Tuesday, September 11, 2012

A General Anti-Tax Avoidance Principle for the UK: new bill

Update: how to support this bill - click here

TJN's Richard Murphy has written a UK parliamentary bill, which is summarised as follows:
"A Bill to introduce a principle that any financial arrangements made by a company or individual should not have as their primary purpose the avoidance of tax; to establish a statutory rule to apply in the assessment of such arrangements; and for connected purposes."
The Private Member's Bill, introduced by Michael Meacher MP, will most likely get shot down in parliament. Even HM Revenue and Customs, which ought to cheer such a move, appers to be led by the 'enemy': first the now thoroughly discredited Dave Hartnett, and now his replacement, "Jolly Dodger" Ian Barlow. But it establishes important principles, and is intended to serve as a much stronger alternative to the UK government's weak General Anti-Abuse Rule (GAAR.) Murphy summarises the GAAR:
It (is) very obvious that they only want to stop the most abusive of tax schemes. There are probably at most a handful a year that will be stopped as a result and since they'll now probably never see the light of day because of the GAAR it is quite possibly true that the government's proposed law might be a massive white elephant in that it might never be used.

Some, including ARC, the union representing senior officials at HMRC suspect that this is the true intention of the government's proposal."
The difference between Murphy's proposal and the government's is, as Murphy explains:
Meacher's Bill is broader by design than the government's. It covers VAT and national insurance for a start, almost doubling the value of the taxes that it would cover compared to the government's Bill, which omits both these taxes.

Secondly, instead of being extremely narrowly focussed, as the government's Bill is, Meacher's is designed to target abuse on a wide range of tax issues. So, for example, it attacks shifting income from one tax to another to reduce the tax paid and it challenges any scheme resulting in tax paid late. It also tackles any scheme that might artificially shift a profit subject to tax out of the UK. In addition if it seems that the wrong person is paying tax on a source of income or that the source of income in question is wrongly described e.g. as investment income when it actually seems to come from a profit or employment, then Meacher's Bill gives HM Revenue & Customs the power to challenge the arrangement.
How does it do this? With a simple principle:
It gives the Revenue the right to look at what has really gone on in a transaction, and who really seems to be involved in it, and to then compare that economic reality with the way in which the transaction has been reported for tax (or has not been reported if someone has tried to shift it right out of the UK tax net).
Although this has a UK focus, and would be extremely helpful tackling this sort of thing - this has wide relevance for other countries.

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