I will break my post op silence to note a campaign win this morning. Ed Balls blogged last night that:
Tackling tax avoidance is a key part of our economic plan. A fair and robust tax system is vital if we are to bring down the deficit, safeguard our National Health Service and maintain public support for the dynamic open economy we need.
At the moment, we are going in the wrong direction. The amount of uncollected tax — the so called ‘tax gap' — rose again to £34 billion in the latest year on HMRC's own estimates. It's up by £3 billion under this government and tax campaigners have suggested the true figure could be much higher.
Having then noted Labour's latest corporation tax plans he added:
But this agenda will only be delivered if HMRC has the powers and resources it needs to act. We have supported the introduction of a General Anti-Abuse Rule (GAAR). Those who set up abusive schemes should run the risk of being caught by such a rule.
But it is currently a GAAR without teeth. Those who are caught have to repay the tax they tried to avoid, but they do not face a penalty. There is still no disincentive to try and game the system. That is why Labour will bring in a tough penalty regime for the GAAR, with fines of up to 100 per cent of the value of the tax which was avoided. For the first time this will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax.
I welcome this. I included a penalty regime in the general anti-avoidance principle I wrote for Michael Meacher that was presented as a Private Member's Bill to the House of Commons (by, in effect, offering a clearance system for transactions so taking them outside penalty risk) because without teeth any such provision has little more effect than a polite request to not misbehave in future.
I also highlighted the absence of a penalty regime in my commentary on the GAAR when it was published. And the very limited references to penalties in the GAAR guidance are only there because of what I tried to achieve on this issue when on the GAAR advisory panel that largely wrote this material.
But, and I have to add this but, adding a penalty regime to the GAAR is only step in the right direction for the GAAR. The 'double reasonableness test' and GAAR advisory panel both have to go before it has anything approaching credibility. Curiously Scotland has already achieved those goals in its new GAAR. My hope is Ed Balls will go down that path too.
But, as the person who fought hardest for this penalty regime I welcome this move: it's emphatically an appropriate step to take and a damning indictment of the current government's lack of willing to really tackle tax abuse that such a regime was not included in its original version - despite my very best efforts to draw the need to its attention.
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There is already a penalty regime in Schedule 24 Finance Act 2007, under which HMRC can impose penalties of up to 100% of the lost revenue in most cases, and up to 200% where certain offshore jurisdictions are involved. Is that not enough?
If taxpayers are not already deterred by the prospect of 100% or 200% penalties, will 200% or 300% penalties have much impact?
Jolyon Maugham agrees with me that a regime is needed
Graham Aaranson didn’t want one because he thought it would encourage HMRC to use the GAAR and felt it best never used – to be left only as a threat
Jolyon and I agree Graham was wrong
Hi Richard,
There’s schematic here which might assist debate http://waitingfortax.com/2014/11/14/avoidance-transactions-the-gaar-penalties-and-penumbras-a-schematic/
Can I invite your readers to take a look?
Jolyon
Thanks
I’ll tweet your stuff too
Your old mate, Geoff Cook chief executive of Jersey Finance,has been up to it again …
Visit – http://www.international-adviser.com/news/offshore-centres-fundamental-to-africas.aspx
And note drivel like “It added that allegations of international finance centres facilitating “unsavoury, immoral or illegal economic activity in developing nations do not bear scrutiny.”
How much a year do they pay the Jersey PR company to invent this garbage?
PS: Hope you are feeling better and are happy and smiling!
Nic
PSG
Here’s one of the many ‘services’ Jersey provides so generously for the poor, downtrodden 3rd world countries.
Lets suppose a business (A Plc) wants to bid for a contract in a country. They don’t, obviously, want to compete by supplying the best product for the lowest, reasonable, price. They want to provide a sub-standard product, at premium price & will get that by bribing an official (Mr B).
Now, this isn’t easy because A doesn’t want to hand money over to B unless its sure the contract is won, & B doesn’t want to use his influence to get A the contract unless he’s sure he’ll get his gelt.
Simples! as the meercats would say. A sets up a shell Co (C) in somewhere v remote (Seychelles ?) whose only nominal director is a notary in Jersey. A pays £1m (or whatever) into C’s bank A/C. Now, here’s the clever bit, Mr B is beneficial owner of C, but he can’t access it unless the notary signs it over & s/he won’t do that until the contract is done.
You’ll often hear people from Jersey & other tax havens say that their legal rectitude helps people do business around the globe. This is what they mean by that & if that’s their idea of rectitude I’d hate to see their idea of criminality!
Well, I hope that Balls is sincere about this and that he is supported by the rest of the party. The Blairites are an obvious threat since they were so ‘incredibly relaxed’ about people getting rich in the previous administration which also included not asking too many questions about how CDO’s worked! I’ll keep my fingers crossed.
As for the big players threatening to move elsewhere, then perhaps they should just go? Maybe this might result in a rejuvenation of smaller businesses who will fill the vacuum of services and jobs if the big tax-avoiding corporations take their ball home?