I've long argued for a general anti-avoidance principle in UK tax law. A recent briefing on this issue is available as a PDF here.
Barclays leaves me more convinced than ever that we need one now. A general anti-avoidance principle of the type I propose would stop this because if there was, under the arrangement I suggest:
1) a series of transactions; which are
2) pre-ordained; and
3) into which there are inserted steps that have no commercial purpose apart from tax avoidance,
then the artificial step(s) would be ignored when calculating the companies tax.
This would stop most of what Barclays and other banks do in the way of artificial tax abuse dead in its tracks. And that's precisely what we need right now.
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“This would stop most of what Barclays and other banks do in the way of artificial tax abuse dead in its tracks.”
Except of course in this case it was already stopped by HMRC (and even back tax paid) so not sure why you’re having such a panic attack over this one.
Because we ca’t make new law every time we find abuse – it would be better to stop it altogether
According to the Grauniad article, the banks themselves disclosed under existing regulations.
@Noel, they disclosed because, first, they are obliged by law to disclose avoidance schemes, which in itself is a breach of the voluntary code not to engage in avoidance! More importantly, disclosure can work as a means to secure advance ruling from HMRC by the big companies, which explains why Barclays have expressed surprise at HMRC’s actions. Perhaps, they got away with it in the past, and expected to do so on this occasion. The tide has definitely turned.
I doubt that a GAAR would have had any impact on the Barclays case which relied on the half-baked drafting of s362 of CTA 2009, which has now been fixed.
And I disagree
I suggest that you look at the changes to the legislation. You will see that in computing the amount of debits of credits to be brought into account relation to a loan relationship that is extinguished on a company acquisition the parliamentary draughtsman correctly took into account the value of any asset impairment in the accounts of the creditor but forgot to take into account the fact that the debtor may have recorded the liability at its fair value, so that the computation gave a lower value of taxable profits.
That is now fixed, but it is ridiculous to think that a GAAR would allow the courts to change the value of the computation to what it “ought” to have been, and there are no artificial steps to ignore, just inconvenient facts and sloppy legislation.
Oh yes GAAR’s do
And so does the Halifax principle – which lets words be written in when needed to achieve the aim of legislation
I’m afraid to say you’re simply wrong
This is like debating whether its best to exterminate a verminous infestation or have jolly fun hunting the little buggers down one at a time with a fly-swat – or even waiting for them to come out of their holes one at a time waving a white flag. Radio 4 this am has been awash with the usual very English, very Establishment, very smooth reassuring responses to the unfortunate exposure of moral obloquy in the ranks – its very unusual, very accidental, everything’s under control, self-regulation and codes of conduct are just dandy, just move along people, nothing to see here.
And bluntly they’re all dissembling through their back teeth
Richard,
It will be a great irony if Barclays’ latest jiggery pokery leads to a return to the Ramsay principle under your GAAR proposal, because it was a previous Barclays’ jiggery pokery, waved through by Lord Hoffman and other Law Lords in Barclays Mercantile Business Finance Ltd v Mawson that KILLED OFF THE RAMSAY DOCTRINE — Lord Hoffmann’s words, I hasten to add.
In the paper ‘Tax avoidance’ published in the British Tax Review (2005) Vol 2, pages 197-206, at page 203, Lord Hoffmann made this claim:
“The primacy of the construction of the particular taxing provision and the illegitimacy of rules of general application has been reaffirmed by the recent decision of the House in Barclays Mercantile Business Finance Ltd v Mawson. Indeed it may be said that this case has killed off the Ramsay doctrine as a special theory of revenue law and subsumed it within the general theory of the interpretation of statutes, perhaps the interpretation of utterances of any kind.”
I agree that it would be a necessary condition but I very much doubt it would be sufficient – given that taxation is often based on the accounting treatment, and most accounting frameworks usually seek to ignore artificial structures I think you will find that there is not a little experience around in finding commercial purposes which also have the side effect of reducing the tax charge.
Oh now you are being silly
Accounting is riddled with abuses
What about orphan entities?
Please do not make yourself look daft
I think you are making my point (and misunderstand what I say about current accounting) – I don’t disagree that accounting is riddled with abuses (of which orphan entities is just one), but when the tax treatment usually starts with the accounting treatment which those concerned will argue reflects some commercial purpose other than reducing tax, it becomes pretty clear that your general avoidance provision on its own will not be sufficient to stop abuses. The argument will be that the accounting framework allows such a treatment, accounting frameworks themselves say that artificial structures should be ignored when its comes to accounting and anyway the auditors signed off on the treatment, and there are other purposes to the structure other than avoiding tax (don’t under estimate the creativity of those devising these structures). As I said your general avoidance provision is necessary but on its own I suspect that it would achieve little.
The UK Panel/FSA (as the listing Authority) need to be a lot more active in challenging the purpose of structures where tax avoidance rather than other commercial objectives are the drivers, but where the accounting is on the basis of the latter. More needs to be done to segregate tax advisors and auditors within accounting firms. And I would like to see the FSA ask some very hard questions regarding whether directors of regulated entities are “fit and proper” when there is evidence of aggressive tax avoidance – they might start with the CEO, CFO, Chairman and Chair of the Audit Committee at Barclays. But there also has to be a lot done culturally to make it socially unacceptable and there also has to be a lot more international co-ordination.
I really don’t share your view that there is a “silver bullet” solution which would stop the likes of Barclays in their tracks.
Since when did tax feel bound by the stupidity of tax abuse driven auditors?
Seriously – you’re now out in cloud cuckoo land
And many judges thought they could differentiate tax and commercial purpose until Hoffman turned a very deliberate blind eye
Since when did tax feel bound by the stupidity of tax abuse driven auditors?
I’m afraid out here in the real world I’m afraid this is exactly what HMRC often do – they will frequently take the accounting treatment as the starting position for the tax treatment. You may not like it or think it stupid (and in many cases I would agree) – but that is what they often do and is probably why they employ not a few accounting experts.
In the real world, it obviously makes sense for tax and accounting to work together – and if you fail to address this I’m afraid all your huffing and puffing and piecemeal solutions will make precious little progress.
In short, I think it would be pretty easy to get around the 3rd part of your principle – just by including something that had just a tiny little bit of commercial purpose other than tax avoidance – it certainly wouldn’t present much of a problem to the tax advisors that I know.
Oh good heaven’s above – don’t you think we know that – and it can be allowed for in the drafting?
No one is naive here – except you, maybe
So why didn’t you use a different wording, “no” is pretty definitive – you might wish to contrast with the wording used by Pugh and Meacher in their parliamentary motion. At times I find it hard to take you seriously when you defend the detail of positions which can be so easily picked apart.
I wrote the Pugh and Meacher motions
I m also well aware that clearer language is needed for mass communication
Which is one reason why people get what I am saying – they realise there may be a differenc between a blog and parliamentary motion
Except for pedants
[…] friend, the Undercover Judge, makes a good point on the blog this morning: It will be a great irony if Barclays’ latest […]
Richard
So what happens now in light of your article from February 2011 ? – are not Barclays still exploiting tax avoidance schemes by continuing to promote structured investments that can provide tax exempt returns for its wealthier clients ? Something about holding a Gilt for a few days at the end of an investment term and hey presto !! tax free !! OR you can apparently sell early without going anywhere near a Gilt and its still tax free !!
[…] has made the case for a General Anti-Avoidance […]
You overstate the possible impact of “your” GAAR and to be honest, it is incomplete and open to even more abuse.
1. No provision is made for a pre-clearance regime, which is fundamental to modern GAAR.
2. No provision is made for how such a GAAR may be invoked by HMRC and under what conditions.
3. As the onus of proof is upon HMRC to prove avoidance (and the related artificiality) this will not necessarily reduce HMRC costs. Add to this the possible cost of litigation, particularly if HMRC lose through the courts.
4. You seem to offer your GAAR as a panacea for your perceived injustices of post-Ramasay decisions. You need to bear in mind that the GAAR will still be subject to judicial interpretation and the results are not always favourable to revenue authorities – just look at the Canadian experience.
5. I am not sure that this GAAR would necessarily have caught either of the Barclays schemes – in the absence of facts, we have no idea regarding artificiality and whether or not a “commercial purpose” defense would have succeeded
Aaranson has no pre-clearance
This was never the whole story – for heaven’s sake a motion with no chance of success need not spell out all the details – the principle matters – so the admin was ignored
But the judicial issue is explicitly dealt with in my GAAR – by issuing instruction on interpretation
And yes – this GAAR would work – even down to the sudent loan company
And since Barclays thought they were avoiding using a scheme it would most certainly have caught them too
So respectfully – I suggest you’re putting forward misinformation
Aaronson makes it clear that he did not propose a broad GAAR because it would require a clearance programme to be appropriate – which would entail substantial resource requirements both taxpayer and HMRC (apart from the fact that it gave vast discretionary powers to HMRC)
Your so-called instruction regarding interpretation is unnecessary – we already have purposive interpretation of taxing statutes, starting with Ramsay. Ironically, it is this purposive interpretation which the courts use to strike down tax avoidance – and in some cases actually leading to interpretation being corrupted to stop avoidance schemes that the courts view subjectively as abusive.
I am a supporter of GAAR, but I think Stephen and JayPee have valid points.
And the international experience has not been encouraging. But, I think it is worth a try -even if it might only be a gesture. Sometimes gestures are important -we have to send out a sign that tax abuse is neither legally or morally acceptable..
GAARs have usually failed a) because they’re GAARS, not principles and b) because there was no guidance on interpretation, which is why I suggest that this is an essential part of any general anti-avoidance principle
What is the difference between a principle and a rule? Why will a principle work where a GAAR cannot?
Where has such a “principle” been established and what has its success been like?
How many GAARS have guidance on interpretations – this presupposes they adopt a literal interpretation of taxing statutes, unlike the UK which adopts a purposive approach, thus rendering any such guidance nugatory.
Principles rely on purposive legislation – which we must move towards