Andrew Goodall

The cost of corporate tax avoidance

Britain's tax havens and offshore financial centres must meet international standards on tax transparency, financial sector regulation and financial crime if they are to continue to hold themselves out as internationally active financial centres, the Foot review concluded.

Michael Foot's report for the UK government recommended that nine jurisdictions, including Guernsey, Isle of Man, Jersey and the British Virgin Islands, consider developing a diversified tax base to maximise sources of revenue. He commissioned Deloitte to conduct an evaluation of the "importance" of the Crown Dependencies (CDs) and Overseas Territories (OTs) in tax avoidance by UK corporates.

Corporate tax avoidance costs the UK less than £2bn, the firm estimated. "Deloitte tentatively concluded that the [CDs and OTs] were distinguished within the developed world by differentiating themselves from the international consensus, sometimes through tax rates but more often through the absence or near absence of certain forms of taxation," Foot said. "Whilst there were other drivers for doing business in these jurisdictions … tax was an important motivating factor."

Deloitte estimated that the amount of UK tax avoided by UK corporates using the nine jurisdictions was likely to be "significantly lower" than estimates produced by previous studies had suggested. The firm said: "We estimate the total UK corporation tax potentially lost to avoidance activities to be up to £2bn per annum, although it could be much lower, with avoidance through the CDs and OTs being an unidentified sub-component."

The TUC estimated in 2008 that the UK revenue loss from corporate tax avoidance was £11.8bn per annum.

Critics questioned Deloitte's analysis and the Tax Justice Network pointed out that the report focused on risks posed by the centres' activities to themselves and to the UK. "It simply ignores the elephant in the room: what about the damage these places cause to the rest of the world?" the TJN asked. Richard Murphy, the anti-avoidance campaigner and adviser to the TJN, claimed that Foot had produced "a weak apology for a report".

Tolley's Practical Tax newsletter (6 November) has more on these and other developments including:

• Avoidance and evasion "in any form" will not be tolerated, says the financial secretary to the Treasury;
• Treasury consults on small companies rate rules;
• Scrap measures to counter "false self-employment", says CIOT;
• Compliance reforms call for vigilance – a round table discussion hosted by the Tax Journal reviewed practical issues arising from the latest developments in tax investigations; and
• Expatriate tax and NIC update – Amanda Sullivan reports on October 2009 meeting of the Joint Forum on Expatriate Tax and NICs.

Advisers urged to defend ‘reputable’ tax planning

The possibility of a general anti-avoidance rule needs to be re-examined, one of the UK's leading tax experts has told Tolley's Practical Tax newsletter. John Whiting, tax policy director at the Chartered Institute of Taxation, was responding to a call by Taxation editor Mike Truman for the enactment of principles established in a series of court cases in which aggressive tax avoidance schemes were held to be ineffective.

Truman said tax professionals needed to decide which types of tax planning were "defensible".

Whiting said "most people" question whether tax advisers should devise artificial, aggressive avoidance schemes. Asked if he agreed that a GAAR was inevitable, he told TPT: "I think the issue needs looking at again, as the situation is becoming difficult."

Mark Lee, chairman of the Tax Advice Network, welcomed Truman's comments. "I'm delighted to see such a high profile commentary on this matter," he told TPT.

Next week's issue of Tolley's Practical Tax newsletter (23 October) will have more on this and other developments.

See also ...

Mark Lee: Too many marginal tax products are sold to too many unsuspecting people

Richard Murphy: Time for a General Anti-Avoidance Principle

Treasury targets 'mass false self-employment'

Bogus self-employment 'corrupts' the construction industry, union claims

A leading tax expert has warned that "entire categories" of skilled self-employed workers could be reclassified as employees if the government's published proposals for the construction industry are implemented.

The authors of research cited in a Treasury consultation paper estimated that "mass false self-employment" in the UK stands at 400,000. The UK's leading construction workers' union, welcoming the consultation, claimed that the "bogus self-employed" are denied basic employment rights and that "lower safety levels" on building sites which use the bogus self-employed put workers at "far greater risk of being injured or killed".

The Treasury invited comments by 12 October on proposals, set out in the July 2009 consultation paper "False self-employment in construction: taxation of workers", proposing legislation to recover an estimated loss to the exchequer of £350m per annum.

Bank code is the wrong solution, critics claim

The government's draft code of practice on taxation for banks is an attempt to override statute as the governing force of taxation in the UK, a leading tax body has claimed. The Chartered Institute of Taxation said it had long objected to "tax[ed] by law, untaxed by concession" and was similarly opposed a code that seems to attempt to "tax by code that which is untaxed by law".

Some banks are still engaged in various forms of tax avoidance, although "highly complex tax avoidance transactions" have become less prevalent since the financial crisis triggered by a global "credit shock" in 2007, HMRC said in a consultation paper.

Bloomberg.com has reported that, according to advisers to some of the UK's biggest banks, the Financial Services Authority was asking the banks in the course of inspection visits "how they structure themselves to minimise tax payments and what tax advice they give corporate clients".

OECD signals rapid progress in push for transparency

The OECD has undertaken to make further rapid progress towards transparency in international tax matters, after a period of "unprecedented action" to implement its "globally endorsed" standards of transparency and exchange of information. But critics claimed that fundamental reforms were needed to tackle a "global [tax] haven industry".

Leaders of the G20 group of major industrialised and developing economies declared a commitment to maintain the current momentum in dealing with tax havens, money laundering and the proceeds of corruption.

The Tax Justice Network welcomed the G20's "renewed commitment to cleaning up tax havens" but said the G20 needed to do much more to translate the commitment into reform. The commitment "relied excessively" on the OECD's Global Forum on Transparency and Exchange of Information.

"That program, while helpful, has so far been limited to requiring tax havens to agree to provide information 'upon request'. As experience has shown, this approach is costly, time-consuming, and a very poor deterrent," the TJN argued.

This week's issue of Tolley's Practical Tax newsletter (9 October) has more on these and other developments.

Check your tax credits

Experts flag changes to childcare rules

Parents living in England who claim the childcare element of working tax credit need to check that their childcare provider remains registered, the CIOT's Low Incomes Tax Reform Group has warned. If they continue to claim tax credits on childcare costs paid to unregistered providers, they could be left with large overpayments and "possibly even penalties", LITRG said.

LITRG has also drawn attention to two significant changes, taking effect from August 2009, to the "four week run-on" rules which provide that WTC continues to be paid in some circumstances for four weeks after a person has ceased work or reduced his or her working hours.

This week's issue of Tolley's Practical Tax newsletter (25 September) has more on this and other developments including:

• Donald Drysdale urges companies and tax agents to plan for imminent changes to corporation tax online filing.
• More on HMRC's change of view on CGT; penalties limit ISA options; HMRC questions construction industry bosses; accountant jailed in £2.5m fraud.
• Tax case summaries – section 20 notices, controlled foreign companies legislation, payments to retiring partners.

Treasury expects disclosure initiatives to net ‘billions’

HMRC has stressed that its "new disclosure opportunity" or NDO offers a final chance to come clean for people who have used accounts or assets held offshore to evade UK taxes. Alistair Darling told a CBI audience that HMRC had requested details of at least 100,000 offshore accounts held at over 300 financial institutions. "This should mean billions of extra unpaid tax returning to our country, with an expected £1bn from our agreement with Liechtenstein alone," he said.

"HMRC will not offer these preferential terms to offshore account and asset holders again," says HMRC guidance on NDO. HMRC has provided further details of the "bespoke" Liechtenstein Disclosure Facility whose stated aim is to support reviews which are to be carried out by financial intermediaries subject to supervision by Liechtenstein's Financial Markets Authority in order to identify those who may have liability to UK tax.

This week's issue of Tolley's Practical Tax newsletter (11 September) has more on this and other developments including:

• A tax avoidance scheme involving employee benefit trusts may result in an inheritance tax charge on the participators of a close company, HMRC has warned;
• Man arrested in connection with suspected fraud following an attack on HMRC's computer systems;
• Companies House will accept iXBRL format accounts;
• NI number required for self employment registration;
• HMRC plans Facebook help for students;
• Probate and IHT helpline is overburdened, says HMRC;
• Taxpayers' charter – some concerns remain;
• A change of view on seafarers' deduction;
• Government is 'creating towers of tax books', says tax publisher.

No structured tax avoidance, no worries

A former chairman of the ICAEW Tax Faculty has presented ten "facts" about avoidance schemes that "all accountants need to know" and has dismissed concerns that accountants who do not alert clients to schemes may be risking negligence claims. Mark Lee, chairman of the Tax Advice Network, writing on his TaxBuzz blog, said the first five points provided support for accountants who have already chosen not to advise on such schemes:

1. Accountants should only promote such schemes if they are confident that they understand ALL of the risks and consequences for their clients;

2. Accountants do NOT have to advocate structured tax avoidance schemes;

3. Accountants who promote such schemes honestly will find that typically only around one in ten clients will proceed once they understand all of the risks;

4. Accountants do NOT have to notify all clients that such schemes exist;

5. Accountants are NOT at risk of successful negligence claims if they fail to alert clients to such schemes.

The next five points should be borne in mind by "those accountants who are nonetheless tempted to look further into the subject," he said.

6. Encouraging a client to undertake a structured tax avoidance scheme is much like encouraging them to make a specific investment;

7. It takes a fair amount of time to get to grips with all of the relevant details of a structured tax avoidance scheme;

8. HMRC may announce a change in the law at any moment – leading to rushed (and perhaps botched) attempts to revise the scheme by the promoters;

9. Having committed all that time to learning about the scheme there may be a temptation to persuade someone to "invest" even if they might not otherwise choose to do so;

10. If, some years later, the scheme is ultimately held not to work the client may sue the accountant for failing to adequately highlight the risks.

The blog posts were prompted in part by promotion literature for a tax avoidance scheme using employee benefit trusts. Lee suspected that some of the company directors who had bought the scheme, and were said to be "happily" recommending it to other businesses, were "either unaware of the risks they have taken or omit to mention them to their friends".

The current issue of Tolley's Practical Tax newsletter (28 August) has more on this and other developments including:

• Tax bodies reject agents register proposal;
• Working together, learning together;
• HMRC defends interest rate increase;
• Liechtenstein deal signals end of banking secrecy, OECD claims.