This article starts with a health warning. If you work in the tax avoidance industry constructing highly artificial schemes intended to circumvent the disguised remuneration or (possibly any other) legislation, you may wish to skip this article.
The last thing the writer wants is to leave some highly successful practitioner spluttering or worse the victim of an apoplectic heart attack.
Over the years, HMRC has taken on the industry in a series of cases relating to schemes intended to convert remuneration into something that is either not taxable or taxed at a much lower rate than might normally be expected.
It seems as if most of the highest profile cases of late have involved bankers, such as those working for UBS and Deutsche Bank with regard to whom the courts eventually decided that plans intended to save hundreds of millions were so artificial as to be invalid.
The columnist wishes to express his thanks for an excellent article from Andrew Robins of RSM entitled Loan schemes ruled ‘abusive’. In it, the commentator reports on two decisions from the rarely exercised GAAR (General Anti-Abuse Rule) panel, which hammer a couple more sharp nails into the coffin of what George Osborne delighted in referring to as “abusive tax avoidance”.
As we all love to point out, tax avoidance is and always has been legal, where tax evasion is not. In tax terms, Mr Osborne might have been better referring to abusive tax evasion, although that would have been tautological.
Whatever you call it, any practitioner worth his or her salt knows that for generations tax advisers and barristers have delighted in creating schemes that followed the letter of the law very precisely, while gleefully riding a coach and horses through its spirit, much to the delight of clients who have benefited and (relatively) happily paid extortionate fees often via complicated contingency arrangements.
To date, HMRC has been far too busy to attack very many artificial schemes, although the courts have enlisted a reasonable amount over recent years. In addition, successive Chancellors have gradually tightened the net, especially with the introduction of the disguised remuneration legislation.
More recently, Philip Hammond has gently been probing around the prospects of cutting out abuse in connection with IR35. Before readers jump in, it is accepted that many might suggest that what he is actually trying to cut out is a perfectly legitimate activity.
In any event, Mr Robins reports on two cases the details of which can be ascertained by reading his article.
In headline terms, a couple of advisers (or possibly one who was very busy) have created heavily artificial schemes that HMRC believe to be outside the wording of the relevant legislation. In fact, the GAAR panel was unable to agree with this analysis.
Far more worryingly for those who like to believe that the law as written is the law, they have based their decisions on underlying intentions. This is likely to muddy the waters for anyone trying to plan in future, not just in the area of remuneration planning but far more widely.
From now on, as well as determining whether a particular tax-optimisation arrangement complies with the terms of any legislation, it will also be necessary to consider the intentions of Parliament when drafting the legislation and whether a court or Panel might come to the conclusion that the scheme was entirely artificial with no commercial justification beyond saving tax.
It will be fascinating to see both how the behaviour of tax planners changes as a result of these decisions and also whether HMRC becomes bolder in its attacks on “abusive” artificial tax schemes.