Mark Lee has kindly drawn my attention to two articles of some significance.
The first is the editorial of Taxation magazine this week — written by Mike Truman. He is a long time critic of abusive taxation, but concludes:
If we want to preserve the right of taxpayers and their advisers to pursue reputable, non-packaged, tax planning, we need to accept that the writing is on the wall for the aggressive packaged schemes.
And in support says:
The first step in doing that might be to re-establish some basic principles about tax avoidance which have been true for most of my working life in tax. From 1981 to 2004 it was accepted that, if a set of transactions involved money going round in a circle, or if steps were introduced into such a composite transaction with no commercial effect, then they equally had no tax effect.
We are now told that this was merely a way of describing the principle of purposive statutory construction, and applying it to tax. The result is that no one is really sure when a transaction will be caught and when it will not, and a large number of taxpayers are being encouraged to take the risk and see if they can reduce their tax liabilities to almost nothing through the use of such schemes.
So if the principles as set out by Lord Brightman worked pretty well in the past, why not actually enact them now as a form of general anti-avoidance rule (GAAR)?
Because to think that some sort of GAAR isn’t on the way at some time over the next few years seems to me to be similar to thinking that Portsmouth are going to win the Premiership during the same period — it’s not entirely out of the question, but it is highly unlikely.
Mike and I have discussed this before — and he has provided useful commentary on the General Anti-Avoidance Principle (I porefer principles to rules) that two MPs tabled in the Commons this year — both authored by me.
And I think that Mike is bang on about the need for a GAntiP (or even a GAAR) but wrong about timing. Portsmouth are not going to win the premiership — but their success is nolt correlated to the chances of getting a GAntiP — which I rank as quite high.
Very encouragingly Stephen Herring of BDO, not normally an ally of mine as I recall it, shares the view, as reported by Mark at the Tax Buzz blog. Stephen has written today:
I am disappointed that at some time in the early 1990s certain parts of the tax profession 'sold out' to the sales teams seeking to 'roll out' tax 'products/solutions/ideas' across the client base with little regard to their suitability.
I agree that some products may succeed in the courts and some clients are capable of implementing and willing to defend them as far as is needed but what I'm saying is that too many marginal tax products are sold to too many unsuspecting companies and individuals.
I suspect that before too long, HMRC will come to the conclusion that the only way to restrict the marketing of artificial tax arrangements is to copy the stance adopted by the IRS in the US and seek criminal penalties in some situations to draw a line in the sand between acceptable, even if aggressive, tax planning and purely artificial schemes. This would be a hugely disappointing outcome but one which I consider at the moment to be almost inevitable.
Stephen is, I think wrong. I think that is a desirable outcome but one that could be avoided. The combination of a GAntiP and a legally backed Code of Conduct for tax advisers as a condition of their registration for business would ensure such abuse could not happen.
I’ll be arguing this in a lecture at the Treasury next week. I guess it’s another sign of the times that I’ve been asked to deliver a lecture on atx and morality at the Treasury. The times may really be a’changing. I hope so.
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The firm I joined after qualification as a chartered accountant to specialise in tax was Deloitte Haskins and Sells London – formerly one of the Big 8 accountants and, to my eternal disappointment, through subsequent mergers with Coopers and Lybrand and then Price Waterhouse, now part of PWC. (The name Deloitte was sold by Deloitte UK to Touche Ross who are now called Deloitte and therefore have no connection with the previous UK Deloitte firm).
DHS used to be known as the auditors’ auditor and its tax practice manual explicitly stated that the firm would undertake no uncommercial or artificial schemes or arrangements relating to tax that could possibly bring the firm or the accountancy profession into disrepute.
I was happy with that ethos. If I had wanted a firm of sharp suited spivs selling tax schemss, I would have joined Arthur Andersen, or perhaps changed careers to second hand car sales.
Why cannot the professional bodies enshrine something like that into their membership rules and exclude anyone who breaches them?
Roger, I suspect the professional bodies are now quite happy with the kind of schemes to which you refer, as long as the money keeps rolling in. Probably many of the members want more money than could be earned by the old fashioned (in a good way) approach which you describe. Quite probably the professional bodies have been captured by the sharp suited spivs!
I think if you do some research on this subject (the clue is in the name of your website) you will find that the last time this was proposed, it was (as was then) the Inland Revenue themselves who didn’t want it. Its actually quite convenient for them to not have a clear “rule”. If you doubt it, look at the debacle with the replacement of IR20 with HMRC6. If you want to reduce the tax “gap” a good place to start would be to make the rules a but simpler. Whilst I am sure Richard you have 100% clarity on every aspect of the tax legislation us mere mortals find it odd how HMRC can publish legislation, spend 2/3 years working out what it means, and then criticise people if they get it wrong.
[…] penalties) for all directors and employees found to be in breach of that statutory Code. As Stephen Herring of BDO said, some tax planners clearly need some time at Her majesty’s pleasure if they can’t learn what is […]
Presumably the government are not serious about preventing avoidance. They have actually refused to challenge the practice of “constructive demolition” to avoid liability to business rates on empty buildings, which is another example of the practice.
[…] a loophole if losses were in their subsidiaries. But, says Richard Murphy, director of Tax Research UK, a small change in the law could fix it. It would be worth, he says, a minimum of £10bn — or […]
Henry (not Law)
I’ve done the research – don’t worry
And I know quite a lot about IR20 and the plan to replace it – I am on the Treasury committee looking at the issue
The problem is clear rules – and I have proposed one – are always rejected by the profession
Don’t blame me or HMRC
Ask why the profession wants complexity – always
There’s the source of your problem – in a nutshell
Richard
Richard
IR20 has already been replaced. I think you missed a meeting or two.
Henry
Henry
Indeed http://www.hmrc.gov.uk/leaflets/c9.htm
Let me assure you – know one thinks that is anything but an interim step
Well, except you it seems
Richard
Richard,
Your usual trick of twisting somebody’s response. You will be aware IR20 isn’t law, and nor is HMRC6. the underlying case law hasn’t changed, just HMRC’s view of it. If you think the profession wouldn’t prefer a statutory test you are mad – it is nigh on impossible to properly advise someone on leaving or arriving from the UK.
Henry
Henry
I am very familiar with the profession’s position
But if there is to be change in the law it can’t be the one they want
Richard
[…] a loophole if losses were in their subsidiaries. But, says Richard Murphy, director of Tax Research UK, a small change in the law could fix it. It would be worth, he says, a minimum of £10bn — or […]
[…] Clamp down on tax avoidance and introduce a general anti-avoidance principle […]