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Tax Faculty calls for clarity in anti-avoidance 'war'

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14th Mar 2005
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The ICAEW's Tax Faculty has set out what it expects to see in Wednesday's Budget, and pointed out many of the changes likely to be announced have already been trailed in last December's pre-Budget report or in subsequent announcements.

It expects a truncated Finance Act to be passed before the election expected in May, "with the bulk of the measures to be enacted when Parliament reconvenes after the election".

In a 20-page technical note accompanying its press release of 13 March, the faculty reiterated its concerns about the prospect of retrospective legislation and reminded the Government that avoidance is not a crime.

Support for disclosure regime
More than 500 schemes have been reported under the new Disclosure of Tax Avoidance Schemes (DOTAS) regime, the faculty said.

"We fully appreciate and understand the Government's need to take action against tax avoidance that it considers to be unacceptable and which it believes undermines the integrity of the tax system," it added.

"For the sake of clarity we shall refer to that as unreasonable tax avoidance. We believe that tax avoidance that the Government considers to be unreasonable should be countered by way of properly targeted anti-avoidance legislation.

"In our view that was the basic principle behind the DOTAS scheme, ie. to enable the Government to act quickly and close down unreasonable tax avoidance schemes by introducing properly targeted anti-avoidance legislation. We support that approach wholeheartedly."

But the faculty said it is "very concerned" at the proposed introduction of retrospective legislation to counter avoidance involving employment products. It seeks a meeting with the Treasury and the Revenue to discuss this issue.

'War' on the avoidance industry
It suggested that the Government's "war on the avoidance industry" might be defensible "if we had a regime where there is a clear understanding of the arrangements which the Government considers to be undesirable". But in practice the DOTAS regime has been "under almost constant repair".

The faculty said: "In the light of all this uncertainty, some of which has still not been adequately resolved, we feel that the proposals are an unreasonable reaction from the Government.

"We understand that the Government has been extremely annoyed by what it considers to be unacceptable exploitation of loopholes in the tax system but, if that is a wrong, two wrongs do not make a right.

"We also have only patchy information about how the system has been working and what sorts of schemes have been disclosed so far. We know the ones to which the Government has taken particular exception: these are the ones that have been 'closed' in [the pre-Budget report].

"But if the Government is going to introduce such a wide ranging reform and seek to close down the avoidance industry permanently we need to have a better understanding of how the scheme has worked to date.

"The Government perhaps need reminding that to take steps to minimise one's tax liabilities is still a perfectly legal activity, tax avoidance is not a crime ' We have written to the Paymaster General to express our concerns in relation to the proposal to introduce retrospective legislation.

"In our letter we point out that the proposal will create uncertainty as to how the tax system operates, there is concern that the proposal is contrary to EU and Human Rights laws and, finally, it has the potential to undermine the credibility of the UK tax system in the eyes of taxpayers."

Andrew Goodall
Editor, TaxZone

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