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Tackle abusive tax schemes or face social unrest, tax lawyer warns

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Abusive tax schemes are anti-social, and ‘more riots in the streets’ will not be far away if aggressive tax avoidance is not tackled, a leading tax lawyer has warned.

The government launched a consultation earlier this month on a general anti-abuse rule based on the recommendation of a study group led by Graham Aaronson QC, a barrister who practises in commercial taxation.

Under the front page headline ‘Tackle tax avoiders “or face unrest on the streets”’, The Times today quoted Aaronson as saying: ‘People on the streets don’t want these schemes to go ahead. I feel very strongly that abusive tax schemes are anti-social and this sort of thing fuels the anger of the average person. The tents have been pitched at St Paul’s and more riots in the streets are not far away if we don’t deal with this.’

Aaronson told Tax Journal today: ‘Like MPs' expenses, this issue will not go away until the public sees that it is being tackled effectively.’

Last November Aaronson’s report for HM Treasury advised that, while a ‘broad spectrum general anti-avoidance rule’ would not be beneficial for the UK tax system because it would risk undermining ‘responsible tax planning’, a moderate rule targeted at ‘abusive’ arrangements would deter or counteract artificial schemes that ‘make a mockery of the will of Parliament’.

‘Furious’

Today The Times reported: ‘When Mr Aaronson was told of K2, the tax avoidance scheme used by Jimmy Carr which allows members to reduce their income tax bill to about 1% by channelling their salaries through Jersey, it made his “blood boil”. He added: “People ask me how much tax I pay. At the moment it’s 50%. I feel absolutely furious when people tell me that they pay 3% because of some artificial scheme. That’s exactly why we need the GAAR.”’

Aaronson told the paper  that while most companies had moved away from avoidance after accepting that ‘they had a responsibility to the Treasury not to play fast and loose’, he gathered there were still ‘many schemes out there’ for individuals.


MPs to probe ‘secrets of the tax avoiders’


Miles Dean, founder of Milestone International Tax Partners, noted in a recent Tax Journal article that aggressive tax avoidance had been ‘fair game in the UK’ since the early 1970s.

‘Indeed, a now rampant tax avoidance industry exists that is hugely lucrative for all those involved in devising and distributing aggressive “tax schemes”. In many cases, clients are shoe-horned into one-size fits all planning, often not understanding the implications,’ he added.

Reputational damage

In an opinion piece posted yesterday on AccountingWeb – before Aaronson’s comments were published – Rebecca Benneyworth noted that The Times had managed in the past week to ‘convey the outline of some quite complex avoidance schemes in an intelligible way’.

Benneyworth, who was awarded an MBE last week for services to the tax profession, is the Editor of Tax Adviser, the CIOT journal published by LexisNexis, which also publishes Tax Journal.

She congratulated ‘those journalists [at The Times] who must have spent many long hours researching and trying to understand some of the schemes’.

But she expressed concern about reputational damage to accountants and tax advisers. ‘We have studied hard and hold high professional standards, and it does no good for the wider public to see us as grasping or cheating (or at least enabling and supporting that behaviour by our clients),’ she said.

Benneyworth called on HMRC to ‘redouble its efforts to get all of the schemes closed down – either through specific legislation or a GAAR’.

Commenting on Benneyworth’s piece, Mark Lee, Chairman of the Tax Advice Network, took issue with those who defended tax avoidance on the basis that it is legal. ‘What is legal is not always moral or right. Apartheid was never moral or right even when it was legal,’ Lee said.

‘Some would argue that searching for ways to get around the clear (or the most likely) intent of Parliament is not moral or acceptable even if it is done in such a way as to attempt to keep on the right side of the relevant tax laws.’

GAAR ‘does not go far enough’

The Times noted that Aaronson ‘controversially rejected’ a broad spectrum law called for by some tax campaigners. Some HMRC officials told the paper anonymously of their concern that Aaronson’s plan ‘did not go far enough’.

Richard Murphy, Director of Tax Research, said: ‘Something called a GAAR that is no such thing is being put forward as if it might be a serious obstacle to tax avoidance, when it will tackle only a few schemes a year and will allow the vast majority of aggressive tax avoidance to continue unhindered.’

But the paper also quoted Judith Freedman, Professor of Taxation Law at the University of Oxford as saying: ‘I wish that critics of the current state of things would get behind the proposed GAAR. It would not solve the defects of our domestic and international tax systems – that needs more radical change – but it would be a start.’

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