committee, chaired by Margaret Hodge, sharply criticised a
system that allows individuals from the Big 4 accountancy firms
to be seconded to the Treasury to advise on drawing up tax
legislation and then return to their firms to advise clients on
how to get circumvent it.
report released last week highlights the brochure
Patent Box: what’s in it for you,
written by Bridges, who worked on the patent box legislation at
the Treasury for 15 months up until Spring 2010, as evidence
that KPMG views the legislation as a business opportunity to
reduce UK tax and that the firm can help clients in the
"preparation of defendable expense allocation".
"KPMG denied that it was advising its clients on how to use
those laws in ways that Parliament did not intend, but we are
not convinced by its insistence that all the advice it offers
to clients seeks to fulfil the purpose of the legislation," the
Bridges, however, says the criticism is misplaced.
"To suggest that my intention and by inference that of other
secondees in similar positions is to seek out loopholes and
then exploit them to the benefit of our clients is just plain
wrong," Bridges told International Tax Review. "Indeed
our role is to advise on how to implement tax policy in line
with the intention of Parliament avoiding anomalies that could
be open to abuse."
"Having spent some considerable time now being closely
involved in the development of the patent box rules, it makes
sense that I’m talking to taxpayers about using
the regime and the benefits it can deliver," he added.
"It’s good for taxpayers in that I can share my
experience and it’s good for government and the UK
if taxpayers go on to use the regime and are encouraged to
invest in the UK economy."
Bridges points out that past and present ministers have
taken the view that making the UK tax system more competitive
will promote investment and job creation. He believes the
introduction of the patent box regime, which offers a low
effective rate of tax (10%) on profits derived from patents, is
one example of recent reforms aimed at making the UK tax system
"I lead KPMG’s team advising clients on whether
and how to make use of the patent box regime," Bridges said.
"Yes this does entail explaining to clients that if they use
this regime they can reduce their UK tax burden, but
fundamentally I am promoting the UK and encouraging clients
– both those in the UK and considering whether to
invest here or overseas and also those considering coming to
the UK – to own, develop and exploit their
intellectual property from the UK."
Bridges says that HM Revenue & Customs (HMRC) and a
number of other government bodies are actively promoting the
regime much as he has been doing, running events explaining and
encouraging the use of the patent box and producing their own
marketing literature to supplement the technical notes and
guidance HMRC routinely produces.
"If I understand it correctly, there seems to be a concern
that KPMG and I have been advising clients on how to make use
of the patent box in a way which was not intended by
parliament," Bridges said. "This is absolutely not true and to
do so would in fact be in breach of the principles we apply in
governing our tax work."
One ambiguous paragraph in KPMG’s brochure that
could have piqued the PAC’s curiosity reads:
"Action should be taken by companies now to understand how to
benefit from the regime and what business change might be
advantageous prior to the rules coming into effect. For
example, many groups currently hold valuable patents used in
business processes which do not attract revenue streams. There
are a number of ways to deal with this to secure patent box
Bridges explains that this comment refers to the fact that
though the rules are well written in most respects, they are
"The reason why our briefing material refers to potential
business changes and process patents is because the rules are
specifically designed to reward valuable process patents," he
says. "However, to date, some companies may have chosen not to
specifically charge for the use of these. With the introduction
of patent box we would recommend reconsidering this. Equally,
where the owner of patented process technology is itself using
the technology to produce products which are not patented, the
rules provide for a notional royalty amount to be attributed to
the process. This amount then flows in to the patent box."
"What we are absolutely not suggesting is that a patent box
benefit is available in the absence of revenues or associated
profits traceable back to patented technology," Bridges
Credibility of government departments
Richard Murphy, director of Tax Research, suggests the PAC
may have made too much of the specific link between Bridges and
the patent box, but he says the PAC’s general
point about the influence of firms on policy making is
Murphy, who worked closely with HMRC when he was serving on
the interim general anti-abuse rule (GAAR) advisory panel, said
he was surprised to find how many people who were supposed to
be from the Revenue side were actually seconded from the Big 4
and law firms.
"Lots of work was delegated to them," Murphy said. "The use
of secondees is much more prevalent than in the past."
"HMRC’s chairman is ex-KPMG," he added.
"Coupled with a clear dependence on secondees, we have an
apparent structure where the Big 4 are running large parts of
Murphy believes this is a serious problem, undermining the
independence and integrity of HMRC and leaving it biased
"People will not believe it is a credible authority," he
said. "The patent box is a lousy piece of legislation. If this
was thought up by KPMG in the first place, then it shows the
corporate capture of the Treasury and HMRC is far