The government should start to explain to the public why the proposed general anti-abuse rule will not apply to most international tax planning undertaken by multinationals, a leading tax expert has told peers.
Elspeth Orcharton, director of corporate and international tax at the Institute of Chartered Accountants of Scotland (ICAS), was giving evidence to the House of Lords economic affairs Finance Bill sub-committee on Monday.
Orcharton indicated that ICAS would welcome a GAAR that countered abusive tax schemes, ‘particularly’ some of the income tax schemes that have attracted media coverage.
Other media reports had focused on international business structures, she noted. ‘I do think there is in some ways a knee-jerk reaction, and different levels of understanding among the public as to how international businesses operate …
‘It is true that the GAAR will not attract those but it’s up to the government to start explaining why it won’t, [and] to explain [why] there are low amounts of corporation tax paid in the UK by international businesses.’
Orcharton said this was a ‘direct result of government policies to try to make the UK competitive in the global market place’.
Negotiations on the taxation of internet-based businesses, and the treatment of intellectual property, should ‘proceed apace’, she added, and HMRC should be resourced ‘adequately’ so that ‘it can be seen to be an effective policer’ of policies implemented in current legislation.
Chas Roy-Chowdhury, head of tax at ACCA, pointed out that some businesses may be paying relatively little UK tax because they had invested heavily and been entitled to capital allowances, or they were internet businesses based outside the UK.
But Roy-Chowdhury questioned the need for a GAAR: ‘If there are abusive tax avoidance schemes out there, they should be dealt with. But we have a lot of legislation already and we could deal with those [schemes] very specifically and quickly without having a more general anti-abuse rule, which may be susceptible to mission creep in years to come.’
Roy-Chowdhury told Tax Journal last September that ‘convoluted tax planning schemes that do not have any business purpose or economic substance but are expressly designed to exploit loopholes in the law cannot be supported’.
Frank Haskew, head of the ICAEW tax faculty, said the ICAEW had always ‘supported the GAAR in principle’. He reminded the committee that there was a consultation on a proposed general anti-avoidance rule in 1998. But the current discussions had been going on for the last two years.
‘They stemmed from what I would call income tax avoidance cases … We need to bear in mind that [the GAAR] is really aimed at … “drive-by avoidance”, very “egregious” tax schemes. It was never designed to look at international tax. It will potentially catch some international tax planning but it didn’t start from there.’
He added: ‘But we are where we are, and we have a GAAR on the stocks. We need to make sure that it works and that people have reasonable certainty [in their tax affairs] and that it doesn’t damage UK business.’
Roy-Chowdhury said there was a need to ensure that the GAAR stays focused on the original reasons for which it was set up, once the consultation process has ended.
In a press release issued after the Lords committee hearing, Roy-Chowdhury said: ‘If the government feels businesses are not paying enough tax, anti-abuse measures are not the way to go about rectifying that. A fundamental review of the tax system is needed.
‘While larger businesses will be able to ensure compliance to GAAR with ease, it will create uncertainty for the many small businesses and individuals who will have sleepless nights wondering whether the perfectly legitimate financial planning they have used is considered abusive under the rules, when the aim of that planning is to create reinvestment, jobs and export opportunities for their enterprise.’
The government should start to explain to the public why the proposed general anti-abuse rule will not apply to most international tax planning undertaken by multinationals, a leading tax expert has told peers.
Elspeth Orcharton, director of corporate and international tax at the Institute of Chartered Accountants of Scotland (ICAS), was giving evidence to the House of Lords economic affairs Finance Bill sub-committee on Monday.
Orcharton indicated that ICAS would welcome a GAAR that countered abusive tax schemes, ‘particularly’ some of the income tax schemes that have attracted media coverage.
Other media reports had focused on international business structures, she noted. ‘I do think there is in some ways a knee-jerk reaction, and different levels of understanding among the public as to how international businesses operate …
‘It is true that the GAAR will not attract those but it’s up to the government to start explaining why it won’t, [and] to explain [why] there are low amounts of corporation tax paid in the UK by international businesses.’
Orcharton said this was a ‘direct result of government policies to try to make the UK competitive in the global market place’.
Negotiations on the taxation of internet-based businesses, and the treatment of intellectual property, should ‘proceed apace’, she added, and HMRC should be resourced ‘adequately’ so that ‘it can be seen to be an effective policer’ of policies implemented in current legislation.
Chas Roy-Chowdhury, head of tax at ACCA, pointed out that some businesses may be paying relatively little UK tax because they had invested heavily and been entitled to capital allowances, or they were internet businesses based outside the UK.
But Roy-Chowdhury questioned the need for a GAAR: ‘If there are abusive tax avoidance schemes out there, they should be dealt with. But we have a lot of legislation already and we could deal with those [schemes] very specifically and quickly without having a more general anti-abuse rule, which may be susceptible to mission creep in years to come.’
Roy-Chowdhury told Tax Journal last September that ‘convoluted tax planning schemes that do not have any business purpose or economic substance but are expressly designed to exploit loopholes in the law cannot be supported’.
Frank Haskew, head of the ICAEW tax faculty, said the ICAEW had always ‘supported the GAAR in principle’. He reminded the committee that there was a consultation on a proposed general anti-avoidance rule in 1998. But the current discussions had been going on for the last two years.
‘They stemmed from what I would call income tax avoidance cases … We need to bear in mind that [the GAAR] is really aimed at … “drive-by avoidance”, very “egregious” tax schemes. It was never designed to look at international tax. It will potentially catch some international tax planning but it didn’t start from there.’
He added: ‘But we are where we are, and we have a GAAR on the stocks. We need to make sure that it works and that people have reasonable certainty [in their tax affairs] and that it doesn’t damage UK business.’
Roy-Chowdhury said there was a need to ensure that the GAAR stays focused on the original reasons for which it was set up, once the consultation process has ended.
In a press release issued after the Lords committee hearing, Roy-Chowdhury said: ‘If the government feels businesses are not paying enough tax, anti-abuse measures are not the way to go about rectifying that. A fundamental review of the tax system is needed.
‘While larger businesses will be able to ensure compliance to GAAR with ease, it will create uncertainty for the many small businesses and individuals who will have sleepless nights wondering whether the perfectly legitimate financial planning they have used is considered abusive under the rules, when the aim of that planning is to create reinvestment, jobs and export opportunities for their enterprise.’
