There’s no point being churlish about the Lib Dems. On occasion they remember who they once were. As the Guardian has noted:
Speaking at an event to promote the government's efforts to increase social mobility, the deputy prime minister said: "We are looking at the case for an anti-avoidance rule to ensure that wealthy individuals pay their fair share of tax."
I can well remember selling this idea to Vince Cable — as a result of his reading the TUC’s “The Missing Billions” in which I proposed it.
Good to see that it’s still biting — even in the Coalition government.
Although actually I don’t think it would have had much impact on Sir Philip. Which is why I have suggested something else instead.
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@Richard Murphy
I am told by someone who knows a fair bit about this subject that the body that is most opposed to a general anti-avoidance rule is HMRC itself.
The reason given is that if you have a general anti-avoidance rule then you will also have to have system by which people can get pre-clearance from HMRC before they do things so they know whether what is proposed is going to be within or without the rules. HMRC hate the idea of pre-clearance.
Now I don’t know why pre-clearance is such a big issue for HMRC – lots of other countries seem to have it and get by ok.
Mr Murphy, do you know why HMRC have such a hang up here?
@Mr Snuffleupagus
You may hear correctly
a) HMRC think clearances would be costly and out them under pressure – no problem – let them charge for them
b) They think all deals change from the time a clearance is given and have no idea how far they are then bound
That’s an issue – but not insurmountable
c) They don’t want a precedent book on line. I think that wrong
I wondered if the precedent issue might be the reason…
HMRC is often its own worst enemy.
(a) and (b) are issues that, for example, the Dutch authorities seem to have resolved to their satisfaction.
The precedent issue however goes to the heart of the philosophy of the organisation. Given that Brown couldn’t change that, I will be surprised if Clegg manages.
There are two ways to do this.
The sensible way is to have a GAAR which only applies to transactions whose primary purpose and benefit is to avoid tax. This would be easy to draft, and impose little burden on either HMRC or business. There are relatively few transactions in this category, and those who enter into them would be getting what they deserve.
The second way is for the GAAR to attack individual elements of bona fide business transactions. This is much more difficult territory. For example, a business sale can be structured in numerous different ways, some of which will result in higher taxes than others. There is no obligation to chose the method that results in the highest tax. Nor should companies be able to structure in entirely artificial ways that result in the lowest amount of tax. Between these two extremes is a spectrum of grey, and it is this area in which many, many, transactions fall. You would need a clearance system to avoid creating uncertainty for business, but the sheer volumes make that very challenging.
Comparisons with other jurisdictions are difficult. The UK attracts transactions from all over the world due to the flexibility of English law, the reputation of our Courts and our legal and business expertise. The volume of transactions that would need clearance is therefore significantly more than in New Zealand and Australia, the most prominent GAAR jurisdictions (both of which I believe had GAARs which originally weren’t thought to attack “elements” of transactions, but were extended to have that effect by caselaw and legislation).
Note that these concerns really only appply to companies – a GAAR that aggressively targetted elements of transactions entered into by individuals might be workable.
@Marc Daniels
We already have a GAAR for the first way. In fact it is even law – Furniss v Dawson etc.
The second way would be a lawyers’ charter.
I am not aware of any country which uses the GAAR effectively in the second way.
@Richard Murphy
“c) They don’t want a precedent book on line. I think that wrong”
English case law is based on the notion of precedent. And let’s be honest, all these cases are going to end up in the courts. So a precedent book is unavoidable.
Also, a GAAR would put the relationship between HMRC and the taxpayer on an unequal footing. You would, essentially, have “rules” which the taxpayer has to comply with, but “principles” which can be used by HMRC entirely at their own whim. That is fundamentally unfair and unreasonable.
Furniss v Dawson changed the nature of most tax avoidance schemes, and eliminated the most egregious, but certainly did not change behaviour.
It’s been clear for some time that Furniss and similar cases apply only in limited circumstances, and on the basis of the latest caselaw there is no Furniss v Dawson principle, merely a “realistic” approach to statutory construction. Most of HMRC’s recent success has been on other legal bases.
@Marc Daniels
Agreed, entirely
re Codes of Conduct see http://www.taxresearch.org.uk/Documents/TaxCodeofConductFinal.pdf