Private Member's Bill would target 'abuse on a wide range of tax issues'
MPs will debate a Bill to establish a general anti-tax avoidance principle on Friday, 14 September – the closing date for responses to HMRC’s consultation on a proposed general anti-abuse rule or GAAR which, according to a member of the GAAR study group, would itself create an anti-avoidance ‘principle’ to guide taxpayers and the courts.
MPs will also debate tax avoidance on Thursday, 13 September. The General Anti Tax-Avoidance Principle Bill is a Private Member’s Bill, sponsored by Michael Meacher, Labour MP for Oldham West and Royton. It was presented to Parliament in June.
‘Few of these Bills are successful but they may draw public attention to the problem,’ says guidance on the Parliament website.
‘A good try, but don't hold your breath,’ said Mark D’Arcy, the BBC’s parliamentary correspondent, noting that Thursday’s debate might help Meacher to get the Bill past second reading.
Impact assessment
The Bill was written by Richard Murphy, anti-avoidance campaigner and director of Tax Research UK. Murphy said the government's ‘economic impact assessment’ had suggested that the proposed GAAR would have ‘no measurable economic impact at all’.
‘Why introduce a Bill to tackle a problem if the estimated impact is negligible?’ Murphy asked in a blog post yesterday.
HMRC’s taxes impact assessment, at page 33 of its consultation document, listed anticipated impacts under a number of headings. ‘The GAAR is targeted at artificial and abusive tax avoidance schemes and is not therefore expected to have any significant effects on the macro-economy,’ HMRC said.
However, the proposed GAAR would ‘support the government’s aim of reducing tax avoidance’ and would ‘both raise and protect revenue’. The revenue impact would reflect the targeting on artificial and abusive avoidance but would depend on the final design of the proposal: ‘Any final exchequer impact will be assured by the Office for Budget Responsibility.’
In a new ‘issue briefing’ on tax avoidance, published last week, HMRC said the GAAR would ‘act as a deterrent to those engaging in artificial and abusive avoidance schemes by improving HMRC’s ability to tackle schemes successfully’.
Income shifting
Murphy said that Meacher’s Bill, instead of being ‘extremely narrowly focused’, was designed to target ‘abuse on a wide range of tax issues’.
‘So, for example, it attacks shifting income from one tax to another to reduce the tax paid and it challenges any scheme resulting in tax paid late. It also tackles any scheme that might artificially shift a profit subject to tax out of the UK,’ he said.
The Chartered Institute of Taxation said in June, in response to publication of the consultation document, that it had warned that ‘many of the examples of “tax dodging” highlighted by the media and campaigners would not be caught by the GAAR’. The government should be clear on what the GAAR would, and would not, achieve.
The Association of Revenue and Customs, which represents senior HMRC officials, has warned that the proposed GAAR could ‘widen perceptions of what is responsible tax planning and so make it harder to tackle avoidance’.
But the government had accepted tax barrister Graham Aaronson’s conclusion, following an 11-month study commissioned by HM Treasury, that a ‘broad spectrum’ anti-avoidance rule would not be beneficial for the UK tax system. ‘Such a rule would risk compromising the certainty that is vital to provide the confidence to do business in the UK,’ Exchequer Secretary David Gauke said in a foreword to the consultation document.
A Treasury spokesperson told Tax Journal today: ‘The government is determined to tackle aggressive avoidance and has reinvested over £900m in HMRC to strengthen its fight against avoidance, evasion and fraud.’ The draft GAAR would strengthen the government’s anti-avoidance strategy.
Principle
Judith Freedman, who was a member of Aaronson’s study group, is a Professor of Taxation Law at the University of Oxford. Writing in Tax Journal in June, she recalled that she had argued in 2003 for ‘an overarching legislative principle to guide taxpayers, revenue authorities and the courts; a general anti-avoidance principle (GANTIP)’.
That principle could then be weighed against what she called the ‘tax minimisation licence’ provided in the Duke of Westminster case. It would provide a framework to guide the actions of taxpayers and revenue authorities, she said. ‘A [GANTIP] would give the courts authority to carry on developing this legitimate principle through case law as necessary. The draft clauses in the government's consultation document create such a principle and create the necessary signals to taxpayers and the courts.’
The Duke of Westminster case was decided in 1936. As the CIOT and other professional bodies have noted in their joint guidance to tax advisers, HMRC sees artificial arrangements as ‘fundamentally different from choosing one commercial approach which generates a lower tax bill than another, or the mere organisation of a taxpayer's affairs in such a way as to minimise the tax liability’. The approach of the courts had ‘changed over time’, the guidance said.
‘Just and reasonable’
Meacher's Bill would introduce a principle that ‘any financial arrangements made by a company or individual should not have as their primary purpose the avoidance of tax’, and would establish a ‘statutory rule to apply in the assessment of such arrangements’.
Tax advantages arising from arrangements having as their main purpose, or one of their main purposes, ‘the obtaining of a tax advantage as a result of tax avoidance’ would be ‘counteracted on a just and reasonable basis’. Taxpayers would be able to apply for HMRC clearance, but a fee would be payable.
Private Member's Bill would target 'abuse on a wide range of tax issues'
MPs will debate a Bill to establish a general anti-tax avoidance principle on Friday, 14 September – the closing date for responses to HMRC’s consultation on a proposed general anti-abuse rule or GAAR which, according to a member of the GAAR study group, would itself create an anti-avoidance ‘principle’ to guide taxpayers and the courts.
MPs will also debate tax avoidance on Thursday, 13 September. The General Anti Tax-Avoidance Principle Bill is a Private Member’s Bill, sponsored by Michael Meacher, Labour MP for Oldham West and Royton. It was presented to Parliament in June.
‘Few of these Bills are successful but they may draw public attention to the problem,’ says guidance on the Parliament website.
‘A good try, but don't hold your breath,’ said Mark D’Arcy, the BBC’s parliamentary correspondent, noting that Thursday’s debate might help Meacher to get the Bill past second reading.
Impact assessment
The Bill was written by Richard Murphy, anti-avoidance campaigner and director of Tax Research UK. Murphy said the government's ‘economic impact assessment’ had suggested that the proposed GAAR would have ‘no measurable economic impact at all’.
‘Why introduce a Bill to tackle a problem if the estimated impact is negligible?’ Murphy asked in a blog post yesterday.
HMRC’s taxes impact assessment, at page 33 of its consultation document, listed anticipated impacts under a number of headings. ‘The GAAR is targeted at artificial and abusive tax avoidance schemes and is not therefore expected to have any significant effects on the macro-economy,’ HMRC said.
However, the proposed GAAR would ‘support the government’s aim of reducing tax avoidance’ and would ‘both raise and protect revenue’. The revenue impact would reflect the targeting on artificial and abusive avoidance but would depend on the final design of the proposal: ‘Any final exchequer impact will be assured by the Office for Budget Responsibility.’
In a new ‘issue briefing’ on tax avoidance, published last week, HMRC said the GAAR would ‘act as a deterrent to those engaging in artificial and abusive avoidance schemes by improving HMRC’s ability to tackle schemes successfully’.
Income shifting
Murphy said that Meacher’s Bill, instead of being ‘extremely narrowly focused’, was designed to target ‘abuse on a wide range of tax issues’.
‘So, for example, it attacks shifting income from one tax to another to reduce the tax paid and it challenges any scheme resulting in tax paid late. It also tackles any scheme that might artificially shift a profit subject to tax out of the UK,’ he said.
The Chartered Institute of Taxation said in June, in response to publication of the consultation document, that it had warned that ‘many of the examples of “tax dodging” highlighted by the media and campaigners would not be caught by the GAAR’. The government should be clear on what the GAAR would, and would not, achieve.
The Association of Revenue and Customs, which represents senior HMRC officials, has warned that the proposed GAAR could ‘widen perceptions of what is responsible tax planning and so make it harder to tackle avoidance’.
But the government had accepted tax barrister Graham Aaronson’s conclusion, following an 11-month study commissioned by HM Treasury, that a ‘broad spectrum’ anti-avoidance rule would not be beneficial for the UK tax system. ‘Such a rule would risk compromising the certainty that is vital to provide the confidence to do business in the UK,’ Exchequer Secretary David Gauke said in a foreword to the consultation document.
A Treasury spokesperson told Tax Journal today: ‘The government is determined to tackle aggressive avoidance and has reinvested over £900m in HMRC to strengthen its fight against avoidance, evasion and fraud.’ The draft GAAR would strengthen the government’s anti-avoidance strategy.
Principle
Judith Freedman, who was a member of Aaronson’s study group, is a Professor of Taxation Law at the University of Oxford. Writing in Tax Journal in June, she recalled that she had argued in 2003 for ‘an overarching legislative principle to guide taxpayers, revenue authorities and the courts; a general anti-avoidance principle (GANTIP)’.
That principle could then be weighed against what she called the ‘tax minimisation licence’ provided in the Duke of Westminster case. It would provide a framework to guide the actions of taxpayers and revenue authorities, she said. ‘A [GANTIP] would give the courts authority to carry on developing this legitimate principle through case law as necessary. The draft clauses in the government's consultation document create such a principle and create the necessary signals to taxpayers and the courts.’
The Duke of Westminster case was decided in 1936. As the CIOT and other professional bodies have noted in their joint guidance to tax advisers, HMRC sees artificial arrangements as ‘fundamentally different from choosing one commercial approach which generates a lower tax bill than another, or the mere organisation of a taxpayer's affairs in such a way as to minimise the tax liability’. The approach of the courts had ‘changed over time’, the guidance said.
‘Just and reasonable’
Meacher's Bill would introduce a principle that ‘any financial arrangements made by a company or individual should not have as their primary purpose the avoidance of tax’, and would establish a ‘statutory rule to apply in the assessment of such arrangements’.
Tax advantages arising from arrangements having as their main purpose, or one of their main purposes, ‘the obtaining of a tax advantage as a result of tax avoidance’ would be ‘counteracted on a just and reasonable basis’. Taxpayers would be able to apply for HMRC clearance, but a fee would be payable.
