Anti-Avoidance Update
As part of the Government's ongoing targeting of avoidance, there have been a number of recent developments in this area worthy of note.
Last month the Exchequer Secretary, David Gauke MP, announced in a written ministerial statement (WMS) that a study is to be set up headed by Graham Aaronson QC to consider the possibility of introducing a General Anti Avoidance Rule (GAAR). The study will report back to Ministers in October 2011.
The terms of reference require the study to consider whether a GAAR can meet the following objectives:
- Provide Government with an effective means of deterring and countering tax avoidance
- Ensure that the rules work fairly and will not erode the UK tax regime's attractiveness to business
- Ensure that certainty about the tax treatment of transactions can be provided without undue compliance costs for businesses and individuals
- Keep any increase in resource costs for HMRC to an acceptable level and ensure that there will be a minimal need for resource to be diverted from other priorities
Full details of the WMS are available at http://www.hm-treasury.gov.uk/d/wms_antiavoidance_061210.pdf
The accompanying press release to this announcement also included details of 5 new tax avoidance measures, two of which took immediate effect. It is projected that an additional £2bn of revenue will be raised over the course of this parliament as result.
The two measures with immediate effect will tackle tax avoidance by:
- Preventing groups of companies using intra-group loans or derivatives, to reduce the group's tax bill
- Addressing schemes where a company does not fully recognise certain amounts in its accounts involving loans and derivatives
Three further measures will tackle tax avoidance through:
- Addressing the practice of disguised remuneration
- Stopping investment companies retrospectively changing the currency they prepare their accounts in for tax purposes
- Tackling businesses who artificially split the supply of services to reduce VAT
A package of five measures revising and extending disclosure had previously been consulted upon with primary legislation included in Finance Act 2010. The package was implemented on 1 January 2011. However, some of the hallmarks (descriptions of schemes requiring disclosure) consulted upon will be implemented at a later date in 2011–12.
Briefly these measures are:
- A new ‘trigger point’ for the disclosure of actively marketed schemes – the point at which a promoter first communicates information (including information about the expected tax advantage) about a substantially designed scheme to a third party with a view to obtaining clients for that scheme
- An information power which gives HMRC the power to require a scheme ‘introducer’ (an intermediary whose function is to introduce clients to the promoter) to identify the promoter
- Increased penalties for failure to comply with a disclosure obligation;
- A new requirement for promoters to provide HMRC with periodic information about clients who implement a notifiable scheme; and
- Revised and extended hallmarks (the descriptions of schemes to be disclosed)
The amended guidance and more information can be found at http://www.hmrc.gov.uk/avoidance/dotas-update-nov10.htm