our unique buying power.

"Last year alone these reforms saved taxpayers £800m by renegotiating contracts with our largest suppliers, of which Vodafone is one.

"We are determined to continue to increase competition and innovation amongst a range of suppliers to make sure that every option to cut waste and make savings are explored, especially when opportunities to review large-scale contracts arise."

Chief secretary to the Treasury Danny Alexander launched an overhaul of the rules around government contracts last year, saying "taxpayers' money should not be funding tax dodgers".

Article Source : http://www.guardian.co.uk

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Deloitte appoints official criticised over 'sweetheart' tax deals

Dave Hartnett has been hired by accountancy firm which faced tax avoidance allegations during his time as head of HMRC

The row over tax avoidance by multinational companies escalated on Monday night as it emerged that Dave Hartnett, until 10 months ago the country's leading tax official, has been appointed to a new position with a leading accountancy firm mired in the controversy.

Hartnett will work one day a week with Deloitte, the auditors for Vodafone and Starbucks, which faced tax avoidance allegations during his time as head of HM Revenue & Customs.

The appointment was approved by David Cameron and the advisory committee on business appointments last week, although Deloitte did not announce the high-profile signing.

The appointments committee added a list of six caveats to its approval letter, designed to ensure Hartnett does not share any information about how to avoid UK tax and to guard against potential conflicts of interest.

But tax campaigners and MPs criticised the appointment and suggested that although Hartnett cannot advise UK organisations, he could use his knowledge to strengthen the positions of offshore tax havens.

Hartnett, 62, will advise overseas governments on how to implement "effective tax regimes".

An HMRC lifer until his retirement, Hartnett was heavily criticised for agreeing a number of "sweetheart deals" with major corporations including Vodafone and Goldman Sachs in the UK.

Earlier this month, a judge found that a deal brokered by Hartnett with Goldman Sachs, which saved the US bank £20m in interest payments, was lawful but "not a glorious episode in the history of the revenue".

Mr Justice Nicol said the deal had been agreed by Hartnett to save the chancellor, George Osborne, from potential embarrassment, and criticised the fact that it had been done behind closed doors and without proper approval or reference to lawyers. Hartnett was said to have personally negotiated a deal with Vodafone, which saw the telecoms business pay £1.25bn of an alleged £6bn tax bill. Vodafone disputes this figure.

 A spokesman for Deloitte said: "Dave Hartnett will work as a consultant to Deloitte advising foreign governments and tax administrations, primarily in the developing world. He has significant experience in advising such countries on the development of effective tax regimes, necessary to ensure their continued economic growth. He will not work with UK companies or with HMRC."

The new job comes four months after Hartnett was appointed as an adviser to banking group HSBC on financial risks and crime. The bank was fined $1.9bn (£1.3bn) by US authorities last year for laundering Mexican drug money.

Confirming his appointment, the advisory committee on appointments said it was noted that "whilst working in government, Mr Hartnett did have official dealings with Deloitte, and he also dealt with a wide range of major accountancy and law firms during his time in HMRC and the Inland Revenue before that".

Labour MP John Mann, who sits on the Treasury select committee and questioned Hartnett on several occasions, criticised the appointment. "It shouldn't be allowed. It is all-too-cosy relationships that is the problem at the heart of HMRC.

"It would be a strange government that would employ him considering the problems we've had trying to get our tax system in order, especially when he personally negotiated the deal with Vodafone.

"It gives the wrong message to a group of staff [at HMRC] who are already some of the most demoralised workers in the country."

Deloitte and the other "big four" accountancy firms – KPMG, PricewaterhouseCoopers and Ernst & Young – have all been criticised for using knowledge gained from staff seconded to the Treasury to help wealthy clients avoid paying UK taxes. Richard Murphy, of Tax Research UK, called the latest switch from the state to the private sector "the creeping control of the state by the big business elite".

He said: "We've had people who are very senior who have moved over to big business, but never the very top. He was meant to be the taxman's taxman."

He suggested that Hartnett may be called upon "to advise on tax avoidance in offshore locations".

The prime minister accepted the committee's recommendation that Hartnett be allowed to join Deloitte, but set a series of rules on what he can and cannot advise upon while working for Deloitte.

The rules laid down state that Hartnett should "not draw on any privileged information" from his time at HMRC. He must also not advise "any taxpayer that he has been involved with whilst at HMRC" and must ensure he "has no involvement in discussions with other fiscal authorities of UK's confidential tax policy".

He is also not allowed to personally lobby the government for at least a year.

Hartnett had a close relationship with Deloitte during his time at HMRC and met senior British partner David Cruickshank 48 times between 2007 and 2011, including meetings about Vodafone, one of Deloitte's clients.

Deloitte also signed off the accounts for coffee company Starbucks. The chain faced a backlash among customers last year when it emerged that it had, quite legitimately, paid no corporation tax in the past three years by channelling its revenues through Luxembourg and Switzerland.

Murray Worthy, a spokesman for UK Uncut, who recently brought an unsuccessful court case against HMRC for the sweetheart deal with Goldman Sachs, said Hartnett had been "welcomed with open arms by the people he was supposed to have been regulating".

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Tax: how Amazon passed the Slough test and prospered

HMRC believes Amazon has no fixed place of business in the UK. Perhaps it needs to look again at what goes on in Berkshire

The way companies are taxed has changed with the way corporations have developed in the last 100 years, expanding beyond national borders. The emergence of substantial international trade in the 1920s prompted countries to agree tax treaties in an attempt to ensure profits were appropriately taxed where they were generated.

Despite these efforts, tax engineers have caused problems for exchequers around the world for decades as they have built clever corporate structures to mimimise tax bills for their multinational corporate clients. The advent of the internet has opened up a new front in this battle for tax fairness.

A new generation of cyber-corporations have been able to tell the taxman they do not carry out taxable activities in territories from which they generate billions of pounds in sales.

The Amazon distribution warehouse just outside Milton Keynes.

The British tax authorities appear to agree that Amazon can avoid paying corporation tax on the profits it made on the £12bn of sales the internet giant has generated in the UK over the last four years.

Whether Amazon EU Sarl, its Luxembourg operation, amounts to a "permanent establishment" in the UK that can be taxed by HMRC is down to a combination of laws and accounting protocols set out in double taxation treaties, the HRMC rule book and OECD guidelines.

The Guardian has discovered that Revenue & Customs has four tests it applies to an overseas company to establish whether that company is liable to corporation tax on its activities.

• Is there trading activity by the non-resident company?

• Does that trading take place in the UK?

• Does the non-resident company have a fixed place of business in the UK?

• Is the trade carried on through that fixed place of business? Or, if there is no fixed place of business, is the trade carried on through a dependent agent?

If the answer to all of these questions is yes, then HMRC can levy corporation tax on the non-resident company.

Despite Amazon EU Sarl's extensive activities in the UK, it appears that HMRC inspectors – for reasons we cannot know – have accepted the retailer's insistence that this business is not captured by these four tests.

Amazon EU Sarl trades through Amazon.co.uk, and all purchases made by UK customers are invoiced from the company in Luxembourg. This trade is distinct from the activities of the Amazon UK resident company, which provides only "fulfilment [that is, warehouse operations] and corporate support services".

The Guardian has learned that Amazon EU Sarl trades in the UK by securing contracts with British publishers and traders to provide the crucial goods and services it needs for its website.

The trading takes place in the UK not just through sales made on the website but also through the procurement and development of products and services.

The company indicates on its website it carries out a wide range of activities from his corporate offices in Slough in Berkshire. It says: "UK Corporate Offices – Slough, Berkshire, England. Since 1998, our teams have developed a genuinely British site with the same commitment to customers, cutting-edge technology and rich editorial content that has made Amazon.com such a success. Our Slough teams manage all corporate functions, including buying, marketing, software development, sales and legal."

Amazon EU Sarl appears to carry on its trade through its fixed place of business because book supply contracts, setting out the terms on which publishers will sell books to Amazon, are negotiated by executives based in the Slough head office.

The Guardian has seen extracts from a contract that confirm it is made between the publisher and Amazon EU Sarl.

However, a UK publishing executive, who asked not to be named, confirmed that the contract had been negotiated, on behalf of Amazon EU Sarl, by staff based in Slough.

"The contract may be with Luxembourg," the executive said, "but it is the people from Slough who thrash out the crucial details of the contract such as the discount we agree to give them. There are also people in Slough who are charged with overseeing that the contract is properly executed.

A spokesman for HMRC said: "HMRC cannot comment on specific cases for legal reasons. A non-resident company is only chargeable to UK corporation tax if it is trading in the UK through a permanent establishment. Both UK legislation and international tax rules agree on this."

Significant elements of Amazon EU Sarl's trade in the UK provide content for the website by negotiating contracts with publishers and traders. HMRC's own manual says: "One of the ways in which a permanent establishment of a foreign enterprise may be brought into existence is where an agent … acting on behalf of the enterprise has, and habitually exercises … an authority to conclude contracts in the name of the enterprise."

The existence of a permanent establishment would bring all Amazon EU Sarl's activities in the UK into the UK corporation tax net because the contracts for purchases made from Amazon's UK website would be deemed to be made in this country.

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Article source : http://www.guardian.co.uk