Proposal to use disclosure rules to help developing countries tackle poverty and reduce dependency on UK aid has been raised in parliament three times in recent weeks
A City tax lawyer has backed calls for an extension of the UK’s disclosure of tax avoidance schemes (DOTAS) regime to include ‘abusive’ cross-border transactions affecting vulnerable tax jurisdictions.
Action Aid, Oxfam, Save the Children and Christian Aid proposed that DOTAS should incorporate an additional hallmark covering indicators of possible ‘abusive tax behaviour’ outside the UK. UK-resident taxpayers and UK-based tax advisers would be required to disclose to HMRC transactions and arrangements displaying the additional hallmark.
The charities were responding last October to HMRC’s consultation paper Lifting the lid on tax avoidance schemes. HMRC said in December that the submission ‘contained representations that were outside the scope of the consultation’, but the proposal has been raised in parliament three times in the last eight weeks.
The government intends to implement a number of changes to the DOTAS regime on a common date in the second half of 2013, under regulation-making powers that will come into force when Finance Bill 2013 receives Royal Assent.
Deterrent
David Quentin, a consultant at the law firm Farrer & Co, provided technical tax advice to the charities.
‘Where international mechanisms allow, HMRC will pass on the information to the tax authority in the developing country concerned,’ they wrote.
‘We believe this to be a realistic proposal. While we are aware that it goes beyond the currently proposed DOTAS reforms, we believe it to be consonant with transaction-based tax disclosure regimes operated in other European countries, and with taxpayer obligations imposed by the US and other countries for their taxpayers to disclose foreign tax positions.’
Quentin told Tax Journal: ‘Corporation tax is very important for poor countries because incomes and levels of consumption in those countries are low, but it is systematically being avoided by organisations that are in other respects careful to maintain their corporate responsibility credentials.
He said the scrutiny that would follow disclosure would have a powerful deterrent effect, ‘bolstering the corporation tax revenues available for public infrastructure investment and tackling poverty in these jurisdictions’.
Mike Lewis, policy adviser at ActionAid UK, told Tax Journal that the UN, the OECD, the World Bank and the IMF had said that ‘obtaining information on potentially abusive transactions is key to all countries combating tax avoidance and evasion’.
He said: ‘Our simple proposal would give HMRC the legislative tools to obtain and share such information, subject to taxpayer safeguards. We’re not suggesting creating new or extraterritorial tax collection powers, but simply to make it easier for tax authorities to get information. We believe it’s a modest, realistic measure that would go a long way to helping the public finances of some of the world’s poorest countries, and reducing their dependency on UK aid.’
The charities recognised that the proposed reform would increase the tax disclosure requirements of UK-based tax advisers and UK-resident persons. But they considered that this was ‘commensurate’ with the ‘serious impact’ of tax minimising behaviour on developing countries’ abilities to fight poverty using their own resources; with the ultimate benefit arising to the UK from long-term reduction of dependency on UK aid; and with ‘the likely benefits to the UK’s own anti-avoidance efforts from gaining more information about international transactions undertaken by its taxpayers’.
As Tax Journal reported in January, more than 100 organisations including the Church of England and leading charities are backing a campaign to lobby governments to stop big companies ‘dodging tax’ in developing countries, as the UK prepares to host this year’s G8 summit.
Questions
Last week the Labour peer and shadow spokesperson for international development, Lord Collins of Highbury, asked whether the government would consider ‘new measures to force British companies to disclose any tax avoidance schemes that could be detrimental to poorer countries, and to support them in taking corrective action’.
Replying for the government, Lord Newby, Treasury spokesman in the House of Lords, said it was ‘not possible to extend UK disclosure rules to other countries’.
He added: ‘Parliament has limited powers to legislate for territories outside the UK. The government have other policies to assist developing countries more directly by, for example, building their capacity to establish and maintain effective tax systems of their own.’
On 25 February the Conservative MP David Amess asked whether the chancellor would consider ‘strengthening disclosure of tax avoidance schemes guidance to help developing countries’.
Exchequer secretary David Gauke replied: ‘DOTAS is highly specific to the UK, as it only concerns UK taxes, and requires a detailed knowledge of the UK's tax system. It cannot, therefore, be applied to other countries.’
On 22 January Catherine McKinnell, the shadow exchequer secretary, asked what representations the chancellor had received on ‘extending disclosure of tax avoidance schemes requirements to subsidiaries of UK companies operating in developing countries, and whether he has considered proposals to introduce such measures’.
Gauke replied: I have received representations from various sources. DOTAS is highly specific to the UK in that the requirement to disclose is restricted to arrangements that fall within certain descriptions based in UK legislation, and cannot be applied to other countries' taxes. If a UK company is operating in another country and tries to avoid UK tax on the profits then DOTAS can apply provided the DOTAS “hallmarks” are satisfied. The UK has held discussions with a number of countries who are looking to introduce their own disclosure rules to share our experience of DOTAS.’
Proposal to use disclosure rules to help developing countries tackle poverty and reduce dependency on UK aid has been raised in parliament three times in recent weeks
A City tax lawyer has backed calls for an extension of the UK’s disclosure of tax avoidance schemes (DOTAS) regime to include ‘abusive’ cross-border transactions affecting vulnerable tax jurisdictions.
Action Aid, Oxfam, Save the Children and Christian Aid proposed that DOTAS should incorporate an additional hallmark covering indicators of possible ‘abusive tax behaviour’ outside the UK. UK-resident taxpayers and UK-based tax advisers would be required to disclose to HMRC transactions and arrangements displaying the additional hallmark.
The charities were responding last October to HMRC’s consultation paper Lifting the lid on tax avoidance schemes. HMRC said in December that the submission ‘contained representations that were outside the scope of the consultation’, but the proposal has been raised in parliament three times in the last eight weeks.
The government intends to implement a number of changes to the DOTAS regime on a common date in the second half of 2013, under regulation-making powers that will come into force when Finance Bill 2013 receives Royal Assent.
Deterrent
David Quentin, a consultant at the law firm Farrer & Co, provided technical tax advice to the charities.
‘Where international mechanisms allow, HMRC will pass on the information to the tax authority in the developing country concerned,’ they wrote.
‘We believe this to be a realistic proposal. While we are aware that it goes beyond the currently proposed DOTAS reforms, we believe it to be consonant with transaction-based tax disclosure regimes operated in other European countries, and with taxpayer obligations imposed by the US and other countries for their taxpayers to disclose foreign tax positions.’
Quentin told Tax Journal: ‘Corporation tax is very important for poor countries because incomes and levels of consumption in those countries are low, but it is systematically being avoided by organisations that are in other respects careful to maintain their corporate responsibility credentials.
He said the scrutiny that would follow disclosure would have a powerful deterrent effect, ‘bolstering the corporation tax revenues available for public infrastructure investment and tackling poverty in these jurisdictions’.
Mike Lewis, policy adviser at ActionAid UK, told Tax Journal that the UN, the OECD, the World Bank and the IMF had said that ‘obtaining information on potentially abusive transactions is key to all countries combating tax avoidance and evasion’.
He said: ‘Our simple proposal would give HMRC the legislative tools to obtain and share such information, subject to taxpayer safeguards. We’re not suggesting creating new or extraterritorial tax collection powers, but simply to make it easier for tax authorities to get information. We believe it’s a modest, realistic measure that would go a long way to helping the public finances of some of the world’s poorest countries, and reducing their dependency on UK aid.’
The charities recognised that the proposed reform would increase the tax disclosure requirements of UK-based tax advisers and UK-resident persons. But they considered that this was ‘commensurate’ with the ‘serious impact’ of tax minimising behaviour on developing countries’ abilities to fight poverty using their own resources; with the ultimate benefit arising to the UK from long-term reduction of dependency on UK aid; and with ‘the likely benefits to the UK’s own anti-avoidance efforts from gaining more information about international transactions undertaken by its taxpayers’.
As Tax Journal reported in January, more than 100 organisations including the Church of England and leading charities are backing a campaign to lobby governments to stop big companies ‘dodging tax’ in developing countries, as the UK prepares to host this year’s G8 summit.
Questions
Last week the Labour peer and shadow spokesperson for international development, Lord Collins of Highbury, asked whether the government would consider ‘new measures to force British companies to disclose any tax avoidance schemes that could be detrimental to poorer countries, and to support them in taking corrective action’.
Replying for the government, Lord Newby, Treasury spokesman in the House of Lords, said it was ‘not possible to extend UK disclosure rules to other countries’.
He added: ‘Parliament has limited powers to legislate for territories outside the UK. The government have other policies to assist developing countries more directly by, for example, building their capacity to establish and maintain effective tax systems of their own.’
On 25 February the Conservative MP David Amess asked whether the chancellor would consider ‘strengthening disclosure of tax avoidance schemes guidance to help developing countries’.
Exchequer secretary David Gauke replied: ‘DOTAS is highly specific to the UK, as it only concerns UK taxes, and requires a detailed knowledge of the UK's tax system. It cannot, therefore, be applied to other countries.’
On 22 January Catherine McKinnell, the shadow exchequer secretary, asked what representations the chancellor had received on ‘extending disclosure of tax avoidance schemes requirements to subsidiaries of UK companies operating in developing countries, and whether he has considered proposals to introduce such measures’.
Gauke replied: I have received representations from various sources. DOTAS is highly specific to the UK in that the requirement to disclose is restricted to arrangements that fall within certain descriptions based in UK legislation, and cannot be applied to other countries' taxes. If a UK company is operating in another country and tries to avoid UK tax on the profits then DOTAS can apply provided the DOTAS “hallmarks” are satisfied. The UK has held discussions with a number of countries who are looking to introduce their own disclosure rules to share our experience of DOTAS.’
