‘Tax avoidance’ is a dangerous expression but abusive tax planning has become intolerable in a period of austerity, says Aaronson
A general anti-abuse rule cannot tackle aggressive tax planning by multinationals, leading tax lawyers have told peers examining the draft Finance Bill measures.
The GAAR will mark a ‘fundamental shift’ in the UK’s tax system but it will be just one weapon in a range of anti-avoidance measures available to HMRC, they said in evidence given to the House of Lords economic affairs committee’s sub-committee on the Finance Bill.
► Tax avoidance: Peers to scrutinise general anti-abuse rule |
Graham Aaronson QC, whose study group reported to HM Treasury on the merits of a general anti-avoidance rule, insisted that the scope of the proposed GAAR was not too narrow, as critics including the tax campaigner Richard Murphy have argued.
Murphy drafted the General Anti-Tax Avoidance Principle Bill, a private member’s bill introduced last autumn by the Labour MP Michael Meacher, which has failed to make any significant progress in the House of Commons.
Murphy, however, will give evidence to the Finance Bill sub-committee on Wednesday, when peers will also question Patrick Stevens, president of the Chartered Institute of Taxation and Bill Dodwell, chairman of the CIOT’s technical committee.
Peers heard evidence today from Aaronson and Malcolm Gammie QC. The fact that the GAAR will apply only to ‘abusive schemes’ will not ‘exonerate’ other schemes, Aaronson said. He expressed frustration that people who would like to see a wider GAAR, but did not take part in his study group’s ‘scores, if not hundreds of hours’ of discussions, had argued that the GAAR would have the effect of encouraging avoidance.
As Tax Journal reported last April, the Association of Revenue and Customs, representing senior HMRC officials, claimed that use of the concept of ‘responsible’ tax planning could ‘widen perceptions of what is responsible tax planning and so make it harder to tackle avoidance’.
Multinationals
Lord Hollick noted today that the Chartered Institute of Taxation had said the GAAR would not have any impact on multinationals’ tax arrangements. Aaronson said that, on a conceptual level, a GAAR could be used to explore some tax minimisation schemes used by large companies.
But he added: ‘At a practical level I would be very surprised if [the GAAR] had any application.’
‘By and large,’ he said, multinationals now split their functions, such as holding intellectual property and procurement of raw materials, into separate operating groups or entities. Groups operating in a large number of countries can ‘pick any country they want’ in which to locate any of these operations, he said. ‘By definition, you can’t stop that.’
‘Like it or not,’ he said, each individual state has its own tax regime, and some governments ‘try to attract enterprises in what might be regarded in a predatory way, by having very low tax rates’.
Thirdly, the arm’s length principle for transactions between branches of a multinational enterprise was the ‘basic concept’ behind the large network of double taxation treaties.
‘The result is chaos,’ Aaronson said. ‘You can’t stop it. You can’t stop someone deciding that the Netherlands is a good place to hold intellectual property.’
He added: ‘How do you stop, with a GAAR, multinational corporations doing what multinational corporations do? How do you stop other countries doing what they do?
‘Until you have a single tax system applying to all the main areas in the world where people want to locate their activities – a single tax base and a single tax rate – until you do that, it is inevitable that companies will put their functions in places which suit them best … A GAAR cannot do anything about this.’
Malcolm Gammie said that while he agreed with Aaronson’s view on the application of a GAAR, most multinationals did not organise themselves ‘by reference to particular jurisdictions’.
Functions are organised on a global basis, with perhaps three or more regions: ‘How everything is managed will pay no regard whatsoever to different tax jurisdictions and that, in itself, makes tax in multinationals very challenging.’
Gammie warned that even if every country in the world had an identical tax system, the problem of how to allocate profits among jurisdictions would remain, and added: ‘Taxing multinationals raises a whole range of issues that you have to address specifically rather than through something like a GAAR.’
‘A very dangerous expression’
Asked to comment on some of the terms used to describe various tax arrangements, Aaronson said ‘avoidance’ was a ‘rather unfortunate’ word in this context, which did little but create heat.
‘Avoidance can be regarded as a particularly nasty thing to do, or [in the case of avoiding an accident] it’s a very sensible thing to do … I would rather use words which are less emotive in describing the intellectual process of determining whether you should be paying a smaller amount of tax than you would otherwise pay,’ he said.
You could call this ‘tax planning’, he suggested, whether it was good or bad, or abusive or innocent planning.
‘Tax avoidance is a very dangerous expression to use if you want to have a serious debate, because one person’s avoidance is another person’s perfectly reasonable planning.’
‘Abusive’ was, by definition, ‘going too far’. Some individuals and organisations had taken tax planning to ‘such an extreme level that it’s just gone too far’, he said. Such activity had become intolerable in a period of austerity, and the GAAR was designed to stop it.
‘Tax avoidance’ is a dangerous expression but abusive tax planning has become intolerable in a period of austerity, says Aaronson
A general anti-abuse rule cannot tackle aggressive tax planning by multinationals, leading tax lawyers have told peers examining the draft Finance Bill measures.
The GAAR will mark a ‘fundamental shift’ in the UK’s tax system but it will be just one weapon in a range of anti-avoidance measures available to HMRC, they said in evidence given to the House of Lords economic affairs committee’s sub-committee on the Finance Bill.
► Tax avoidance: Peers to scrutinise general anti-abuse rule |
Graham Aaronson QC, whose study group reported to HM Treasury on the merits of a general anti-avoidance rule, insisted that the scope of the proposed GAAR was not too narrow, as critics including the tax campaigner Richard Murphy have argued.
Murphy drafted the General Anti-Tax Avoidance Principle Bill, a private member’s bill introduced last autumn by the Labour MP Michael Meacher, which has failed to make any significant progress in the House of Commons.
Murphy, however, will give evidence to the Finance Bill sub-committee on Wednesday, when peers will also question Patrick Stevens, president of the Chartered Institute of Taxation and Bill Dodwell, chairman of the CIOT’s technical committee.
Peers heard evidence today from Aaronson and Malcolm Gammie QC. The fact that the GAAR will apply only to ‘abusive schemes’ will not ‘exonerate’ other schemes, Aaronson said. He expressed frustration that people who would like to see a wider GAAR, but did not take part in his study group’s ‘scores, if not hundreds of hours’ of discussions, had argued that the GAAR would have the effect of encouraging avoidance.
As Tax Journal reported last April, the Association of Revenue and Customs, representing senior HMRC officials, claimed that use of the concept of ‘responsible’ tax planning could ‘widen perceptions of what is responsible tax planning and so make it harder to tackle avoidance’.
Multinationals
Lord Hollick noted today that the Chartered Institute of Taxation had said the GAAR would not have any impact on multinationals’ tax arrangements. Aaronson said that, on a conceptual level, a GAAR could be used to explore some tax minimisation schemes used by large companies.
But he added: ‘At a practical level I would be very surprised if [the GAAR] had any application.’
‘By and large,’ he said, multinationals now split their functions, such as holding intellectual property and procurement of raw materials, into separate operating groups or entities. Groups operating in a large number of countries can ‘pick any country they want’ in which to locate any of these operations, he said. ‘By definition, you can’t stop that.’
‘Like it or not,’ he said, each individual state has its own tax regime, and some governments ‘try to attract enterprises in what might be regarded in a predatory way, by having very low tax rates’.
Thirdly, the arm’s length principle for transactions between branches of a multinational enterprise was the ‘basic concept’ behind the large network of double taxation treaties.
‘The result is chaos,’ Aaronson said. ‘You can’t stop it. You can’t stop someone deciding that the Netherlands is a good place to hold intellectual property.’
He added: ‘How do you stop, with a GAAR, multinational corporations doing what multinational corporations do? How do you stop other countries doing what they do?
‘Until you have a single tax system applying to all the main areas in the world where people want to locate their activities – a single tax base and a single tax rate – until you do that, it is inevitable that companies will put their functions in places which suit them best … A GAAR cannot do anything about this.’
Malcolm Gammie said that while he agreed with Aaronson’s view on the application of a GAAR, most multinationals did not organise themselves ‘by reference to particular jurisdictions’.
Functions are organised on a global basis, with perhaps three or more regions: ‘How everything is managed will pay no regard whatsoever to different tax jurisdictions and that, in itself, makes tax in multinationals very challenging.’
Gammie warned that even if every country in the world had an identical tax system, the problem of how to allocate profits among jurisdictions would remain, and added: ‘Taxing multinationals raises a whole range of issues that you have to address specifically rather than through something like a GAAR.’
‘A very dangerous expression’
Asked to comment on some of the terms used to describe various tax arrangements, Aaronson said ‘avoidance’ was a ‘rather unfortunate’ word in this context, which did little but create heat.
‘Avoidance can be regarded as a particularly nasty thing to do, or [in the case of avoiding an accident] it’s a very sensible thing to do … I would rather use words which are less emotive in describing the intellectual process of determining whether you should be paying a smaller amount of tax than you would otherwise pay,’ he said.
You could call this ‘tax planning’, he suggested, whether it was good or bad, or abusive or innocent planning.
‘Tax avoidance is a very dangerous expression to use if you want to have a serious debate, because one person’s avoidance is another person’s perfectly reasonable planning.’
‘Abusive’ was, by definition, ‘going too far’. Some individuals and organisations had taken tax planning to ‘such an extreme level that it’s just gone too far’, he said. Such activity had become intolerable in a period of austerity, and the GAAR was designed to stop it.
