The ‘apparent success’ of the disclosure of tax avoidance schemes (DOTAS) regime suggests that the proposed general anti-abuse rule (GAAR) may be ‘an unnecessary addition’ to HMRC’s powers, the law firm Pinsent Masons said as it released figures obtained in response to a freedom of information request.
HMRC received disclosures of 138 avoidance schemes, across all taxes, in the year to 31 March 2012. But Pinsent Masons’ figures provide the first indication of the number of taxpayers using disclosed schemes in relation to corporation tax. Company tax returns include a supplementary page CT600J, which requires the company to enter the reference number of any disclosed scheme and the accounting period in which the expected tax advantage arises.
The firm established that there were 1,862 such entries in 2011/12, 36% higher than the corresponding figure for 2010/11 and five times the number for 2007/08.
Ray McCann, director at Pinsent Masons, said the proposed GAAR had caused ‘a lot of concern amongst businesses’ and could catch ‘a lot of legitimate tax planning’. He added: ‘The success of the current reporting regime in capturing avoidance schemes does question the supposed need for GAAR. The current rules, whilst not perfect, do seem to be doing a good job of identifying tax avoidance schemes in use, so introducing a controversial new regime seems unnecessary. Besides, HMRC has won almost all of the court cases on tax avoidance schemes heard in the past few years.’
McCann also suggested that there may be an element of over-reporting. ‘The current sensitivity around avoidance means failing to report at the correct time could result in years of uncertainty and investigation. Businesses have become uneasy about looking like they have something to hide,’ he said.
HMRC said the new figures were ‘not indicative of the number of schemes disclosed by promoters to HMRC, nor of the number of companies entering into tax avoidance in any year’.
A spokesman told Tax Journal: ‘The figures quoted by Pinsent Masons refer to the number of disclosed corporation tax avoidance schemes reported on CTSA tax returns. The law requires users of such schemes to make an entry on their tax return for every year for which they may obtain a tax benefit from using the scheme, not simply every time they buy into a new scheme.’
But McCann noted that there had been a reduction – assuming compliance with DOTAS – in the ‘amount of intellectual rigour’ being applied in devising schemes, and an increase in the number of companies declaring scheme reference numbers on their tax returns.
A spokesperson for HM Treasury told Tax Journal: ‘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 introduction of a GAAR will strengthen our anti-avoidance strategy, complementing the tools HMRC already has at its disposal and acting as a deterrent to those engaging in artificial and abusive avoidance schemes across a range of taxes, not just corporation tax. The new rule is designed to tackle such schemes, while minimising the impact on the vast majority of taxpayers who pay a fair share.’
In his submission to the Treasury last year, Graham Aaronson QC said that the DOTAS regime, specific anti-avoidance rules and purposive interpretation of tax legislation were not capable of dealing with ‘some of the most egregious tax avoidance schemes’.
The next publication of HMRC’s DOTAS figures is expected on 1 November.
The ‘apparent success’ of the disclosure of tax avoidance schemes (DOTAS) regime suggests that the proposed general anti-abuse rule (GAAR) may be ‘an unnecessary addition’ to HMRC’s powers, the law firm Pinsent Masons said as it released figures obtained in response to a freedom of information request.
HMRC received disclosures of 138 avoidance schemes, across all taxes, in the year to 31 March 2012. But Pinsent Masons’ figures provide the first indication of the number of taxpayers using disclosed schemes in relation to corporation tax. Company tax returns include a supplementary page CT600J, which requires the company to enter the reference number of any disclosed scheme and the accounting period in which the expected tax advantage arises.
The firm established that there were 1,862 such entries in 2011/12, 36% higher than the corresponding figure for 2010/11 and five times the number for 2007/08.
Ray McCann, director at Pinsent Masons, said the proposed GAAR had caused ‘a lot of concern amongst businesses’ and could catch ‘a lot of legitimate tax planning’. He added: ‘The success of the current reporting regime in capturing avoidance schemes does question the supposed need for GAAR. The current rules, whilst not perfect, do seem to be doing a good job of identifying tax avoidance schemes in use, so introducing a controversial new regime seems unnecessary. Besides, HMRC has won almost all of the court cases on tax avoidance schemes heard in the past few years.’
McCann also suggested that there may be an element of over-reporting. ‘The current sensitivity around avoidance means failing to report at the correct time could result in years of uncertainty and investigation. Businesses have become uneasy about looking like they have something to hide,’ he said.
HMRC said the new figures were ‘not indicative of the number of schemes disclosed by promoters to HMRC, nor of the number of companies entering into tax avoidance in any year’.
A spokesman told Tax Journal: ‘The figures quoted by Pinsent Masons refer to the number of disclosed corporation tax avoidance schemes reported on CTSA tax returns. The law requires users of such schemes to make an entry on their tax return for every year for which they may obtain a tax benefit from using the scheme, not simply every time they buy into a new scheme.’
But McCann noted that there had been a reduction – assuming compliance with DOTAS – in the ‘amount of intellectual rigour’ being applied in devising schemes, and an increase in the number of companies declaring scheme reference numbers on their tax returns.
A spokesperson for HM Treasury told Tax Journal: ‘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 introduction of a GAAR will strengthen our anti-avoidance strategy, complementing the tools HMRC already has at its disposal and acting as a deterrent to those engaging in artificial and abusive avoidance schemes across a range of taxes, not just corporation tax. The new rule is designed to tackle such schemes, while minimising the impact on the vast majority of taxpayers who pay a fair share.’
In his submission to the Treasury last year, Graham Aaronson QC said that the DOTAS regime, specific anti-avoidance rules and purposive interpretation of tax legislation were not capable of dealing with ‘some of the most egregious tax avoidance schemes’.
The next publication of HMRC’s DOTAS figures is expected on 1 November.
