Synopsis: It may seem quiet on the “tax avoidance” front but …
Date posted: Monday, February 03, 2014
There has not been much ‘headline grabbing’ on the tax avoidance front lately. The Labour proposals for a re-introduction of the 50% ‘additional rate’ has of course grabbed the “tax” headlines and in connection with that there has been some mention of the importance of supporting measures to prevent easy avoidance – but no big press campaigns or ‘landmark’ cases on tax avoidance and preventing it.
If you think officialdom has ‘gone soft’ or believes the ‘job is done’ though, you would be mistaken.
At an EU level there is continuing debate over collaboration to minimise the detrimental impact of global corporations booking income in the lowest tax jurisdictions. The ‘double Irish’ arrangement gets relatively frequent mention in this context. Most accept though that while the debate is certainly ongoing, resolution is some way off. The taxation of global business and the scope for ‘legitimate’ avoidance is clearly not an easy one to get agreement on but one in which there is significant and ongoing interest among the countries of the EU and wider OECD.
At a purely UK level we have seen, albeit at a level somewhat below the “public radar”, the following activity:
(i) Further action against aggressive avoidance as a result of consultation, entitled ‘Raising the Stakes on Tax Avoidance.’ The key issues on which action will be taken in this context are
- forcing high risk promoters of avoidance schemes to provide details of their products to HMRC using suitable information powers and penalties,
- ensuring that users of high risk promoters’ schemes appreciate the risks they are running and understand the consequences,
- raising the standard of reasonable excuse and reasonable care for high risk promoters and the users of their avoidance schemes,
- encouraging users of avoidance schemes to settle their tax affairs after similar cases have lost in court, and
- amending the Disclosure of Tax Avoidance Schemes (DOTAS) regime to make sure the right information gets to HMRC at the right time.
(ii) A new consultation on ‘Tackling marketed tax avoidance.’
This consultation sets out the Government’s next steps to tackle another specific problem in the system, namely disputed tax.
Around 65,000 people and businesses have used marketed tax avoidance schemes that need to be investigated and litigated. But when an avoidance scheme is challenged in court, the tax system currently allows taxpayers to hold on to the disputed tax, no matter how tenuous their scheme and how unlikely they are to succeed. The taxpayers and scheme promoters are thus, it seems, incentivised to sit back and delay as long as possible – despite evidence that in the vast majority of cases, when the dispute is resolved, tax is due.
The proposals to tackle ‘High Risk Promoters’ were one step in addressing these behaviours. At Autumn Statement 2013, the Chancellor announced another: new measures to require taxpayers to pay the tax they owe if they have used the same avoidance scheme (or a similar scheme) as one which a court or tribunal has already ruled against. If they continue the dispute in the face of the evidence they risk a penalty.
This is a start, but the Government feels there is more to do. This consultation puts forward possible ways to extend the accelerated payment proposals. The measures we propose would change the economics of engaging in tactical tax avoidance promoted by some advisors.
(iii) Significant changes (effective from 6.4.2014) to how partnerships and LLPs can legitimately be used in relation to tax saving. There is particular official concern over ‘manipulated profits’, the avoidance of NIC by making otherwise salaried employees partners or (salaried) LLP members and partnerships and LLPs with mixed memberships of individuals and corporations. In this latter case the concern is that losses are able to be attributed to individuals while profits flow into (lower taxed) companies.
The provisions apply from 6.4.2014. As a “by the way” there has also been reference to the potential use of the GAAR to supplement the targeted anti-avoidance provisions on partnerships and LLPs if necessary.
Tax avoidance is still very much at the front of the Government’s mind.
Generally, if it looks too good to be ‘tax true’ then (these days especially) it probably is. And this is almost certainly so in relation to relatively aggressive tax avoidance schemes. As we have said a few times before, when it comes to effective and reliable financial planning “boring is the new exciting”.
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