Friday, March 22, 2013

Tax lawyer calls for UK disclosure regime to be used to help developing countries

In 2004 the UK enacted legislation, now known as DOTAS (Disclosure of tax avoidance schemes),  to require peddlers of tax avoidance schemes to disclose them to the UK tax authorities, rather than cook them up in secret and simply hope nobody would notice (other countries, such as the U.S., Canada, Portugal and Ireland, have similar schemes). In his new book The Great Tax Robbery, UK author Richard Brooks described the new disclosure regime as having rapidly produced "a massive information dump" for the tax authorities and added that despite the system's flaws,
"before long it had proved the most effective single piece of anti tax avoidance measure on record."
He should know: he is a former UK tax inspector; OK officials estimated that it enabled the UK to collect an additional £12.5 billion in just a few years. 

Now, from the Tax Journal, a very interesting idea:
"A City tax lawyer has backed calls for an extension of the UK’s disclosure of tax avoidance schemes (DOTAS) regime to include ‘abusive’ cross-border transactions affecting vulnerable tax jurisdictions.
. . .
Action Aid, Oxfam, Save the Children and Christian Aid proposed that DOTAS should incorporate an additional hallmark covering indicators of possible ‘abusive tax behaviour’ outside the UK. UK-resident taxpayers and UK-based tax advisers would be required to disclose to HMRC transactions and arrangements displaying the additional hallmark."
How would this work?
"David Quentin, a consultant at the law firm Farrer & Co, provided technical tax advice to the charities. ‘Where international mechanisms allow, HMRC will pass on the information to the tax authority in the developing country concerned,’ they wrote."
A simple, yet powerful idea. Developing countries could, of course, consider introducing DOTAS-like legislation themselves too.

Questions have been asked in parliament:
"Last week the Labour peer and shadow spokesperson for international development, Lord Collins of Highbury, asked whether the government would consider ‘new measures to force British companies to disclose any tax avoidance schemes that could be detrimental to poorer countries, and to support them in taking corrective action’."
The responses (as reported in the Tax Journal) were negative, but it's likely that the legal implications of this, and the possibilities, have yet to be prodded and pushed and explored.

One to watch closely.


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