The conclusion is based on HMRC data, but also on a report by me on the General Anti-Abuse Rule. As Nicola Smith of the TUC has written:
New TUC research (undertaken for us by Richard Murphy of Tax Research) shows how weak the government’s latest anti-avoidance measure really is. You might think that an initiative labelled as an ‘anti-avoidance’ rule would make some inroads to the UK’s tax dodging industry. But in fact the Government’s own estimates show that its General Anti -Avoidance Rule will, at best, limit one per cent of the estimated £25bn that we lose each year through tax avoidance measures.
How has something that sounded so promising gone so sour? The devil, it turns out, really is in the detail. As our report sets out, there are six key problems with how the General Anti-Avoidance Rule will work:
- The Rule’s definition of tax abuse is far too narrow — none of the big scandals that have recently hit the press (including companies such as npower, Google, Amazon and Starbucks) would have been stopped by the its provisions.
- There is a complex test to determine when the Rule can be used by the government — arrangements must be such that they ‘cannot reasonably be regarded as a reasonable course of action’. This test is so tight very little tax avoidance schemes will be covered by it.
- The Rule is administered by a panel of experts — who are all drawn from the tax avoidance industry and can be expected to have a broad view of what ‘reasonable’ action might be.
- The Rule requires HMRC to show that a scheme is abusive, rather than requiring the corporate taxpayer to show why it is not.
- There is no penalty regime attached to the Rule — if someone is found to be operating an abusive scheme they will be asked to stop but won’t even be asked to pay a fine.
- There is no ‘clearance system’ attached to the Rule — this means there is no arrangement where a taxpayer can ask HMRC whether or not the transactions they are proposing are within the scope of the Rule. As well as creating unnecessary uncertainty, this also means that the rule fails to prevent tax abuse before it happens.
Tax avoidance is no good for our society, our public services or most responsible businesses — it leaves our public finances in a poorer state then they would otherwise be and increases the amount of tax that smaller businesses (who can’t afford the expensive legal expertise that is often needed to engage in tax avoidance) need to pay.
But despite extensive rhetoric on the need to crack down on abuse, so far the Government’s proposals have fallen short of the action we need if tax avoidance is to be tackled. The GAAR provided an opportunity to introduce a real change into the UK’s tax system — but despite the warm words its impact will be practically non-existent.