Dawn Primarolo was the unlikely hero of yesterday's hearing before the House of Lords.
The subject of a GAAR or General Anti-Avoidance Principle as I'd prefer came up, partly in its own right and partly in the context of the need to tackle the abuse going on in Employee Benefit Trusts (or Tax Cheating Arrangements, as I was happy to call them).
I pointed out that one of the best days in recent taxation history was that in December 2004 when Dawn Primarolo stood in the Commons and said whatever attempts were made thereafter to avoid the obligation to apply tax and national insurance to payment of remuneration arising from an employment they would be blocked by legislation and that legislation would be back-dated to December 2004.
At the time the tax profession howled in protest. This was unreasonable they said. This was retrospective legislation they cried. And this was an abuse of the right a person had to abuse tax law they implied.
But yesterday John Whiting agreed with me: Primarolo's statement may have appeared to be retrospective legislation at the time, but it straightforwardly worked where nothing else had. In the face of knowing that any attempt to abuse the law would be stopped, retrospectively, people stopped trying to abuse PAYE regulations. And NIC abuse died out for some time.
Until that is Employee Benefit Trusts came along.
And it was John Whiting who wondered out loud why a) the Primarolo principle was not being applied to Employee Benefit Trusts because there seems no reason why it should not be b) it had seemed to be forgotten, which he thought an error c) (and I think this came out of our exchanges) it was not now influencing the current debate on the GAAR because the evidence was emphatic - it works.
The moral: principles based attacks on tax abuse work.
It's an important lesson to note.
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The day of the announcement in December 2004 I received a call* from a senior official at the Treasury. I recall him telling me that they knew the announcement would concern some in the profession. He suggested that we should think carefully before being too critical as the (then) Government had taken legal advice and were comfortable with the stance they were taking.
If memory serves the conclusion we all reached at the time was that the advance warning of the prospect of targeted retrospective legislation was thought to make it less objectionable. Indeed I thought then as I do now that it’s perfectly reasonable. The warning is there. You may be very clever but if you are daft enough to craft some new scheme that exploits an obviously unintended lacuna in the legislation, watch out. The loophole will be closed retrospectively. And rightly so.
As John Whiting noted though, there has been very little in the way of such amending legislation. I fear this is due to the complexities of doing so without catching innocent transactions.
Given the current Government’s new approach to tax policy making, why not put out the amending clauses for consultation. The professional bodies will no doubt flag any problems and the drafts can be amended. The promoters of the abusive schemes will be on notice of the imminent imposition of retrospective legislation, but so what? Maybe they will shut up shop so that they are not around to fund any refunds to their clients for schemes that do not work after all.
The introduction of retrospective amending legislation would also reduce the availability of tax scheme insurance. The availability of such insurance is intended to provide comfort to the client that they cannot lose – financially at least.
*I was Chairman of the ICAEW Tax Faculty at the time.
Legal/Accounting principals trumping legal/accounting rules – well i never – reminds me about substance over form, true and fair and all that.
Good Mr Whiting agrees – i thought the big 4 were lost to IFRS mark to market or pick your model etc.Maybe there is a glimmer of hope. A principal is a sure fire way to less paperwork and introduces judgement back where it belongs too the judges if needed – with clear examples and intentions expressed in Hansard if not in the actual law.
Well done.
Although I agreed at the time and still agree with the stance taken by Dawn Primarolo in 2004, I think hero (or even heroine) is not the work I would use to describe her – nakedly ambitious political opportunist and rank hypocrite being two that spring to mind.
It struck me at the time that she became Paymaster General she must have a brass neck of the highest order combined with rhinocerous skin to be able to break the law by not paying and advocating non-payment of legally imposed (poll) tax and yet be responsible for tax collection a short time later. Or maybe she was one of the many misguided Trots who had her road to Damascus moment in between.
I would say that a principled stand against a heinous Tory tax policy and being prepared to take the consequences of breaking that law, made her supremely suitable to be responsible for Labour’s tax policy.
Heinous is a strong word, rather inappropriate here, and is dependent on your place in the political spectrum. Breaking of the tax law of a democratic country by a person who later becomes a minister responsible for tax is, in my view, heinous. And it is not tax compliance within Richard’s definition of what people should do.
[…] I mentioned last week, when Dawn Primarolo did this in 2004 with regard to PAYE the impact was immediate and effective. The Charteed Institute of Taxation […]
[…] I mentioned last week, when Dawn Primarolo did this in 2004 with regard to PAYE the impact was immediate and effective. The Charteed Institute of Taxation […]