2009 October » Tax Research UK

Tax avoidance is a state of mind

Accounting, HMRC, Tax avoidance 6 Responses »

Oct 212009

Tax inspectors to clamp down on people ‘before they break law’ – Telegraph.

There’s lots of fury amongst accountants today. The Telegraph says:

New guidance from HM Revenue and Customs now defines tax avoiders as those seeking to pay less tax than “if Parliament turned its mind to the specific issue in question”.

The rules are likely to lead to tens of thousands of people who arrange their financial affairs in perfectly legal ways being investigated by tax inspectors.

This is all the result of a new HMRC code of practice for tax inspectors. It says

Avoidance is not defined in the Taxation Acts‚Ä¶One definition is ‘a situation where less tax is paid than Parliament intended, or more tax would have been paid, if Parliament turned its mind to the specific issue in question’. At a practical level the problem is then essentially one of deciding what Parliament would have intended and identifying who should be asked to decide this.

Inspectors need to have in simple terms a working concept of ‘avoidance’ in order to properly identify cases which can be worked‚Ä¶The starting point should be that one would normally expect taxpayers to pay tax on their income or profits‚Ä¶It is reasonable to assume that where a commercial transaction is carried out in a particularly convoluted way, then avoidance is afoot.

Which seems so obvious how could anyone disagree? Well, accountants are.

Last night, accountants and lawyers described the rules as a “wholly unwarranted extension” of HMRC’s powers which threatened to undermine the democratic right of Parliament to set the law.

Which I’ll show, in paper to be published here tomorrow, is complete nonsense. Tax can only be collected by law: this does not change that at all. The claim by the tax profession is, to put it nicely, pure twaddle.

Senator Walker: EU ‚Äòbacktracked on zero-ten tax’

Jersey 10 Responses »

Oct 202009

EU ‚Äòbacktracked on zero-ten tax’ ¬ª News ¬ª This Is Jersey.

The JEP notes:

JERSEY was given ‚Äògreen lights all the way’ on zero-ten, according to former Chief Minister Frank Walker.

He says that when Jersey was proposing the zero-ten corporate tax system in response to EU pressure on tax-exempt companies, both the UK and Ecofin – the EU Economic and Financial Affairs Council – had approved the plan.

And he’s right: in 2003 there is no doubt that the Crown Dependencies asked if a general tax rate of 0% with 10% on a restricted range of financial institutions was acceptable in principle – and they were told it was.

The trouble was, none of them declared that they were moving the ‘ring fence’ that meant locally owned companies paid tax and non-resident owned companies did not out of corporate tax and into the personal tax regime. That was not disclosed: I know, I went to Brussels to find out in 2006 and was told this was not known.

So I note that:

Mr Walker backed current Chief Minister Terry Le Sueur’s position that the EU had ‚Äòbacktracked’ over the tax system.

But I could only agree that:

‚ÄòThere is absolutely no question about it – Jersey was given green lights at every stage of the process,’ said Mr Walker, who retired from the States last December. ‚ÄòWe got the green light at every point that we needed it, from the UK government, from Ecofin which was the body responsible for agreeing or not the new tax measures. We were getting green lights all the way down the line.

if the evidence is tabled that proves it.

Without it the claim that:

‚ÄòBut we have to accept that the member states find themselves in an unprecedented situation. They have had to make colossal changes including bailing out banks and running fiscal stimuli that they would never have dreamed they would have to do three or four years ago.’

is right now a lame political excuse to cover up the fact that Jersey could never have had its zero ten system approved – precisely because there was no mechanism to do so until it was enacted – and then it takes a year or so (21 months in the case of the EU rejection of the Isle of Man scheme introduced in January 2006). In which case all the claims that the system was approved were wrong – it never was, and I can see no way it could have been.

But put documents on the table that show it was approved – finally and completely as was boldly claimed by Walker and Le Sueur – and of course I’ll accept I’m wrong, and apologise.

Ken Clarke proves the Tories will never learn

Conservatives, Economics 4 Responses »

Oct 202009

From Hansard yesterday:

Michael Meacher (Oldham West & Royton, Labour)

Let me return the right hon. and learned Gentleman to the most important thing he said‚Äîthat a future Tory Government would engage in early cuts as soon as possible and that those would be big cuts. Is he aware that the President of the Japanese Government tried exactly that against the background of a precarious recovery at the end of the 1990s, only to precipitate a deeper slump? Is he aware that Roosevelt, having initially launched the new deal, then increased taxes and reduced public expenditure, which took America back into unemployment? Is it not obvious that what is needed is not public expenditure cuts on a large scale, but a massive investment programme in job creation in housing, infrastructure and manufacturing?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

Few things are certain and obvious in economic policy, and it is certainly necessary to have regard to historic precedent. We may consider Japan in the 1990s, the United Kingdom in 1981 and the experiences of the 1930s, although it is debatable whether what is now called President Roosevelt‘s Keynesian expenditure was actually the principal cause of recovery. Indeed, I think that that theory is very doubtful, although it is, I know, much loved by people in the labour movement.

What we must look at, however, are the realities of today. No two financial crises are exactly the same, and no two recessions are the same. What we have at the moment is a massive burden of debt, which is a major feature of the current problems and a major challenge to confidence. To pretend that the Japanese experience shows that there is no need to tackle it is to be under an illusion. We have a larger deficit, and we have seen a faster increase in debt in relation to GDP, than any other G7 country. Others can afford fiscal stimulus, but we cannot. It is my judgment that we must start cutting the deficit as rapidly as possible. We cannot simply point to one feature of the Japanese lost decade and say that it proves that Britain in 2009 must avoid taking that step.

Vote for Ken, get a depression.

UK a ‘Robber baron state’

Isle of Man 8 Responses »

Oct 202009

isleofman.com: news – ‘Robber baron state’ accusation from MHK.

A member of the House of Keys has described the United Kingdom’s decision to slash the Isle of Man’s revenue from VAT as ‘the actions of a robber baron state’.

North Douglas MHK Bill Henderson said it was ‘unprecedented’ for one nation to reduce another’s income by a fifth, and questioned the human rights implications of the move.

Interesting suggestion when the UK was providing a massive subsidy without obligation for years to a place where people have a higher GDP per head than the UK itself.

And an interesting idea from a place that has specialised in facilitating tax evasion and avoidance, much of it perpetrated on the UK.

But I guess the importance of running credible tax systems in which people have to pay their way might now dawn on members of the Tynwald. At least, I can hope.

The Isle of Man loses £140 million and still can’t talk about taxing

Isle of Man 20 Responses »

Oct 202009

The Isle of Man’s Chief Minister, Tony Brown, has made a statement this morning to the Tynwald (Manx Parliament) on the revised VAT agreement with the UK. The detailed statement is here.

The cost to the Isle of Man of revising the ‚Äòcommon purse agreement’ is higher than expected. He said:

[F]or the financial year 2010-2011 the Island faces a total reduction of some £90million in relation to our revenue income from the Revenue Sharing Arrangement, from that previously estimated, with that figure increasing to £140million in subsequent years.

Current estimated income per annum is £572 million. Almost 24% of government income is being lost as a result. I stress though: a subsidy remains: I have estimated that subsidy as £230 million a year. VAT was estimated to be £339 million of total income this year: income tax just £127 million and company tax just £21 million to put this loss in proportion.

And, as the Chief Minister acknowledged, the EU is also looking unfavourably on the Isle of Man zero-ten system. This though is unsurprising – it had already failed to meet EU standards and as such this is not big news, but only adds to the fiscal uncertainty in the Island, and the potential loss it could face.

In the light of that the Chief Minister’s comments were amazing. It was all about cuts, redundancy, the end of support for voluntary programmes and more. Tax is mentioned just twice in the whole statement. and then with regard to the EU Code of Conduct, about which he said:

The U.K.’s views on this area have been helpful to us in confirming our own understanding of the situation. This will allow us to develop and position the Island and its future tax regime, so the Island can continue to remain competitive and at the same time be accepted by the international community as responsible and co-operative.

It is obvious that the people of the Isle of Man are going to pay for the mess their politicians have got them into. And have no doubt, that mess is of their own making and they were warned of this. In March 2007 Isle of Man Today reported:

Negotiations between the Island government and the UK began in 2006 and a new deal was reached in the last few weeks. Mr Bell said VAT will still be pooled with the UK but the deal now introduced new criteria with payments in future being related to GNP.

‘This changes the focus of our thinking because in future the higher the growth in the economy the higher our receipts will be in this new arrangement. But the new system brings more stability to our system and we ought to be able to plan further ahead.’

Mr Bell also made reference to an article in The Observer newspaper (Sunday March 18) which alleged that UK taxpayers were subsidising tax cuts in the Isle of Man to the tune of £270million a year. The article referred to the VAT sharing scheme. Speaking to other business breakfast delegates before his speech Mr Bell had pointed out that the article included several inaccuracies, the most glaring being that the Island’s population was 26,000.

In his speech Mr Bell said the article had been initiated by the Tax Justice Network which he described as a ‘motley crew doing their very best to stir up resentment against not just the Isle of Man but off-shore jurisdictions in general.’

‘They (the Tax Justice Network] will use every opportunity to undermine the Island and try to damage our economy,’ he said.
‘We do need to keep an eye on these sort of bodies as well.’

The Observer did of course quote earlier versions of my work, revised downwards since because of VAT rate changes and the impact of the revised deal. It seems such a shame Mr Bell could not have acknowledged the truth at the time that the UK really was massively subsidising the Isle of Man, as I said. He might have better prepared his island for the change that will now be forced upon them. Instead he hurled abuse in my direction.

So is the resulting change my fault, and the fault of my Tax Justice Network colleagues? Maybe, in some small part it is in that we drew attention to this arrangement. Certainly no one else, anywhere, drew attention to this issue. But I don’t apologise for that. The Isle of Man does not need a standard rate of income tax of 10%, a top rate of 18% and a cap on total tax paid. It does not need a zero per cent corporation tax. It could charge capital gains tax. It could charge inheritance tax. It could charge its banks to tax at more than 10%. All these are choices: bad choices. And yet none of them are mentioned in the Minster’s statement today. So please don’t blame me for what is coming the Isle of Man’s way: blame your own ministers who ignored the warnings, who denied the truth, who would not disclose the nature of the agreement with the UK or of the calculations made, and blame yourselves for thinking you could successfully free ride off the back of the UK tax payer. I did not try to damage your economy. I drew attention to weaknesses in your own economy and the cost that imposed on the UK.

I don’t apologise for one moment for helping end that abuse.

GANTIP: credit where it’s due

Jurisprudence 1 Response »

Oct 202009

I have received an email from Prof Judith Freedman of The Centre for Business Taxation at the Said Business School. She says:

I have noted recent references to GANTIP in your blog. It would be nice if you would acknowledge, as you did at fn 59 of your paper written for the TUC , that the source of this idea, and the acronym, was my inaugural lecture at Oxford University in 2003. The lecture was written up in the Tax Journal that year and in the British Tax Review in 2004. Most recently I returned to the GANTIP in print in the Tax Journal in April 2009. You may not have seen this so here is a link.

http://denning.law.ox.ac.uk/tax/documents/Freedman.Av.pdf

For the record, neither KPMG, which is a donor to the Law Faculty in relation to my Chair, nor any other donor to my employer, Oxford University, of whom there must be many thousands, has ever sought to prevent me from expressing my own views, which is what these are.

Happy to do that. But let me also be clear: there is much I do not agree with Judith on, including her logic which i think very confused. For example, in the note article she says:

Support of the GANTIP does not imply agreement with the argument that the obligation to pay tax should be based on the `spirit of the law’ (which suggests something coming from outside the law as properly interpreted by the courts) or `morality’

She then goes on to say:

The GANTIP would be broader than a detailed rule and would modify the specific rule in that it would provide the authority to apply the rule in a certain way in certain circumstances. It would be more than purposive interpretation because it would look beyond the language of the statute at the surrounding facts.

In other words, Judith goes straight outside the law to look at surrounding facts to determine how the law should be interpreted to achieve the spirit of the legislation.

So I am afraid whilst we share a point of departure we do not share a logic or a motivation or, maybe, a destination.

Who misled who?

Jersey Comments Off

Oct 202009

I have now got a copy of the Jersey Evening Post for last Thursday when they looked at the zero-ten crisis in detail.

Two things strike me. First Chief Minister Senator Le Sueur said:

The EU indication is that their original declaration that zero-ten was compliant, which they signalled in 2006 is now‚Ä¶..they have backtracked

I would like to see that indication: as I have recounted, the people who might have given it told me in 2006 that any such assurance was not possible.

Second the Senator was asked:

How do you explain your comments in April 2008 that we were compliant with what the EU wanted?

He said;

I do not think that I misled anybody. If any misleading has been done it is the EU who have misled me by changing their minds. If I were asked the question in April 2008 again I would probably come out with the same answer. I might with the benefit of hindsight say ‚ÄòOn the basis of the present legislation, Jersey’s, like the Isle of Man’s, is fully compliant – however the EU could change their mind in the future.’

I maintain: the legislation was never approved so this is wrong.

It was also very odd he claimed that the Isle of Man was compliant in April 2008. It’s scheme, enacted in 2006 was rejected in October 2007 (note – consideration only happened after enactment – as I have persistently said – which is exactly whey Jersey has never had an approval as its legislation only came into effect this year). This was noted in a letter John Christensen and I wrote to the Jersey Evening Post. As I said then:

Terry le Sueur, Jersey’s finance minister recently assured Jersey’s business community that it’s new zero ten tax system had met with approval by the EU.

There’s one problem with the assurance. It’s wrong. The EC will not have considered this issue as yet; it’s time scale would not allow that to have happened. As a result John Christensen and I had the following letter in the Jersey Evening Post on Saturday:

So you meet the EU code? Says who?

From John Christensen, director and Richard Murphy, senior adviser, Tax Justice Network

WE note Treasury Minister Terry Le Sueur’s claim (reported by Christine Herbert) that the zero-ten tax regime is fully compliant with the EU Code of Conduct for Business Taxation. Since the zero-ten regime has only recently come into effect it cannot, to the best of our knowledge and belief, have been considered by the European Union for compliance purposes as yet.

Remember, the Isle of Man government was only informed in October 2007 that their new regime, which came into effect in 2006, was not compliant. We anticipated that the Isle of Man measures would be rejected by the EU, and for similar though not identical reasons, we likewise anticipate that the Jersey regime will be deemed non-compliant with EU requirements. At this stage it would be unwise to rely too heavily on the Treasury Minister’s assurances.

Published 18/4/2008

Sometime soon these people are going to have to realise that their only option is active compliance. But it certainly hasn’t occurred to them as yet. When it does the game will stop, and the people of Jersey will suffer. Le Sueur will have retired. If one person will not carry the responsibility for this it is him. I admit, that annoys me.

I was wrong on the last point – it’s going to haunt him.

And I maintain – I cannot see how it can be said the EU misled anyone. The reality has always been – as Tax Justice Network has always said – the EU has never approved Jersey’s zero-ten, and any other claim just has to be wrong.

But produce the paperwork and I’ll apologise.

Eady and free speech

Jurisprudence Comments Off

Oct 202009

How our senior libel judge stamps on free speech – all over the world | George Monbiot | Comment is free | The Guardian .

Trafigura’s super-injunction is weird for lots of reasons. But the strangest fact is this: it has nothing to do with the Honourable Mr Justice Eady. The company’s lawyers injuncted the Guardian, injuncted their injunction, and tried to injunct reports of parliament’s proceedings. And they did all this without enlisting the help of the hanging judge of the Queen’s Bench Division, the legal censor who appears to be fighting a one-man battle against freedom of speech. That’s quite an achievement.

Monbiot on form on a critical issue: the abuse of our libel law. He concludes:

So read Jack Straw’s testimony before the commons culture, media and sport committee and weep. Every time an MP put forward a firm proposal for reforming the law, the justice secretary responded in a manner so vague and nebulous that as you read the text his words become invisible, camouflaging themselves among the letters of which they are made.

Does Straw have no principles left?

It is time for radical reform. Not least that a claimant has to prove they ave suffered loss. That would kill 99% of cases.

Global Witness: act on peak oil now

Economics Comments Off

Oct 202009

Global Witness have an impressive track record. Now they have published a report on peak oil. They say:

There is an imminent oil supply crunch that governments have failed to acknowledge or act upon, the impacts of which will be felt throughout every aspect of modern society which is heavily reliant on oil, according to a new report published by campaign group Global Witness today.

Governments have not taken on board the four underlying oil production factors which clearly show there is a problem. Heads in the Sand outlines these factors – declining output, declining discoveries, increasing demand and insufficient projects in the pipeline – which clearly show that the world is facing an imminent oil supply crunch.

It’s sobering. I’m sure it’s true. And this should not be ostrich time – but is, for far too many.

Disclosure: I have worked with Global Witness.