For the TUC this time. Talking about tax “abuse” and tax avoidance.
New TUC research (undertaken for us by Richard Murphy of Tax Research) shows how weak the government’s latest anti-avoidance measure really is. You might think that an initiative labelled as an ‘anti-avoidance’ rule would make some inroads to the UK’s tax dodging industry. But in fact the Government’s own estimates show that its General Anti -Avoidance Rule will, at best, limit one per cent of the estimated £25bn that we lose each year through tax avoidance measures.
How has something that sounded so promising gone so sour? The devil, it turns out, really is in the detail. As our report sets out, there are six key problems with how the General Anti-Avoidance Rule will work:
The Rule’s definition of tax abuse is far too narrow – none of the big scandals that have recently hit the press (including companies such as npower, Google, Amazon and Starbucks) would have been stopped by the its provisions.
Well, yes. Starbucks didn’t abuse any tax laws at all. It merely failed to make a profit and thus did not owe any taxes on its non-existent profits. And Google and Amazon are not, as HMRC has pointed out, abusing any tax laws nor doing any tax avoiding:
Non-resident trading companies which do not have a branch in the UK, but have UK customers, will therefore pay tax on the profits arising from those customers in the country where the company is resident, according to the tax law in that country. The profits will not be taxed in the UK. This is not tax avoidance: it is simply the way that corporation tax works.
The Murphmeister can stamp his tiny little feet and insist that this is tax abuse all he wants. It ain’t.
I’m afraid that I missed the npower one so cannot comment.
From the report and making much the same point:
The first four elements of this Guidance still offer hope that the General Anti-
Abuse Rule might be useful, but the last abruptly curtails it, for reasons noted
below. However, this is not the sole constraining factor because it is also made
very clear in the Guidance that the abuse must be exceptional, and the securing of
a reduced tax bill does not mean that any arrangement is by definition abusive.
This is most clearly noted with regard to international tax arrangements where
the Guidance Notes say:
Many of the established rules of international taxation are set out in
double taxation treaties. These cover, for example, the attribution of
profits to branches or between group companies of multi-national
enterprises, and the allocation of taxing rights to the different States where
such enterprises operate. The mere fact that arrangements benefit from
these rules does not mean that the arrangements amount to abuse, and so
the GAAR cannot be applied to them. Accordingly, many cases of the sort
which have generated a great deal of media and Parliamentary debate in
the months leading up to the enactment of the GAAR cannot be dealt with
by the GAAR.
Given that these things are not tax abuse and nor are they tax avoidance then a rule meant to counter tax abuse and or tax avoidance is not going to cover them, is it?
The basic problem that Ritchie has here is that no one else is using his definition of tax abuse. His definition being, recall, whatever it is that he thinks someone should be paying in tax, well, if they’re not paying that then this is abuse. As opposed to the actual tax system which says that if you do this, here, then you pay tax, if you don’t then you don’t.
You know, this rule of law thing.
And then we’ve got something for which I think he, the TUC and all who sail in this tax abuse ship should be hung for:
d. The burden of proof that an arrangement is abusive rests with
HM Revenue & Customs and not with the taxpayer
Given all the obstacles put in the path of HMRC using the Rule it would logically
be presumed that once they had overcome these hurdles the burden of proof that
an arrangement was not abusive would rest with the taxpayer, but that is not the
case in the Rule. Instead the burden of proof that an arrangement is abusive falls
upon HMRC. As the Guidance notes on procedure for the Rule say6:
In proceedings before a court or tribunal in connection with the GAAR,
the burden of proof is on HMRC to show that:
there are tax arrangements that are abusive; and
the counteraction of the tax advantages arising from the
arrangements is just and reasonable.
This is different to most tax appeals (apart from some penalty appeals) where the
burden of proof in an appeal is on the appellant.
No satisfactory explanation for this reversal of normal practice, where it is
customary for the taxpayer to be required to show that they have complied with
the law, and not vice versa, has been provided. What is certain is that it places yet
another obstacle in the path of HMRC using the Rule in practice. We believe that
it is for a taxpayer to show that they did not intend to commit tax abuse by
adopting a course of action rather than for HMRC to show that they did. The
latter is a substantially more difficult standard to meet given that the taxpayer
will hold all the evidence.
Note the sleight of hand there. Yes, on appeal, if you’ve lost in the first round then the burden of proof is upon you. This applies to both sides of course: if HMRC loses in the first round (say, Vodafone) then the burden of proof falls upon HMRC. But what is being claimed here is that the first time it gets to court, in the primary case, the burden of proof must be on the taxpayer.
Which is appalling: our legal system is based upon the very simple idea that the accuser must prove his accusations.
Hang them, hang them all.