The arm’s-length principle for international transfer pricing continues to have widespread support, a senior OECD official told a London conference amid concerns about the effectiveness of the base erosion and profit-shifting project.
A discussion on the future of the arm’s-length principle on November 29 was hosted by the Oxford University Centre for Business Taxation, whose director Michael Devereux noted that the BEPS project has “triggered a material hike in the complexity of applying” the principle. Richard Collier, an associate fellow at the Centre for Business Taxation, warned that “a continued vulnerability to avoidance will present recurrent and profound difficulties.”
Tomas Balco, the recently appointed head of the transfer pricing unit at the OECD’s Centre for Tax Policy and Administration, offered a personal perspective of “where countries think we are” in relation to the arm’s-length principle … Noting that a previous speaker argued that the principle may not have a long-term future, Balco said feedback from delegates to the OECD’s Working Party 6 on transfer pricing suggests that “nobody thinks the patient is dying.” Read more:
My news story for Tax Analysts, December 2 ($)
More could be done to tackle tax avoidance and evasion, but it is important not to tar all offshore activity with the same brush in the wake of the Paradise Papers, UK tax professionals suggested. One expert said simplification could reduce opportunities for those who seek to abuse the system.
As UK lawmakers and campaigners stepped up demands for greater transparency, Jonathan Riley, head of tax at Grant Thornton UK LLP, told Tax Analysts that the controversy “may represent the last chance for the tax profession to show it takes evidence of artificial tax avoidance seriously and will not promote it.” Riley noted that advisers are subject to many disclosure and compliance rules but tax is “still largely self-regulated.” It will be interesting to see whether the tax and accountancy bodies’ code on Professional Conduct in Relation to Taxation, updated with effect from March, is invoked in any cases featured in the Paradise Papers, he said. Read more:
My news story for Tax Analysts, November 17 ($)
The Paradise Papers revelations show that tax avoidance has become “a scourge on our society” and illustrate the need for public country-by-country reporting, Dame Margaret Hodge told members of the UK Parliament as she led an emergency debate November 14 while the government continued to defend its record of tackling avoidance and evasion.
Hodge, chair of an all-party parliamentary group on responsible tax, said the debate was urgent because Chancellor of the Exchequer Philip Hammond was putting the finishing touches on the budget statement, scheduled for November 22. “The actions and the culture of powerful, large corporations and of the wealthiest in our society, as revealed in the Paradise Papers, constitute a national and international disgrace,” Hodge said …
The Paradise Papers have exposed a crisis of confidence, Conservative MP Nigel Mills said. “We need our tax system to be fair and our financial system to be legally compliant and as clean as we can make it.” Read more:
My news story for Tax Analysts, November 15 ($)
House of Commons debate of November 14 on tax avoidance and evasion: transcript
While this week’s Paradise Papers revelations have rekindled the public debate and added pressure for further action to deter tax avoidance and evasion, for many businesses and tax advisers the immediate concern is keeping on top of changes already announced.
The second finance bill of 2017 has now completed its House of Commons stages, and will be considered – although it cannot be amended – by the House of Lords on 15 November, just a week before the chancellor is set to deliver his autumn budget. Consultation on several measures to be included in the next finance bill closed on 25 October …
My article for AAT Comment, November 7
A shift in the public debate is needed to ensure that everybody sees tax evasion as unacceptable, a leading UK tax expert said after official figures suggested that avoidance accounted for £1.7bn of a £34bn tax gap.
HM Revenue & Customs estimated that evasion, criminal attacks, and the hidden economy together accounted for £13.8bn, and error and non-payment for £6.4bn. Losses arising from differences in interpretation of the law accounted for £6bn, and failure to take reasonable care accounted for £6.1bn …
My news story for Tax Analysts, October 30 ($)
HMRC: Measuring tax gaps
Solicitors and law firms could face greater scrutiny over aggressive tax avoidance schemes, according to a warning notice issued by the Solicitors Regulation Authority, but tax experts called for clarification of some aspects of the guidance.
“Like the rule of law, tax underpins the effective running of our society and economy,” said SRA chief executive Paul Philip in a September 21 release. “Solicitors play an important role in helping taxpayers meet their legal obligations. The government has been clear that the common assertion that tax avoidance is legal no longer applies.” The SRA regulates 130,000 solicitors and law firms in England and Wales …
“The strongly-worded warning contains some comments that are surprising,” the [ICAEW Tax Faculty] said. “For example it says that when advising a client on a tax avoidance scheme that fails ‘you will leave yourself open to the risk of disciplinary proceedings as well as committing a criminal offence [our emphasis].’ This appears rather sweeping and may need further clarification,” the faculty added.
Judith Freedman, professor of tax law at the University of Oxford, told Tax Analysts that the SRA notice and accompanying press release “do seem to be poorly worded in places.” Read more:
My news story for Tax Analysts, September 22 (paywall)
Rebranding loans to avoid a controversial income tax charge scheduled for 2019 on “disguised remuneration” will not work, HMRC has warned, while tax professionals insist the proposed charge is disproportionate. Scheme users are being told they can sign documents saying that the sums they’ve received under loan agreements are not loans at all, HMRC said in an August 10 statement …
The U.K. government announced in the 2016 budget that there would be a new charge on “loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019” …
The loan charge formed part of the finance bill published in March, but it was one of several measures dropped to make way for the general election in June. A revised draft measure including six clarifying amendments was published July 13.
“We do not condone disguised remuneration schemes but we do feel that the remedy contravenes normal standards of fairness,” said the Tax Faculty of the Institute of Chartered Accountants in England and Wales on its website July 25. Peter Bickley, a technical manager at the Tax Faculty, told Tax Analysts that if the charge is passed into law, its application should be proportionate, perhaps “going back no more than six years before the measure was announced.” Making taxpayers bankrupt would not help the exchequer, he said.
Read more: My news story for Tax Analysts, August 14 (paywall)
See also the Tax Faculty’s updates and representations of July 25 and April 20.
Tax professionals have also noted that HMRC will need to consider, in taking forward the proposed loan charge, the impact of the Supreme Court’s recent decision in the “Rangers case”.
The general anti-abuse rule enacted in Finance Act 2013 is intended to deal with the most egregious tax avoidance, by counteracting tax advantages arising from “abusive” tax arrangements.
The first published opinion of the independent GAAR advisory panel, released on 3 August, was that the “abnormal and contrived” arrangements entered into by the taxpayers, who used gold bullion to reward key employees, failed the “reasonableness” test. Read more:
My article for AAT Comment, published by the Association of Accounting Technicians.
A scheme to reward employees with gold bullion exploited loopholes to gain an unexpected and unintended “tax win,” according to the first published opinion issued by the independent advisory panel examining cases in which HM Revenue & Customs considers that the general anti-abuse rule may apply.
HMRC invited readers to use the opinion to help them recognise “abusive tax arrangements.” The GAAR counteracts, by means of “just and reasonable adjustments,” tax advantages arising from abusive arrangements. Finance Act 2013 provides that tax arrangements are abusive if they “cannot reasonably be regarded as a reasonable course of action” in relation to the relevant tax provisions. This is the so-called double reasonableness test.
The panel noted that in broad terms, the GAAR “only comes into operation when the course of action taken by the taxpayer aims to achieve a favourable tax result that Parliament did not anticipate when it introduced the tax rules in question and, critically, where that course of action cannot reasonably be regarded as reasonable.” Read more:
My news story for Tax Analysts, August 7 (paywall)
A FTSE 100 company has strongly denied engaging in tax avoidance, and has offered cautious support for steps toward the multilateral introduction of mandatory public country-by-country reporting of multinationals’ profits and taxes.
Responding to a report by Oxfam International, Reckitt Benckiser Group PLC (RB), a manufacturer of health, hygiene, and home products, said in a July 12 statement that it pays the correct amount of tax in each country where it does business: “As Oxfam recognises, RB’s tax policy is totally legal and the norm for the majority of global businesses. We comply with all our legal obligations and seek to do what is right by all the company’s stakeholders.” Continue reading FTSE 100 company defends tax policy and backs multilateral push for public country-by-country reporting
Tax campaigners criticised a lack of progress on setting a timeline for the UK’s overseas territories to make registers of beneficial ownership public, after a London summit failed to produce new commitments on transparency. But Theresa May is determined to pursue her predecessor David Cameron’s efforts to secure public registers, a government minister told members of Parliament.
BVI premier Orlando Smith said the annual ministerial meeting between the UK and the overseas territories, held at the Foreign & Commonwealth Office on November 1 and 2, was “very cordial,” the Financial Times reported.
Christian Aid joined ActionAid and Global Witness in expressing disappointment that “the UK’s tax havens remain stubbornly resistant to following the lead on transparency set by the UK itself.”
Read more: My news story for Tax Analysts, 11 November (paywall).
The Brexit vote has presented U.K. lawmakers with a “once in a generation” opportunity to improve the tax system, a leading tax expert told participants at a debate held by the Women in Tax network in London two days before Donald Trump’s election victory added further uncertainty to the tax landscape.
Panellists shared their personal views on how a better tax system can be achieved. U.K. tax policy measures often have very vague goals, said Jill Rutter, program director for the Institute for Government think tank.
Read more: My news story for Tax Analysts, 10 November (paywall).