Code of Conduct » Tax Research UK

The Code of Conduct for Banks has been published

Banking, Code of Conduct Comments Off

Jun 292009

The government has published its consultation document on the planned Code of Conduct of Banks.

It justifies targeting banks for these reasons:

Tax avoidance is not exclusive to banks, but banks are uniquely placed in that they:

‚Ä¢ can seek to avoid their own tax liabilities, whether this involves increasing the recovery of VAT incurred on their transactions, reducing their profits liable to corporation tax or minimising their and their employees’ income tax and national insurance contributions;
‚Ä¢ provide financial services to customers, many of which services are sensitive to tax and some of which can be used for tax avoidance; and
‚Ä¢ have access to large amounts of capital which they can use to facilitate avoidance schemes designed and implemented by others, for example by providing loans of tens of billions of pounds for periods sometimes as short as a few hours.

The Government believes that, in the light of the significant taxpayer support provided to stabilise the banking system, taxpayers are entitled to expect that banks, important taxpayers in their own right, and their customers pay their fair share of tax.

I’ll have more to say on this late.

The bank code of conduct: another win

Banking, Barclays, Code of Conduct, Ethics, Tax avoidance Comments Off

Jun 282009

I drafted the Tax Justice Network / Association for Accountancy and Business Affairs code of conduct for tax in 2007 ( summary here). It attracted some attention at the time at selected addresses in Paris and London SW1, but there was not a lot of strong positive feedback right then. Being nice to banks was in vogue.

Not ant more.

In another indication that the world is moving (albeit not as fast, and not as far as I’d like, but moving nonetheless) in the direction of tax justice the Guardian has noted:

Banks which help their customers to avoid paying tax will be targeted by intensive surveillance from HM Revenue & Customs under a new "name and shame" regime to be announced by Alistair Darling next week.

The chancellor is understood to have a hit list of UK and international banks which he will invite to sign his new code of conduct on tax which is designed to save the taxpayer billions of pounds lost through legal and complex avoidance schemes.

Banks that refuse to sign the code of conduct or act against the "spirit" of the current tax laws will be subjected to heavier scrutiny from the tax authorities. Darling will also make it clear that chief executives of non-compliant banks will be forced to appear before MPs sitting on the Treasury select committee. Banks are under no obligation to sign up but will be expected to answer requests from the public about whether they have signed up.

Excellent. Quite right too. make them justify their anti-social behaviour.

Predictably the tax profession is not happy:

Ever since Darling announced his intention to publish the code, there has been criticism from some tax experts about how the "spirit" of the law should be interpreted. However, a Treasury source disputed this: "It is quite clear to market professionals what the spirit of the law actually means".

I agree, wholeheartedly. The person who cannot spot that should not be in practice.

And as indication of where this will go:

The Treasury source said: "We will start with the big banks and work through the system."

"We have some confidence that Barclays will sign up to it," the source added.

The source said: "There will a lot of embarrassment and public pressure and trips to the Treasury select committee to be humiliated by a lot of MPs. This is a name and shame policy".

Just what I wanted.

And excellent news for the ordinary taxpayers of the UK, because this is going to swing the pendulum of obligation to pay back towards the banks. And that’s the right thing for our economy. They have abused for far too long. And now the game is up.

Holding tax agents to account

Accounting, Code of Conduct Comments Off

Jun 082009

Working with tax agents – the specific proposals by Rebecca Benneyworth – 08 Jun 2009.

In future when tax agents in the UK are shown to be negligent or incompetent:

HMRC would have to consider its relationship with the practitioner. Options for HMRC could include:

a requirement to put matters right for the past and the future plus

financial penalties, and/or

a report to a representative body, and/or

an appropriate period of monitoring.

a refusal to deal with the tax agent in future

Any financial penalties (whether resulting from careless or deliberate behaviour) could be fixed penalties, or up to a certain amount, or they could be linked to the tax at risk or the fee income or relevant turnover.

Excellent.

We’re on our way to a Code of Conduct for Taxation.

What the Dunfermline proves

Banking, Code of Conduct, Corruption, Regulation 5 Responses »

Mar 312009

The collapse of the Dunfermline Building Society proves:

The urgent need for a Glass Steagall Act in the UK to enforce a split between routine banking based on deposit taking and speculative activity. It was speculative activity in buying second-hand mortgages and in property related speculation that seems to have brought this building society down.
The urgent need for a People’s Bank in the UK. Please support the campaign.
The need for action to bring directors of how organisations, including banning them from being directors of other organisations for considerable periods of time. I watched with absolute astonishment the CEO of this failed building society blaming the government for its failure on Sunday night. He ruined this building society. Having imposed a cost of more than £1 billion in all likelihood upon the state he should never be allowed to direct another company in the UK again.
The weaknesses in the Turner report. I do not think that Turner would have stopped this abuse.

When will we learn the lesson?

When will we stop a tiny minority of people acting in pursuit of their own greed from abusing the common property of millions of other people, and the taxpayer?

Where, apart from Vince Cable, is the politician in a position of serious authority with the nerve to say this?

The TJN / AABA Code of Conduct for Taxation

Accounting, Banking, Code of Conduct, Economics, Ethics, Tax avoidance Comments Off

Mar 302009

I drafted the Tax Justice Network and Association for Accountancy and Business Affairs Code of Conduct on taxation. This is available here.

The actual Code is just two pages long and reads as follows:

A Code of Conduct for Taxation

Objective

This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.

Scope

This Code applies to:

Governments and their agencies in their role as tax legislators, assessors and collectors;

Taxpayers, whether individuals, corporate bodies or otherwise;

Tax agents, whether they are undertaking tax planning or assisting with tax compliance.

Application

It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.

The Code

The Code is divided under six sections, each of which includes three statements of principle.

1. Government

a. The intention of legislation is clear and a General Anti-Avoidance Principle (‚ÄòGantip’) is in use;

b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;

c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.

2. Accounting

a. Transparent recording of the structure of all taxable entities is available on public record;

b. The accounts of all material entities are available on public record;

c. Taxable transactions are recorded where their economic benefit can be best determined to arise.

3. Planning

a. Tax planning seeks to comply with the spirit as well as the letter of the law;

b. Tax planning seeks to reflect the economic substance of the transactions undertaken;

c. No steps are put into a transaction solely or mainly to secure a tax advantage.

4. Reporting

a. Tax planning will be consistently disclosed to all tax authorities affected by it;

b. Data on a transaction will be consistently reported to all tax authorities affected by it;

c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.

5. Management

a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.

b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;

c. Taxpayers will settle all obligations due by them at the time they are due for payment.

6. Accountability

a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;

b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:

c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.

Enforcement

States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.

Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.

The Banking Code is possible

Banking, Code of Conduct, Ethics Comments Off

Mar 302009

I’d draw attention to some articles I wrote about Barclays.

All suggestion the legal and ethical underpinning that could make a Banking Code on tax viable.

These dealt with the need for a change in the way the law on tax is interpreted. I argue we do not need to be constrained by 19th century thinking.

We also need a general anti-avoidance principle.

Lastly, we need a robust and public code for all companies, and government. I have drafted such a Code for the Tax Justice Network and for the Association for Accountancy and Business Affairs in 2007. This is available here.

And before you dismiss the thinking I’d advise you that those drafting the Banking Code are familiar with what I think – I’ve presented this stuff to them at their request. They have copies.

Bank on the banking code

Accounting, Banking, Code of Conduct, Ethics, Tax avoidance Comments Off

Mar 302009

It’s G20 week. Many hopes have been pinned on it. Many – depressingly- hope it will fail. The braggers will be out i force later this week saying it has not delivered.

And of course it won’t deliver all I want. No politician could deliver all I want yet. But as I’ve said time and again to cameras from around the world (and will again, at lest three time today) we’re in the opening bars of the overture in the new saga of overseas regulation – and it’s performed in at last three acts. It will be some time before the Fat Lady sings. I’ll be in this game to the end.

But I’d also caution those who think that the G20 is the end to look around them. The signs of change are everywhere. I’ll be drawing attention to to some of them over the next week or so, but let’s start with one highly significant one. The FT has said this morning:

Banks operating in Britain will be banned from using tax havens if they sign up to a draft code of practice drawn up by the government to address a row over their aggressive tax planning.

The draft, which also gives the tax authorities the final say over whether they consider a deal to be avoidance, is more radical than businesses expected when it was announced by Alistair Darling last month.

As it notes:

Some senior bankers who have seen the draft code, to be published in next month’s Budget, have been alarmed by its emphasis on paying tax in accordance with the “spirit as well as the letter of the law”, a subjective concept that would alter fundamentally the balance of power between banks and Revenue & Customs.

And then we get the usual suspects defending the status quo – which is destroying prospects for life, let alone a decent life in the developing world. I name the lawyers:

In recent weeks, corporate lawyers have fought back against the perception that the use of tax havens is inherently suspect, arguing they are valuable for their tax neutrality and for the ability to sidestep irrelevant complications in the tax code. Miles Walton, a partner of Allen & Overy, a law firm, said they “played a helpful and beneficial part in the world of international finance and investments”.

And I name Oxford University Centre for Business Taxation:

But the attempt to invoke the spirit of the law has shocked some legal experts. Judith Freedman, a professor of tax law at Oxford University, said: “There is a fundamental issue here about the rule of law in how we attempt to control the behaviour of taxpayers. It is whether we use legislation or whether we use the discretion of unelected officials.”

And the Tories

Baroness Noakes, shadow Treasury spokesman, said last week that the complexity of the tax code meant it was difficult to identify its spirit.

“I believe that taxation needs to be imposed by clear law,” she said.

These are the dinosaurs. On this one I’m with Paul Myners

Lord Myners, City minister, told the House of Lords this week that tax avoidance was a moral issue: “We can no longer hide behind the excuse that there is no acceptable definition of avoidance.”

The code defines tax avoidance as any outcome which could “reasonably be expected to be unintended by parliament or tax authorities” in a move likely to infuriate businesses.

Don’t doubt it: this Code should infuriate business. That reflects what needs to happen. Abuse has to end. Banks have to pay tax. Developing countries must collect the tax they are owed. Redistribution of wealth to the poor must happen within and between economies. Justice must be done. And it will be.

My suggestion is simple: sign or lose your banking licence. It is possible. Don’t doubt it.

Barclays – what to do – 4 – a general anti-avoidance principle

Accounting, Barclays, Code of Conduct, Ethics, Regulation, Tax avoidance, Tax management 1 Response »

Mar 182009

I’ve been discussing how to tackle Barclays Bank’s tax abuse. I’ve suggested we need a change in the way we interpret tax law. This would create a purposive approach to the interpretation of tax law. If this were done then a key component in any system promoting tax compliance should be a General Anti-Avoidance Principle as a central component part of taxation law.

It is stressed that a principle and not a rule should be used: a rule pre-supposes a legal interpretation of statute; a principle an equitable construction.

The idea behind a General Anti-Avoidance Principle is simple: if a step is added to a transaction with the sole or principal aim of securing a tax advantage (which is defined as a saving in tax) then that step in the transaction is ignored for tax purposes. In other words, it tackles pre-meditated attempts to subvert the intention of the tax system and is consistent with the management approach towards the regulation of taxation proposed here. Barclays has, of course, undertaken very heavily pre-meditated tax avoidance activity with almost every step in the transactions undertaken being there solely for the purpose of saving tax.

I suggest that once enacted a General Anti-Avoidance Principle (now generally called a “GAntiP”)[1] would be applied to all tax decisions taken thereafter. This is not a case where transitional arrangements would apply.

There is another advantage: a GAntiP allows a government to pass purposive legislation. This is legislation that states the intention of the law that is being created and devolves responsibility for the detailed rules that actually make it work to the status of regulations. This offers a number of advantages:

Few politicians fully understand the details of the laws that they are asked to pass; it is much more likely that they will understand and be able to discuss purposive taxation law;
The purpose of law will be clearer: taxpayers will have greater chance of understanding and complying with the law;
The detail of regulation can be devolved to those with appropriate expertise;
Appeal arrangements are needed to ensure that those who claim that regulation does not accord with the purposive legislation can be heard, and can have the claimed conflict ruled upon. This is a necessary judicial over-ride for the administrative function of the State which is almost always responsible for the detail of tax legislation;
Where a government intends to use legislation or regulation in a way that was not anticipated it will be obvious, and appeals should succeed. There will, therefore be greater obligation on governments to disclosure their intent as to how they propose to use the legislation available to them and to not subsequently change it, which should increase certainty for taxpayers.

The result will be simpler, and better, law.

In combination a Gantip, purposive legislation, equitable interpretation of the law, and a clear framework of the responsibilities of all parties that a Code of Conduct implies, provides the following benefits:

1. Clarity as to the purpose of the law;

2. The opportunity to adopt a management based approach to taxation, overcoming the almost insurmountable difficulties in determining the difference between tax evasion, avoidance and compliance;

3. An enhanced prospect of practical compliance with legislation designed to achieve that purpose;

4. A fairer method for appraising culpability when errors occur;

5. The chance for a taxpayer to object to inappropriate regulation through use of the Court system;

6. Greater certainty within any tax system.

It is these benefits that our proposed Code of Conduct is intended to promote.

As usefully, such a programme would stop the likes of Barclays undertaking their repugnant activities, and that is essential. .

[1] See Freedman, J 2004. “Defining Taxpayer Responsibility: In Support of a General Anti-Avoidance Principle” available in British Tax Review 332 http://denning.law.ox.ac.uk/tax/BTR_version_inaugural_lecture.pdf accessed 21.12.06

Barclays – what to do – 2 – a code of conduct for taxation

Accounting, Barclays, Code of Conduct, Regulation, Tax Havens, Tax management 3 Responses »

Mar 182009

I have suggested there is much we can do to tackle the abuse that Barclays is perpetrating.

One thing we can do is promote a Code of Conduct for Taxation in the UK. This would not be the weak customer service agreement that HM Revenue & Customs are currently proposing under pressure from the professions through the Chartered Institute of Tax which will then be used as the basis for claiming compensation from them and which serves no identifiable public purpose. It should instead be a robust Code demanding significant standards of achievement from all parties.

I have drafted such a Code for the Tax Justice Network and for the Association for Accountancy and Business Affairs in 2007. This is available here. The actual Code is just two pages long and reads as follows:

A Code of Conduct for Taxation

Objective

This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.

Scope

This Code applies to:

Governments and their agencies in their role as tax legislators, assessors and collectors;

Taxpayers, whether individuals, corporate bodies or otherwise;

Tax agents, whether they are undertaking tax planning or assisting with tax compliance.

Application

It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.

The Code

The Code is divided under six sections, each of which includes three statements of principle.

1. Government

a. The intention of legislation is clear and a General Anti-Avoidance Principle (‚ÄòGantip’) is in use;

b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;

c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.

2. Accounting

a. Transparent recording of the structure of all taxable entities is available on public record;

b. The accounts of all material entities are available on public record;

c. Taxable transactions are recorded where their economic benefit can be best determined to arise.

3. Planning

a. Tax planning seeks to comply with the spirit as well as the letter of the law;

b. Tax planning seeks to reflect the economic substance of the transactions undertaken;

c. No steps are put into a transaction solely or mainly to secure a tax advantage.

4. Reporting

a. Tax planning will be consistently disclosed to all tax authorities affected by it;

b. Data on a transaction will be consistently reported to all tax authorities affected by it;

c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.

5. Management

a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.

b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;

c. Taxpayers will settle all obligations due by them at the time they are due for payment.

6. Accountability

a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;

b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:

c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.

Enforcement

States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.

Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.

You will notice that this Code is as tough on government as it is on taxpayers: we need to demand an improvement in standards all round.

But I suspect that Barclays have failed all of sections 2, 3 and 4. They should have suffered penalty as a result. That is the intention of this Code. It meant to separate the sheep from the wolves and then punish the wolves.

I’m happy to be a sheep on this occasion.