The government has, in the last hour, published a new policy document on tax avoidance and tax evasion.
Much of what that document has to say on progress to date is nonsense, based on vastly overstated claims on tax recovered and misrepresentation of its spending on HMRC, matched to a catalogue of actions which provide greater evidence of opportunity missed than anything else.
But it's not all negative. There is a welcome revival of the proposal for a strict liability offence on offshore tax abuse and a stated intention to extend it to tax advisers, which is long overdue.
More important in many ways is this:
Today, the government also announced it is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance to protect the reputation of the tax and accountancy profession and to act for the greater public good.
The accountancy profession has long been wilfully negligent on this issue (I use the words intentionally) and it is overdue that accountants be reminded of just what their public duties are, and be reuqired to fulfil them.
For once, I have something to applaud.
Now wait for the howls of protest.
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I’m afraid I’m finding it very difficult to share your optimism on this one, Richard.
As you know, in the US, KPMG, PWC, EY and Deloitte all pleaded guilty for designing and marketing fraudulent schemes dressed up as “tax shelters/avoidance”. What is needed in the UK is simply similar CRIMINAL INVESTIGATION AND PROSECUTON; not asking the regulators captured by the firms neck-deep in the malpractices “to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance to protect the reputation of the tax and accountancy profession and to act for the greater public good.”
On tax evasion, the document acknowledges that “Criminal sanctions are already available against individuals who facilitate or encourage tax evasion” but then goes on in the same paragraph to declare that “The Government today announces new civil penalties for enablers of tax evasion and will consult on the detail of this.” In other words, they’re simply trying to de-criminalise a long-established offence and that to me is almost criminal!
A criminal tax charge of assisting evasion is also proposed
I mentioned it
Sure, you did. But let’s analyse the proposal in context:
“3.13 The Government is also taking tough action against those who enable offshore tax evasion. The Government today announces new civil penalties for enablers of tax evasion and will consult on the detail of this. This will include a new collateral penalty under which enablers will pay a fine equivalent to that paid by the individual that they helped to evade tax; and public naming of those that enable tax evasion. Criminal sanctions are already available against individuals who facilitate or encourage tax evasion. The Government today announces it will create a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion, following consultation.”
In other words, the “new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion” could also be used to effectively de-criminalise the “criminal sanctions … already available against individuals who facilitate or encourage tax evasion” because you can’t jail a corporation — you can only fine it. Take HSBC as an example. Under existing law, both the London-based bankers that provided special debit cards used to withdraw cash here in London and the Swiss-based bankers that handed over bricks of cash could either be prosecuted as individuals and jailed. But if the new corporate offence comes into force, HSBC could be prosecuted and if found guilty, fined. No individual need be prosecuted even if the existing law remains.
Intereting point
Thanks
Make it to consultations when they happen
From a Bretton Woods economist in 2008 “Their lawyers simply say they are not going to contest the charge, but if they pay, they haven’t technically been found guilty of anything”. [1]
[1] The utopia of rules, David Grabber, 2015. p25, ISBN 978-1-61219-374-8
As a solicitor who is often asked for tax planning (read “avoidance”) advice by clients, I would love the Law Society to take the lead and issue firm guidance to its members about the approach we should take to giving such advice.
I know many professionals feel they are under pressure to spell out the ‘avoiding-est’ option to their clients, either for commercial reasons (“if they don’t use us, the clients will go somewhere else”) or possibly for fear of being negligent (“if we don’t give the client the option to avoid tax, will the client sue if he eventually finds out he could have paid less?”)
Like many professionals, I am torn between my personal views and the supposed ‘best interests’ of my clients, and trying find an appropriate balance can be difficult.
If professional organisations such as the Law Society took some sort of lead on this, that balance would be much easier to achieve.
Agreed
Perhaps it’s time for the Law Society to allow a democratic vote of all members on this issue since the Tax Committee that speaks on behalf of all solicitors on the matter is dominated by the City lawyers that live off tax avoidance.
See from two days ago: “Law Society condemns new tax avoidance penalties” http://www.lawgazette.co.uk/analysis/comment-and-opinion/taxing-budget-for-solicitors/law/strict-liability-offence-for-offshore-tax-evasion/law/society-condemns-new-tax-avoidance-penalties/5047546.article
Proposals for tougher penalties against serial users of disallowed tax avoidance schemes are premature and could threaten fundamental rights such as that of appeal, the Law Society has said.
In a hard-hitting response to a consultation on strengthening sanctions for tax avoidance, the Society’s tax law committee says it has ‘fundamental misgivings’ about HMRC’s proposals to introduce new penalties for ‘serial users of tax avoidance schemes’ and those whose planning is counteracted by the general anti-abuse rule (GAAR).
In particular it condemns proposals to restrict tax reliefs to taxpayers with a history of abusing a relief. The response says the Society would ‘strongly resist’ any move to deny unconnected reliefs to serial investors in film schemes, for example.
The Society also has ‘concerns’ about what it calls the government’s suggestion that reliance on professional advice may be insufficient to protect a taxpayer from a penalty under the GAAR.
‘Taking appropriate professional advice should exonerate a taxpayer from carelessness or deliberate behaviour penalties.’ It says that HMRC’s proposal would ‘drive a coach and horses through the principle that an individual’s behaviour should be dealt with on a case-by-case basis’.
Accusing the government of consulting in bad faith, the response says the committee is ‘extremely concerned’ by the short time available for responses. With announcements on this subject expected in Wednesday’s budget, ‘this suggests little or no credence will be paid to responses to this consultation’.
Tax committee chair Gary Richards said: ‘The government’s proposals are premature. HMRC’s legislation on follower notices and accelerated payments has only recently been introduced. If these measures meet their objectives, and it is too early to assess this, HMRC’s latest proposals on serial users will be unnecessary.
‘We are concerned that HMRC is not using its existing powers to litigate, instead wasting resources by attempting to introduce new legislation at a time when the deterrent effect of the general anti-abuse rule has yet to be established.’
So typical of those selling this stuff
But also quite probably untypical of the profession as a whole
At least, I would like to think so
Incidentally, on the same day … Government opposes PAC call for state regulation of tax advisers:
https://www.gov.uk/government/publications/treasury-minutes-march-2015
1: Committee of Public Accounts conclusion
The tax arrangements PWC promoted in Luxembourg bear all the characteristics of a mass marketed tax avoidance scheme.
Recommendation:
HMRC should set out how it plans to take a more active role in challenging the advice being given by accountancy firms to their multinational clients, with a particular view to the mass marketing of schemes designed to avoid tax.
1.1 The Government disagrees with the Committee’s recommendation.
1.2 The department already challenges non-compliance by multinationals very effectively. The tax
affairs of the 2,000 largest businesses in the UK are managed by Customer Relationship Managers
(CRMs) in a special Large Business directorate. CRMs are experienced tax professionals trained to
the highest levels of tax compliance, who “man mark” these complex and high risk taxpayers and lead teams of highly skilled specialists to manage their compliance.
1.3 Large businesses are inherently high risk because of their potential impact on revenues and their ability to structure their affairs in tax-efficient ways. That is why the department invests in direct engagement with them so that its tax professionals have in-depth knowledge of their business model, business and tax disputes, appetite for risk in tax planning, and internal governance.
1.4 Through this approach, the department secured £31 billion extra tax from large businesses between 1 April 2010 and 31 March 2014.
3: Committee of Public Accounts conclusion
The tax industry has demonstrated very clearly that it cannot be trusted to regulate itself.
Recommendation:
The Committee believes strongly that the Government must act by introducing a code of conduct for all tax advisers, as the Committee recommended in its April 2013 report. The Committee further recommends that the Government should consult on how it should regulate the industry and enforce such a code, including through financial sanctions that could be imposed in the event of non-compliance.
3.1 The Government disagrees with the Committee’s recommendation.
3.2 The Confederation of British Industry (CBI) has published a draft Statement of Tax Principles14 to promote responsible tax planning. This initiative is a valuable contribution to the ongoing national and international debate around corporate tax transparency.
3.3 The ICAEW has also developed its own Code of Ethics, which it expects all of its members to follow. This Code encourages members to comply with its fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
3.4 Compliance with either the Code of Ethics or the Statement of Tax Principles will not determine whether or not firms can access government contracts. However, the Government has published separate guidelines to give departments the discretion to terminate contracts with suppliers that have engaged in tax avoidance themselves.
Thanks for this
You will see I have picked the issue up on the blog
This is all very cute. The names of the most aggressive scheme pushers are known.
It’s going to need some reform of the legal system too.
Of course