Tax advisers have warned that uncertainty caused by a general anti-avoidance rule could harm the UK’s competitiveness. But several commentators – reflecting growing public awareness of the issue – have welcomed the Government’s announcement of a study into the possibility of a GAAR, and there is evidence of some support within the tax community.
Contrary to some reports, the initiative was not prompted by the recent street protests against tax avoidance. The Liberal Democrats made it known before the general election that they favoured a ‘general anti-avoidance principle’. The Coalition’s programme for Government included a pledge to ‘make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals’.
Any GAAR should be part of a general reform of anti-avoidance law and not simply an additional layer, said John Whiting, the CIOT’s Tax Policy Director, reiterating the tax body’s position set out in a letter to HMRC. In September the CIOT had questioned ‘what it is that the introduction of a GAAR would really achieve’.
‘Given the extensive developments on the anti-avoidance front in recent years – especially [mandatory disclosure of tax avoidance schemes] and the use of [targeted anti-avoidance rules] – coupled with the GAAR-like attitude of the Courts, we cannot see that there is an obvious gap for a GAAR to fill,’ the CIOT said, adding that more ‘anti-evasion efforts’ were needed.
Uncertainty
‘Unless it is accompanied by a comprehensive and prompt advance clearance procedure I fear that a GAAR is bound to introduce a damaging degree of uncertainty into the tax affairs of businesses,’ said David Whiscombe, Partner at BKL Tax. 'And I simply cannot envisage that in the present economic circumstances Government or HMRC will be willing or able to devote the necessary resource to such a clearance procedure.’
Eversheds said a GAAR would allow HMRC ‘to adopt a purposive approach and collect tax where they consider tax avoidance is a motive, in effect ignoring the legal structure’. A GAAR will work, the firm said, only if HMRC is ‘prepared to publish very clear guidelines and operate a clearance procedure to give definitive confirmation in advance when it will seek to apply a GAAR’.
‘The introduction of a GAAR would bring considerable uncertainty to many multinationals engaged in legitimate tax planning and would force many to reconsider their approach to the UK as a key country for future investment,’ said Frédéric Donnedieu de Vabres, Chairman of Taxand.
Will Morris, Head of the CBI Tax Committee, said: ‘While the CBI acknowledges the nature of the Coalition commitment to consider the introduction of a GAAR, and will offer whatever help it can to the study team, we believe that this would not be in the interest of the Government, taxpayers, or UK competitiveness. It would introduce a very unwelcome element of uncertainty to the tax system.’
But the Forum of Private Business responded to the Treasury’s announcement by calling for the ‘Channel Islands VAT loophole’ afforded by Low Value Consignment Relief to be ‘addressed as a priority’. The Forum said research conducted earlier this year found that 68% of small employers believe the tax system is ‘unfair', with 52% ‘believing that larger firms have the resources to invest in tax loopholes where they cannot afford to do so themselves’.
Support
There is some support for a GAAR within the tax community. In a recent Tax Journal poll, for example, 64% of respondents said they would support a GAAR if there was a pre-transaction clearance procedure.
The standard objections to a GAAR need to be questioned, said Judith Freedman, Director of Legal Research at the Oxford University Centre for Business Taxation, writing in Tax Journal in September. It seems unlikely, she argued, that a GAAR would figure high on the list of anti-competitive provisions for most businesses.
In fact it probably would not loom large at all unless it was highlighted as major problem by their advisers, which seems unnecessary,’ she said. ‘We lived with a supposed judicial rule for many years after 1981. If anything, a well drafted GAAR could increase certainty in this area, although anti-avoidance is an area of law that will never be absolutely precise, since if bright lines are drawn they will be manipulated by those devising schemes.’
Freedman’s support for an anti-avoidance ‘principle’ is echoed by Richard Murphy, Director of Tax Research and a campaigner against avoidance. ‘A general anti-avoidance principle would be much better, especially if it included a change to the rules of interpretation so that a purposive construction had to be applied to tax law,’ he said.
Brendan Barber, the TUC General Secretary, welcomed ‘confirmation that the Government will consider establishing a rule that will make tax avoidance far harder’. He added: ‘If we really are all in this together then this is surely the least that can be expected.' Mark Serwotka, General Secretary of the Public and Commercial Services Union, claimed that the Government ‘shamefully has very little interest in challenging wealthy individuals and big businesses who deprive our economy of tens of billions of pounds by dodging paying taxes they owe’.
The study is a ‘welcome first step towards meeting the coalition’s commitment to confront the issue,’ wrote Alex Cobham, Christian Aid’s Chief Policy Adviser, in a letter to the Financial Times. ‘Still lacking, however, is a clear commitment to ensuring that developing countries share in the benefits of an international climate less tolerant of corporate tax dodging in general.’
As UK Uncut was reported to be planning further protests, David Prosser, a columnist for The Independent, suggested that ‘it must slowly be dawning’ on the corporate sector that ‘when spending is being lopped, benefits cut and taxes raised, the impression it gives of doing its level best to minimise its tax bill, even at companies that are very profitable, is going to make it a target [for protestors].
Prosser observed that the Treasury’s announcement was met with ‘complaints from the likes of the CBI’ about introducing uncertainty and complexity to the system. ‘But if the CBI's members did not spend so much time dreaming up new ways – all perfectly legal – to pay less tax, anti-avoidance legislation of this sort would not be necessary,’ he wrote.
The Daily Mail’s City Editor, Alex Brummer, wrote: ‘Tax avoidance (organised by expensive teams of accountants) is perfectly legal. Yet it comes at the expense of millions of hard-working people who are not in a position to exploit such loopholes and have to bear the brunt of subsequent cuts in public services and increases in their own taxes.’
Tax advisers have warned that uncertainty caused by a general anti-avoidance rule could harm the UK’s competitiveness. But several commentators – reflecting growing public awareness of the issue – have welcomed the Government’s announcement of a study into the possibility of a GAAR, and there is evidence of some support within the tax community.
Contrary to some reports, the initiative was not prompted by the recent street protests against tax avoidance. The Liberal Democrats made it known before the general election that they favoured a ‘general anti-avoidance principle’. The Coalition’s programme for Government included a pledge to ‘make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals’.
Any GAAR should be part of a general reform of anti-avoidance law and not simply an additional layer, said John Whiting, the CIOT’s Tax Policy Director, reiterating the tax body’s position set out in a letter to HMRC. In September the CIOT had questioned ‘what it is that the introduction of a GAAR would really achieve’.
‘Given the extensive developments on the anti-avoidance front in recent years – especially [mandatory disclosure of tax avoidance schemes] and the use of [targeted anti-avoidance rules] – coupled with the GAAR-like attitude of the Courts, we cannot see that there is an obvious gap for a GAAR to fill,’ the CIOT said, adding that more ‘anti-evasion efforts’ were needed.
Uncertainty
‘Unless it is accompanied by a comprehensive and prompt advance clearance procedure I fear that a GAAR is bound to introduce a damaging degree of uncertainty into the tax affairs of businesses,’ said David Whiscombe, Partner at BKL Tax. 'And I simply cannot envisage that in the present economic circumstances Government or HMRC will be willing or able to devote the necessary resource to such a clearance procedure.’
Eversheds said a GAAR would allow HMRC ‘to adopt a purposive approach and collect tax where they consider tax avoidance is a motive, in effect ignoring the legal structure’. A GAAR will work, the firm said, only if HMRC is ‘prepared to publish very clear guidelines and operate a clearance procedure to give definitive confirmation in advance when it will seek to apply a GAAR’.
‘The introduction of a GAAR would bring considerable uncertainty to many multinationals engaged in legitimate tax planning and would force many to reconsider their approach to the UK as a key country for future investment,’ said Frédéric Donnedieu de Vabres, Chairman of Taxand.
Will Morris, Head of the CBI Tax Committee, said: ‘While the CBI acknowledges the nature of the Coalition commitment to consider the introduction of a GAAR, and will offer whatever help it can to the study team, we believe that this would not be in the interest of the Government, taxpayers, or UK competitiveness. It would introduce a very unwelcome element of uncertainty to the tax system.’
But the Forum of Private Business responded to the Treasury’s announcement by calling for the ‘Channel Islands VAT loophole’ afforded by Low Value Consignment Relief to be ‘addressed as a priority’. The Forum said research conducted earlier this year found that 68% of small employers believe the tax system is ‘unfair', with 52% ‘believing that larger firms have the resources to invest in tax loopholes where they cannot afford to do so themselves’.
Support
There is some support for a GAAR within the tax community. In a recent Tax Journal poll, for example, 64% of respondents said they would support a GAAR if there was a pre-transaction clearance procedure.
The standard objections to a GAAR need to be questioned, said Judith Freedman, Director of Legal Research at the Oxford University Centre for Business Taxation, writing in Tax Journal in September. It seems unlikely, she argued, that a GAAR would figure high on the list of anti-competitive provisions for most businesses.
In fact it probably would not loom large at all unless it was highlighted as major problem by their advisers, which seems unnecessary,’ she said. ‘We lived with a supposed judicial rule for many years after 1981. If anything, a well drafted GAAR could increase certainty in this area, although anti-avoidance is an area of law that will never be absolutely precise, since if bright lines are drawn they will be manipulated by those devising schemes.’
Freedman’s support for an anti-avoidance ‘principle’ is echoed by Richard Murphy, Director of Tax Research and a campaigner against avoidance. ‘A general anti-avoidance principle would be much better, especially if it included a change to the rules of interpretation so that a purposive construction had to be applied to tax law,’ he said.
Brendan Barber, the TUC General Secretary, welcomed ‘confirmation that the Government will consider establishing a rule that will make tax avoidance far harder’. He added: ‘If we really are all in this together then this is surely the least that can be expected.' Mark Serwotka, General Secretary of the Public and Commercial Services Union, claimed that the Government ‘shamefully has very little interest in challenging wealthy individuals and big businesses who deprive our economy of tens of billions of pounds by dodging paying taxes they owe’.
The study is a ‘welcome first step towards meeting the coalition’s commitment to confront the issue,’ wrote Alex Cobham, Christian Aid’s Chief Policy Adviser, in a letter to the Financial Times. ‘Still lacking, however, is a clear commitment to ensuring that developing countries share in the benefits of an international climate less tolerant of corporate tax dodging in general.’
As UK Uncut was reported to be planning further protests, David Prosser, a columnist for The Independent, suggested that ‘it must slowly be dawning’ on the corporate sector that ‘when spending is being lopped, benefits cut and taxes raised, the impression it gives of doing its level best to minimise its tax bill, even at companies that are very profitable, is going to make it a target [for protestors].
Prosser observed that the Treasury’s announcement was met with ‘complaints from the likes of the CBI’ about introducing uncertainty and complexity to the system. ‘But if the CBI's members did not spend so much time dreaming up new ways – all perfectly legal – to pay less tax, anti-avoidance legislation of this sort would not be necessary,’ he wrote.
The Daily Mail’s City Editor, Alex Brummer, wrote: ‘Tax avoidance (organised by expensive teams of accountants) is perfectly legal. Yet it comes at the expense of millions of hard-working people who are not in a position to exploit such loopholes and have to bear the brunt of subsequent cuts in public services and increases in their own taxes.’
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