As the TUC noted this afternoon:
The conclusion is based on HMRC data, but also on a report by me on the General Anti-Abuse Rule. As Nicola Smith of the TUC has written:
New TUC research (undertaken for us by Richard Murphy of Tax Research) shows how weak the government's latest anti-avoidance measure really is. You might think that an initiative labelled as an ‘anti-avoidance' rule would make some inroads to the UK's tax dodging industry. But in fact the Government's own estimates show that its General Anti -Avoidance Rule will, at best, limit one per cent of the estimated £25bn that we lose each year through tax avoidance measures.
How has something that sounded so promising gone so sour? The devil, it turns out, really is in the detail. As our report sets out, there are six key problems with how the General Anti-Avoidance Rule will work:
- The Rule's definition of tax abuse is far too narrow — none of the big scandals that have recently hit the press (including companies such as npower, Google, Amazon and Starbucks) would have been stopped by the its provisions.
- There is a complex test to determine when the Rule can be used by the government — arrangements must be such that they ‘cannot reasonably be regarded as a reasonable course of action'. This test is so tight very little tax avoidance schemes will be covered by it.
- The Rule is administered by a panel of experts — who are all drawn from the tax avoidance industry and can be expected to have a broad view of what ‘reasonable' action might be.
- The Rule requires HMRC to show that a scheme is abusive, rather than requiring the corporate taxpayer to show why it is not.
- There is no penalty regime attached to the Rule — if someone is found to be operating an abusive scheme they will be asked to stop but won't even be asked to pay a fine.
- There is no ‘clearance system' attached to the Rule — this means there is no arrangement where a taxpayer can ask HMRC whether or not the transactions they are proposing are within the scope of the Rule. As well as creating unnecessary uncertainty, this also means that the rule fails to prevent tax abuse before it happens.
Tax avoidance is no good for our society, our public services or most responsible businesses — it leaves our public finances in a poorer state then they would otherwise be and increases the amount of tax that smaller businesses (who can't afford the expensive legal expertise that is often needed to engage in tax avoidance) need to pay.
But despite extensive rhetoric on the need to crack down on abuse, so far the Government's proposals have fallen short of the action we need if tax avoidance is to be tackled. The GAAR provided an opportunity to introduce a real change into the UK's tax system — but despite the warm words its impact will be practically non-existent.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
It is intentionally narrow it look like the government is actually doing something! We are watering down health and safety rules and cutting corporation tax in order to attract foreign investment to these shores.
You see, the only way we can do this, apparently, is a race to the bottom with what the government call “a bonfire of red tape”, so they are making it easier to sack people, cut tax and keep wages and spending under tight control.
So we don’t want to rock the boat with a big crackdown on tax avoidance, do we? Despite the fact that being able to collect all or most of the tax that is avoided would allow the government to trim the deficit they apparently care so much about.
By the way….these measures would probably only bring in a total of £250 million out of £25 billion – pathetic!
It’s a step in the right direction, but only a step. But we have enough legislation
already, what is needed is a stronger HM Revenue & Customs, a proper Tax policy formulation framework given adequate resource and tax experience through Parliament, and making it easier for HM Revenue & Customs to prosecute through the Courts.
We do not have adequate legislation
we need a general anti-avoidance principle
You predicted as much before the measure was even worked through, Richard, and as you were part of that process, and thus had privileged insights, you were hardly likely to be proved wrong.
But as we’ve noted previously on this blog, the GAAR was one of a range of measures adopted as part of the governments smoke and mirrors approach to the taxation of big business and the 1%. Talk tough while actually adopting a range of measures that have been highly beneficial to that small but powerful group of natural Tory supporters and funders. The Swiss tax deal and the abolition of the 50% tax rate being just two of the most public, but there are many more.
This policy should not, of course, be seen in isolation. George Monbiot has yet another excellent piece in The Guardian on the Transatlantic Trade and Investment Partnership, illustrating even more graphically how this will (yes, will, not as the apologists for Tory excesses,the Lib Dems claim, might) impact government and thus democratic decision making.
http://www.theguardian.com/commentisfree/2013/dec/02/transatlantic-free-trade-deal-regulation-by-lawyers-eu-us
And to that we can add the Gagging Law, currently “paused” but undoubtedly set to continue its passage onto the statute books, thanks once again to the spineless Lib Dems who have finally found their true role in government as lickspittles and arse-wipes of the Tories (the latest being Ed Davey’s tough statements but actual whimpering reaction to the binning of the green levies).
All three represent variants of a raft of policies that have one unifying and overarching aim: to reduce democratically elected governments to ciphers of big business. We are a long, long way down that road, already, but the Tories and their many friends and servants are intent on making sure that by May 2015 we’ve passed the point of any return.
Depressingly accurate Ivan
Ivan, I’d be somewhat surprised if Richard’s views now, when the GAAR has been in force for four months and has not yet been tested, did *not* agree with his predictions last year. There has been no new evidence one way or the other which might affect them!
Why is there no such evidence?
Isn’t that the question
Because it’s only been four months and tax takes longer than that?
What sort of evidence would you look to see? The most one could expect at this stage would be a few anonymised decisions of the Advisory Panel, but even if there is a high rate of referrals there would be very few which are completed in such a short time.
What would be good to know is whether any referrals have even happened
It wasn’t necessarily my intention to draw attention to the effectiveness, or not, of the GAAR, Andrew, but to highlight its role within a suit of policies designed to deliver what we might refer to as more fundamental systemic realignment.
I think there is quite a bit of anecdotal evidence that it is affecting behaviour. It always was about deterrence. It may be better not to use it too much but keep it hanging there. It was NEVER intended to tackle Starbucks etc because that needs a radical change in the tax system. That’s not what GAARs are about in any country. A GAAR won’t solve fundamental problems but it is an important weapon in the armoury. There won’t be any cases for quite some time, but that is not a sign that it is not working.
The EU specifically disagrees with you
Correctly so in my opinion
Judith,
Richard v.2010 agrees with you.
http://www.taxresearch.org.uk/Blog/2010/12/08/what-a-general-anti-avoidance-principle-might-look-like/
I’m genuinely baffled as to the point you’re making
Richard, I think he is referring to this comment made by you:
“Richard Murphy says:
December 8 2010 at 7:37 pm @Gary
I love this stuff — and that from Adrian
Sure this probably won’t be litigated — the whole point f this law is to change behaviour
It does change behaviour by increasing risk
If it does so it works
That’s its whole point
When it’s litigated it has, to some extent, failed”
Answered already
In 2010, litigation is bad and deterrent is good:
“Sure this probably won’t be litigated — the whole point f this law is to change behaviour
It does change behaviour by increasing risk
If it does so it works
That’s its whole point
When it’s litigated it has, to some extent, failed”
Fair enough, but in 2013 when Judith suggests it’s power is as a deterrent, not as something that leads to litigation, we learn that litigation is not bad and a sign of failure, but is a good thing.
That was my point.
And I agree I wrote that
But we did not get a general anti-avoidance principle
We got an abuse rule with an absurd procedure attached to it
So we’re not comparing apples here; more like apples and oranges
And when the facts change I can change my mind
Fair enough. We all change our mind. But since you were not a complete idiot in 2010 who could be curtly dismissed, neither should Judith have been treated so.
If you think so
But I assume UK taxpayers will still have to operate under a UK process, so what role does the EU have? Could we appeal to it like UK Uncut did or War on Want?