Friday, October 29, 2010

Johann Hari's unconventional attitude to facts

How does he get away with it? How does Johann Hari hold down a job as a columnist in a broadsheet newspaper when he is so often so flagrantly in breach of the truth? Whether it’s stating that British GDP fell after abolishing slavery, which it didn’t, claiming that the coalition intends to cut public spending by 20%, when that figure’s actually 4%, asserting that the foot and mouth leak in 2007 came from a US-owned private laboratory, when it was actually from a Government-owned one, or even claiming that the Japanese Prime Minister was attacked and nearly killed by a robot, when, um, he wasn’t, Hari manages to make such blinding (and simple) factual errors in his columns, that it’s hard to knew if he’s just stupid, or if he’s a liar.

And he’s at it again today. Now, when he first mentioned the Vodafone tax dispute a few days ago, I commented that things often look straightforward to the ill-informed, and assumed that Hari’s confusion on the subject was just a symptom of that ignorance. But since he’s so much more specific here, I’m not sure that holds.

In my column last week, I mentioned in passing something remarkable and almost unnoticed. For years now, Vodafone has been refusing to pay billions of pounds of taxes to the British people that are outstanding. The company – which has doubled its profits during this recession – engaged in all kinds of accounting twists and turns, but it was eventually ruled this refusal breached anti-tax avoidance rules. They looked set to pay a sum Private Eye calculates to be more than £6bn.

Then, suddenly, the exchequer – run by George Osborne – cancelled almost all of the outstanding tax bill, in a move a senior figure in Revenues and Customs says is “an unbelievable cave-in.”

Starting at the beginning, the tax dispute relates to an overseas subsidiary of Vodafone based in Luxemburg. Under the Controlled Foreign Companies tax provisions, HMRC (although since this was in 2000, it would have been the Revenue that would have started all this) claimed tax on this transaction in full – that’s where the £6bn figure comes from. Vodafone argued that the CFC tax regime was incompatible with EU law on freedom of establishment – and there was an ECJ case (Cadbury-Schweppes if you’re interested) that ruled that CFC rules are in principle a restriction on the freedom of establishment and that they should apply only to wholly artificial arrangements where the CFC in question was not carrying on genuine economic activities in the non-UK EU member state.

Far from it having been "ruled that this refusal breached anti-tax avoidance rules" Vodafone won their case with HMRC’s Special Commissioners, and won again at first instance when HMRC appealed – the court ruling that the CFC code was in basic conflict with EU law, and should be disapplied. HMRC won the right to appeal this decision further, but elected to settle it out of court instead. The tax bill wasn’t outstanding, it had been ruled invalid both by HMRC’s own internal commission and subsequently by the High Court. Now, it’s possible (hell, it’s more or less certain) that Johann is as ignorant of the law as he is of history and economics. But that’s why newspaper columnists are supposed to have editors.


Anonymous Blognor Regis said...

Blimey, Hari's got disciples...

3:13 pm  
Anonymous Anonymous said...

I don't have a link but in an old column Hari stated he had stopped taking anti-depressants as they were affecting his judgement.

7:47 pm  
Anonymous Anonymous said...

Oi reptile - your argument, to a non-tax solicitor / accountant / drone, makes zero sense whatsoever. In fact, it looks like something you have dragged from underneath your lizard tail and sadly now has all the persuading power of a polished turd.

In order to persuade the rank-and-file that there should be no tax liability, you will need to explain:

1. How the profit was made.
2. Where the profit arose.
3. Why there is a Luxembourg company in the company structure (if it is not for tax avoidance purposes).

I am actually fairly sick of pantywaists like yourself, quoting daft and inexplicable rules (knowledge of which is a function of time, not intelligence)when what really matters is the underlying susbtance of what has happened.


6:20 am  
Blogger Tim J said...

Sorry if I wasn't clear. Very briefly, the old fashioned British CFC tax rules, under which the taxman attributes profits made by a foreign subsidiary to the UK parent (in some circs) breach the EU right of freedom of establishment. That was decided by the ECJ in Cadbury-Schweppes.

HMRC's argument that vodafone 2 (the Vodafone Luxembourg subsidiary) should be subject to CFC taxation looked like it was entirely scuppered. No tax liable whatsoever in the UK, as the tax was properly payable in Luxembourg.

The Court of Appeal found that, if you imply another exception into the CFC rules, they can be read as not being in breach (which was a good common-sense decision). But all that Vodafone would have to do to show that this exception applied would be to show that its sub had a genuine economic existence - not a very high benchmark.

There was a chancve that the court would find either way - and HMRC's line is that it is better to settle this and other such cases on relatively favourable terms now, than to risk a court ruling that excludes all such tax liabilities forever.

It's not good populist stuff, and it doesn't fit on a placard, but there you go. Conflict between EU principles and British tax law.

7:01 pm  

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