Tax Code of Conduct: HMRC should have defined tax compliance

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The Chartered Institute of Tax has issued a press release about the new Tax Code of Conduct for Banks, saying they welcome it, and:

The CIOT’s initial view is that much of the code reflects good governance and the need for an open and transparent relationship with HMRC which we support.  However, the CIOT would prefer that the process of making tax law is improved so that it is clear to all what the intention of Parliament was and so codes seeking to establish what the intention might be are unnecessary.

Peter Fanning, CIOT Chief Executive, said: "Defining the purpose of established law can be very difficult.  The quantity of HMRC guidance is ample proof of this.  Even in law, not everyone agrees.  The challenge is to decide who decides what the ‘spirit’ of the law is and how they decide it. If future tax law is clear then following its ‘spirit’ will be much easier but establishing the ‘spirit’ of previous complex legislation will be a challenge.”

This is predictable and simply not helpful. As a matter of fact i also challenge their opinion: I think the intent of parliament can almost always be discerned, as is also HMRC’s view.

But the sorry fact is that this problem could have been avoided if HMRC had said the Code demanded tax compliance. this can be defined as:

Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. 

It’s always much better to define a positive goal than to expect a negative to be avoided. It seems an elementary mistake as a result to create a Code to defeat tax avoidance rather than to promote tax compliance as a consequence.

I hope it’s not too late to change this. I will be contributing to the consultation.

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