General Anti-Avoidance Principle to be proposed in the Commons

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This from the blog of Michael Meacher MP:

Next Tuesday and Wednesday the Commons will be debating the Committee stage of the Finance Bill on the floor of the House. Since taking action to eradicate tax avoidance and the use of tax havens was a central goal agreed at the G20 summit on 2 April, I checked to see what new anti-tax avoidance measures might be included in the small print of the Bill. There weren't any. I am therefore tabling a general anti-avoidance clause of the kind that other countries have (notably Australia and, interestingly, Jersey) and which has been needed in this country for a long time. The basic idea is that if a transaction for which the taxpayer is liable has been constructed in such a way that the sole or main purpose, or one of the main purposes, is to reduce or eliminate tax liability, then that will not be taken into account in assessing the liability of the taxpayer. Even that is very moderate. Some would argue that those who indulge in such devices to avoid tax should, along with the accountants and lawyers who assisted or incited them, also be subject to a significant penalty for seeking to avoid their duty to pay fair tax like everyone else.

I consulted Richard Murphy who I regard as one of the foremost experts in tax accountancy in this country, and he came up with the following proposal for statute, which I am tabling in the House for Wednesday's debate:

"1 If when determining the liability of a person to taxation, duty or similar charge due under statute in the UK it shall be established that a step or steps have been included in a transaction giving rise to that liability or to any claim for an allowance, deduction or relief, with such steps having been included for the sole or one of the main purposes of securing a reduction in that liability to taxation, duty or similar charge with no other material economic purpose for the inclusion of such a step being capable of demonstration by the taxpayer, then subject to the sole exception that the step or steps in question are specifically permitted under the term of any legislation promoted for the specific purpose of permitting such use, such step or steps shall be ignored when calculating the resulting liability to taxation, duty or similar charge.

2 In the interpretation of this provision a construction that would promote the purpose or object underlying the provision shall preferred to a construction that would not promote that purpose or object".

Convoluted semantics, certainly, but necessary to catch the ultra-devious.

Two other key measures are also needed to reinforce the anti-avoidance drive. One is the requirement that trans-national corporations annually report their accounting on a country by country basis, in order to provide for much greater transparency and to help stamp out transfer pricing, one of the biggest conduits for corporate tax avoidance. The second is that there need to be effective deterrent sanctions. I note that Gordon Brown has written to the British Dependencies and Overseas Territories which act as tax havens, giving them till September to comply with transparency standards agreed at the G20. But what if they don't? We need an increasingly tightening provision that if one of these territories does not have in place a TIEA (tax information exchange agreement) with at least 12 jurisdictions by 30 September, plus a further 12 each successive 6 months until all 128 global jurisdictions are included, then the UK (and all the G20 countries) will deduct tax at the standard rate on all payments to account holders in that tax haven (plus preferably some further penalty for non-compliance) which would remove its attractiveness and hence economic benefit as a tax haven.

That is the basis on which the UK and all the G20 countries must now be held to account, not least the US where Obama has made a strong declaration of his intention to wind up tax havens.

This would be a significant step forward.

It will be interesting to see how the government responds.