UK Treasury To Review Outdated Tax Avoidance Law

by Robert Lee, Tax-News.com, London

11 July 2005

An outdated tax rule dating back to the days of exchange control could be axed by the United Kingdom government under a review of HM Revenue and Customs' powers.

Speaking in the House of Commons during a recent debate on the finance bill, Paymaster General Dawn Primarolo told members that the 'Treasury Consent' rules were created "in a different era" and it was "right and proper" that these rules should now come under scrutiny.

Under the Treasury Consent rules, it is a criminal offence to sell or issue shares in an overseas subsidiary without the Treasury's consent. They were originally introduced as part of the old foreign exchange control regime but the rules have remained on the statute book and have been used recently as a compliance weapon by tax inspectors to give early and precise warning of impending transactions that could flag tax planning issues.

Corporations have long complained about the system, which can disrupt major corporate deals and and also carry excessive penalties if breached. Critics of the Treasury Consent rules also argue that they have been largely superseded by new anti-avoidance provisions, including new laws which take aim at tax 'arbitrage' between the domestic and foreign taxation systems. They point out that the old rules are obsolete as they can be removed without a reduction in the revenue base.

Primarolo has stated that the government will review how the consent rules operate alongside the new anti-avoidance rules.

"If anti-avoidance legislation ever rendered section 765 [on Treasury consent] redundant the government would reconsider the matter," she said.

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