ICAS calls for general anti-avoidance rule

The Institute of Chartered Accountants of Scotland (ICAS) has written to the chancellor encouraging the government to consult on the possibility of introducing a general tax anti-avoidance rule (GAAR).

ICAS, which, with other professional bodies, has been campaigning for a simplification of the UK tax system, was not previously in favour of a GAAR but has changed its approach as a result of the Government's ongoing purge of tax avoidance.

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Andrew Goodall's picture

Government's duty

Andrew Goodall | | Permalink

The ICAS's submission is welcome, though a GAAR would create problems of its own.

The need for governments to curb aggressive avoidance is acknowledged by all the main political parties and, more recently, by some business groups. Tackling avoidance is not a party political issue, whatever Mr Jenkins and others may think of Gordon Brown.

It is a duty of government to ensure that the tax system does what Parliament intends it to do (though that it not always clear!)

ICAS itself says "there exist ingenious minds to challenge the intention of the legislature and as a result it has been necessary to introduce, piecemeal over the years, ever increasingly complex anti-avoidance legislation."

It points out that in principle, it is every person’s right to pursue all legal means of minimising their taxes … claiming all their reliefs and allowances and structuring their affairs in a tax efficient manner.

But it adds that "each person must recognise that there is a line that should not be crossed, and should have the restraint not to cross it. Such an approach is consistent with a self-assessment regime but the difficulty lies in defining the line."

Anyone wondering what all the fuss is about, and why today's Finance Act is bursting with complex anti-avoidance measures, might read yesterday's Lords debate in which Lord Rosser pointed to more than 500 direct tax and 700 indirect tax disclosures of tax schemes under "DOTAS".

One scheme to reduce tax on more than £70m of income by "a misuse of gift aid arrangements … resulted in an individual who had made the gift and got it back obtaining tax relief of just short of £40m".

Lord Rosser said the "murkier end of the tax avoidance industry" operates "on the borders of legality, and certainly well outside the borders of morality and the spirit and intention of the law."

On the other hand, some anti-avoidance legislation (eg. the pre-owned assets regime) is just too complex and widely drawn.

Professional tax advisers and representative bodies should follow the example of KPMG, PwC and the ICAS and engage in the debate.

Andrew Goodall
www.taxinpractice.com

richard.murphy's picture

GANTIP, not GAAR (2)

richard.murphy | | Permalink

The motivation for a GAAR and a GANTIP is similar. Both recognise that there are boundaries in taxation that should not be crossed, as Andrew Goodall and ICAS also argue. But there are important differences. A GAAR is a rule, and as one member of the accountancy profession said to the Guardian in March 2004 “"No matter what legislation is in place, the accountants and lawyers will find a way around it. Rules are rules, but rules are meant to be broken." That is the very weakness of such legislation, and why attempts to draft them are so fiendishly difficult. Even then, rules always include loopholes. That’s inevitable given the nature of language.

Principles are another matter. They work on the basis of the application of the “elephant test”. In other words, you know them when you see them, and you know when they’ve been broken. Some of course will say that this creates uncertainty. I do not for one minute accept that. Indeed, if a GANTIP were to enshrine the Ramsey principle in law, and so undo the immense damage caused by the Westmoreland case and the general timidity of the current membership of the House of Lords, then we would have considerably greater certainty in tax law. Put simply, if at any time a person undertook a transaction with the primary purpose of securing a tax advantage and in doing so did not suffer the economic consequences intended by parliament to enable one to secure that advantage then the transaction should quite simply be ignored for taxation purposes. To undertake such a transaction would be evasion. To assist a person to undertake such a transaction should carry a penalty at least equivalent to the penalty levied upon the taxpayer who committed it, and more in the case of a professional adviser.

This would add considerable certainty to tax law. And I also warmly welcome the idea of pre-transaction rulings for a fixed fee (in proportion to the tax involved I suggest, not the complexity of the deal). I think this could be self funding, mitigate professional risk and substantially cut the cost of professional indemnity insurance. All would be welcome. In addition, this would give accountants what they always ask for, which is certainty.

I’m sure the outcome would not be a panacea, because nothing is, and there would be problems with timings on clearances I am sure, but compared with what we have now this would be a massive improvement. It seems irresistible to me. I look forward to others joining in the call. But please make it a GANTIP, not a GAAR, or some of the less reputable amongst us will carry on spoiling the fun.

richard.murphy's picture

GANTIP, not GAAR (1)

richard.murphy | | Permalink

I welcome Andrew Goodall’s contribution to this debate, below.

As many who follow these issues will know, I have argued for a general anti avoidance PRINCIPLE to be enshrined in UK law. This is a view adopted as the policy of the Tax Justice Network in the UK. In this I am pleased to say that we share company with such eminent taxation thinkers as Professor Judith Freedman, KPMG Professor of Taxation Law at Oxford University, who has given such a principle the acronym “GANTIP” to prevent confusion with accounting’s “GAAP”.

acronyms

Anonymous | | Permalink

I think GANTIP is confusing and not in its commonest current meaning a true acronym at all. If distinguishing it from GAAP is the aim, better would have been GATAP, for General Anti Tax Avoidance Principle.

By the way, GATAP is © of roger rabbit.

reply to Andrew

AnonymousUser | | Permalink

If Tax raising is not political what is it then?
I happen to think GB motives and intentions are RIGHT and honourable. However his approach and methods are WRONG and having a negative effect (Why is he having to borrow money?). When he first came into Government he had a fantastic opportunity to sort out the whole sordid mess. Yet he chose, just like those before him, to tinker.
If our legislators cannot get it RIGHT then perhaps they should go back to the drawing board.
I have said this many times there is no such thing as tax avoidance. The Government have civil servants who are paid to think up ways to legally raise money through different types of taxation. Doesn't the tax payer then have the right to pay for someone to legally minimise their liability?

Andrew Goodall's picture

All-party support

Andrew Goodall | | Permalink

John, I did not say that tax raising was not a political issue. I said "The need for governments to curb aggressive avoidance is acknowledged by all the main political parties and, more recently, by some business groups. Tackling avoidance is not a party political issue ..."

As to this Government's approach and methods, I agree that in some respects it has got it very wrong, eg. creating the CT zero rate, one of the daftest anomalies ever seen, only to accuse of "avoidance" those who incorporated to take advantage of it.

But denying that avoidance exists is not going to help any debate. If it does not exist, what exactly have the ICAS, the CIOT, the Tax Faculty, KPMG, PwC, the PCG and the FPB been talking about?

This story seems to have fallen off the main news page ...

Legal

AnonymousUser | | Permalink

No Andrew we haven't gone off the path.
What ICAS are saying to GB is let us have a definition of something that is legal that you don't like because it doesn't raise the amount of tax you want.
When Governments mess about with LEGAL we are in trouble.
The whole system is in a complete mess which I think most bodies realise.
Isn't it better for all the bodies to get together to come up with a tax system that is suited to 2005 and beyond rather than have endless discussions when GB will do what he feels is RIGHT anyway.

richard.murphy's picture

Flawed logic

richard.murphy | | Permalink

John Jenkins’ logic in much of what he has written here is quite fundamentally flawed.

First of all, as he well knows (and if he doesn't he shouldn't be practicing tax) tax is only paid if there is a legal basis of assessment. Therefore it is quite clearly wrong to say that Gordon Brown is trying to collect tax that is not legally due. If it is not legally due it is not payable, and that is the end of the matter.

The reality is though that much tax is claimed to be avoided when there is either uncertainty as to the meaning of the law, or when a taxpayer and their advisers have sought quite deliberately to exploit an ambiguity in the law which they know it was never the intention of parliament to create. This practice is on the margins of legality. It is an additional nonsense to pretend that such margins do not exist, as John Jenkins would like to do, or, as he well knows, most of the legal profession would be out of a job.

It is to attack these practices that a GANTIP is required. What it would do is make clear in statute law what we thought we knew from case law for some time, which is that to seek to obtain such an advantage by artificial means is unacceptable and would, unambiguously, be illegal. It is, of course, a right for a government with the backing of Parliament to declare such a thing to be the case, a fact that John Jenkins also appears to wish to ignore.

To the vast majority in society such a step would be seriously welcome, because very few people like those who fiddle their way to an unfair advantage at the expense of others, even if they apparently do so legally. As such, for this political reason I have little doubt at all that such a measure will reach the statute book in due course. In that context it is a sign of reality that most accountants are now beginning to embrace the idea.

carnmores's picture

Neil

carnmores | | Permalink

that would be some precedent, letting them charge for advice which could be overturned by a court (this is not quite the same as professional firms charging) but maybe a standard charge might work otherwise i think you have come up with a good one!

Not Surprised

AnonymousUser | | Permalink

Richards' comments are not surprising given the nature of his previous answers.
If you actually read what I say you will understand that my logic is sound.
You cannot say that something is marginally legal and something else is more legal. That really does defy sound logic.
Again how can you legally "fiddle".
As you well know, Richard, GB has embarked on a method to make all tax payers pay the most amount of tax possible (he calls it the RIGHT amount of tax )by deciding which bits of legal suits his stratedgy. This clearly has not worked (which a lot of us realised many moons ago) as the tax take is down.
What you fail to take account of is that in any system there will always be winners and losers. When you start attacking one particular part of that system the whole thing falls apart.
Our Tax system has passed its sell-by date and needs to be re-designed. Yes of course there will still be clever-dicky accountants that will buck the system just as there will be clever-dicky civil servants that will come up with more stealth taxes.

Confusion - What confusion?

AnonymousUser | | Permalink

There is no confusion!!!!!!!!!!!!!!
Mr. Brown has made it quite clear that tax avoidance is just the same as tax evasion.
What he is saying to all Accountants is "You know what avoidance is so don't do it even though it might be legal."
Whether we choose to think that he is RIGHT is the problem. Some Accountants will give in gracefully others will push things to the wire, but there is no confusion within the treasury.
There are many anomolies within the tax system but that is another matter and should not be confused with Tax avoidance.

Pre-transaction ruling

NeilW | | Permalink

I feel that pre-transaction ruling should be chargeable by the Revenue on a time basis, so that it is self-funding as well as binding. Moreover any findings or decisions under GAAR should be published just like case precedents or commissioner hearings and made searchable for free just like the manuals.

That way a body of information is built up over time and the tax system can evolve.