I note this by Adam Palin in the FT in an article discussing film investment partnerships, against which HMRC has secured a notable victory on the grounds that many were abused for tax avoidance purposes:
[T]he indiscriminate clampdown by a hyperactive tax authority tasked with generating billions in extra revenue could also have a lasting impact on the attraction of tax reliefs in the future.
If the confidence of investors and their advisers in the UK government's commitment to honour reliefs is permanently shaken, for fear of tax being retrospectively clawed back, enthusiasm to invest in risky venture capital or enterprise zones will wane.
Without fiscal tools that work, encouraging money to flow into areas and sectors that most need it will prove an impossible task.
That's nonsense. It assumes three things. The first is that the government must bear the risk in investment with the investors getting the return.
Second, it assumes that this results in an efficient allocation of capital.
Third, it assumes that even when applied remarkably indiscriminately, and in ways not intended by parliament, it is still true that the outcome is good for society.
I have no objection to the state subsidising business: that is, in fact one of its tasks in my opinion. But I do think this best done by direct subsidy on the merit of each case and that the state should partner in the returns made. That process is a long way removed from blanket tax reliefs that are designed to remove the state from the decision making process to the greatest possible degree whilst leaving it with all the costs. That, as we have seen is just a recipe for abuse.
Seen in this way the loss of this tax avoidance case is rather more than a win for HMRC: it's also in reality a defeat for cowardly politics, a win for The Courageous State and is a straightforward defence of industrial policy rather than tax subsidy. If that's the case this is real reason to celebrate.
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Very well made, Richard.
May I add that it’s also a BIG FAIL to Jolyon Maugham whose desperate case FOR the tax avoiders was given short shrift by the Supreme Court?
Here was he boasting in his 2014 Hardman Lecture that HMRC would lose in court and arguing, believe it or not, that it was “in the public interest [to] settle these cases at knock down prices.”
file:///C:/Users/osiimba/Downloads/Hardman_Lecture_11_november_2014_-_full_text.pdf
“I want to finish with the most important point I’ll make this evening.
We have collectively, all of us taxpayers in the room and all of those taxpayers out there, some £14bn of exposure to marketed artificial avoidance schemes. That’s a Treasury figure. It’s a huge number. It’s almost half the tax gap.
A huge chunk of it represents exposure to two issues: one, what is a “trade” and two, what does the phrase “incurred on” mean? The two leading cases on these issues are plodding their way through the appellate system. So far HMRC has won. But so far the cases have only come before the lower tribunals. And I think it’s far from certain HMRC will win on appeal.
That’s only my view. So let’s assume I’m wrong and examine the data.
The quoted figure for HMRC succeeding in avoidance cases is 80%. And Treasury extrapolates all sorts of stuff from that 80% figure, including HMRC’s prospects of success going forward. But that’s a figure from a four-year period (April 2010 to March 2014) that has been a prolonged golden moment for winning avoidance cases. It’s not representative. It’s like looking at the performance of the London property market over the last couple of years and concluding therefrom that the London property market will always rise by 20% per annum.
Moreover, there is a heavy bias in that period to cases before the junior tribunals. And it’s punchy to assume that superior courts will follow their lead — there are many examples where they haven’t. The obvious example is a case called Conde Nast where the taxpayer lost in every tribunal except the House of Lords (where I appeared for the first time — I do win occasionally). The Exchequer’s exposure to that case ran into many billions.
So if you dig into the evidence, you can see that there are very real reasons to think we might be seriously understating the risk that HMRC will lose one or even both of those issues on appeal. And, although I don’t have the breadth of perspective that Treasury does, from what I’ve seen I don’t think it’s unreasonable to assume a loss on one of those issues might represent a loss of £5bn of tax.
Now, the other side of the equation is this: at what price will the taxpayer settle these cases? Here, too, we have a golden moment. Taxpayers today are desperate to settle. They are dispirited by a run of losses at first instance and in the Upper Tribunal. They will settle for less than — looked at dispassionately — they should. 8 So, if you’re Treasury, you have limited downside (because there is a low cost of settling) and a big upside (as you get rid of your contingency risk).
A courageous government would recognise these facts. It would act in the public interest and settle these cases at knock down prices. It would relinquish that contingent £14bn in return for a certain £11bn. It would be criticised for doing so, but it would be right.”
I’m not sure Jolyon was being as disingenuous as you suggest
But he did lose
That’s a barrister’s expectation on a regular basis
Fair enough. His views on his blogs regarding the reliefs are not materially difference from yours, it has to be said.
Just read this and thoroughly agree. “One film scheme investor told me he was heartbroken at having to sell a holiday home he bought for his children and grandchildren to settle his disputed debts.” I won’t be losing any sleep…
Probably the next one to look at is R&D tax relief – another area where advisers are in abundance.
Agreed