Shocking revelation: business doesn’t like the government’s tax abuse rule

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Friday wasn't just the day Michael Meacher's  General Anti-Tax Avoidance Principle Bill went before parliament; it was also the last day of consultation on the government's alternative General Anti-Abuse Rule. The FT has an article on business reaction this morning, and what a sorry tale it is.

As Meacher accurately said last Thursday of the government's proposal:

The Prime Minister’s boast that he was cracking down on aggressive tax avoidance turns out to be nothing more than a paper aeroplane job devised in the certain knowledge that it will never fly.

But noit according to the FT report:

New rules curbing “abusive and artificial” tax avoidance risk damaging investment and give too much power to Revenue & Customs (HMRC), business leaders have told the Treasury.

The CBI, the business employers’ group, said it supported plans to outlaw abusive schemes but the new rules had been drafted in a way that could hit “straightforward tax management” and undermine the government’s drive to give Britain the most competitive corporate tax system in the G20.

Its criticisms were reinforced by many accountants and lawyers in response to a Treasury consultation regarding a “general anti-abuse rule” (Gaar) launched by George Osborne to clamp down on “morally repugnant” tax abuses.

Thankfully not all see it that way:

Unions and campaign groups have voiced concerns that the proposed rules, which define schemes as abusive if they “cannot reasonably be regarded as a reasonable course of action”, do not go far enough.

I'll confirm that is true. But what's really intriguing is the CBI's comment:

John Cridland, CBI director-general, said: “We are concerned that the latest proposal is too broad and could affect not just abusive transactions but also straightforward tax management.”

Critics also attacked a proposed advisory panel, which will give quick, non-binding opinions to HMRC and taxpayers about whether the Gaar should be invoked. Mr Cridland said: “We are . . . concerned about the independence of the Gaar panel which currently has HMRC acting as ‘judge and jury’.”

My criticism is the exact opposite, but was again well expressed by Michael Meacher:

The Aaronson report recommended that if a general anti-abuse rule were accepted at all, Her Majesty’s Revenue and Customs should be obliged to consult and get the approval of a tribunal before it could be used against any particular person or company. In other words, the Government’s official tax collection agency should have to get permission from an external body before it could exercise its legal powers. That is an extraordinary proposal. However, it gets worse. The Aaronson group proposed that the tribunal should have three members–fair enough–of whom two should be from the tax avoidance industry. That makes it an open and shut case: the general anti-abuse rule will certainly gather dust on the shelf.

Quite so: the crisis is that HMRC cannot act without permission - and the tax avoidance industry is bound to populate the panel that will give that permission. If ever there was a case of state capture, this was it.

This debate has a long way to go as yet.