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Advisers promoting ‘abusive tax avoidance’ schemes may be accused of mis-selling, says STEP

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People engaging in tax avoidance schemes that might be considered abusive will be challenged by the tax authorities, will receive little sympathy in court and may be vulnerable to widespread adverse publicity, the Society of Trust and Estate Practitioners warned as it unveiled a five-point ‘programme to tackle abusive tax avoidance’.

STEP has over 17,500 members in 81 countries. It has a presence in many jurisdictions that are widely regarded as tax havens. It has stressed that while tax evasion is illegal, avoidance is legal.

‘But if the principle is clear, the distinction between tax avoidance schemes that achieve their intended tax result and those that do not depends on decisions of the courts,’ it said.

‘In many jurisdictions, judges now adopt a purposive view of tax legislation to ensure that artificial schemes designed to defeat the purposes of the legislation do not succeed. Advisers who promote such schemes may reasonably be accused of mis-selling.’

The government is to consider the possibility of extending the financial services mis-selling rules. The idea was suggested last month by Patrick Stevens, President of the Chartered Institute of Taxation, who said the move could lead to the tax system being treated with ‘more respect’.

STEP Worldwide Chairman Michael Young said yesterday: ‘Fair tax systems must include effective measures to counteract abuse and attitudes towards abusive tax avoidance are toughening across the world. Advisers have a responsibility to recognise this shift and give clients clear warnings of the risks of engaging in schemes that might be considered abusive.’

Earlier this month David Harvey, STEP’s Chief Executive, defended the Chief Executive of the Institute of Chartered Accountants in England and Wales in an online debate on ‘aggressive tax avoidance’. Michael Izza had called on ICAEW members engaged in ‘the kinds of schemes highlighted in The Times’ to ask themselves whether they were ‘upholding the honour and reputation of ICAEW chartered accountants’.

Harvey wrote on Izza’s blog: ‘“Fairness” must be an overriding goal of any tax system and some avoidance schemes undoubtedly fail that test.’

Frank Haskew, the Head of the ICAEW’s Tax Faculty, said this week that the ICAEW would need to consider the possibility that any members promoting such schemes might have their practising certificate withdrawn.

Taxpayer rights

STEP observed that the judicial and legislative approach to abusive schemes raised significant challenges for advisers and clients.

The lack of a solid definition of ‘abuse’ was a particular problem for STEP members engaged in drawing-up long-term plans for families, it said.

That work would often include capital gains tax and inheritance tax planning, featuring advice on securing longstanding tax reliefs available to ‘non-doms’.

STEP added: ‘Much of the current debate about abusive tax avoidance in essence reflects moves to ensure the obligations on taxpayers are more rigorously enforced. It is unfortunate that the issue of how to preserve a balance with taxpayer rights – such as the right to certainty in tax laws – receives relatively little attention from those campaigning against tax abuse.’

General anti-avoidance rules needed to be drafted ‘extremely carefully’, STEP argued, to avoid ‘introducing damaging levels of uncertainty and subjectivity into national tax systems’.

The UK government is consulting on a ‘general anti-abuse rule’ and measures to strengthen the disclosure regime introduced in 2004. The Association of Revenue and Customs, which represents senior HMRC officials, has said the proposed GAAR would be too narrow. In April Graham Black, then ARC’s  President, said it suggested tough action while ‘actually facilitating avoidance’.