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Experts Urge Clarity On UK Rules On 'Enabling' Tax Avoidance

by Amanda Banks, Tax-News.com, London

18 August 2016


The introduction of new UK penalties for "enablers" of defeated tax avoidance schemes must not prevent taxpayers from accessing "honest, impartial advice on the law," John Cullinane, Tax Policy Director of the Chartered Institute of Taxation (CIOT), has said.

According to Cullinane, "The challenge for the Government is to frame legislation which will achieve [its] objective of preventing those who devise and market avoidance schemes from profiting from that activity, while maintaining the right of taxpayers to obtain full and expert advice on complicated and often unclear areas of law, enabling them to sensibly plan their tax affairs within the law and not lay themselves open to large, unintended tax bills."

The Government this week launched a consultation on the proposals. According to the consultation document, the word "enabler" includes "anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements, and without whom the arrangements as designed could not be implemented." The definition of an enabler will be based on the broad criteria set out in Finance Bill 2016's anti-offshore evasion measures, "but specifically tailored to the avoidance supply chain and ensuring the appropriate safeguards are included to exclude those who are unwittingly party to enabling the avoidance in question."

Cullinane said: "It is far from clear that a definition drafted for 'enabling' a criminal offense will be appropriate for defining an activity which, while undesirable in the eyes of most people, is legal, provided all appropriate disclosures are made to the tax authorities. As we said to the Government in the context of the offshore evasion legislation, words like 'assist' and 'facilitate' are extremely vague. They will need to be carefully defined so it is clear what kind of activity is being targeted."

Cullinane added that the CIOT is concerned as to the applicability of penalties in a situation where a taxpayer requests advice on the risks attached to participating in a scheme, receives the appropriate advice on these risks and the likelihood of its being defeated, and decides to join the scheme regardless. "It would be extremely harsh to penalize a tax adviser in this scenario where all the tax adviser has done is advise the taxpayer on the law as it stands," he cautioned.

The Government has proposed that the penalty "is conditional on offenses being committed by, or penalties chargeable on, the person whose offshore evasion or compliance has led to inaccuracies in their tax return." It intends to use the defeat of tax avoidance arrangements as "the trigger for enabler penalties." This would ensure that "each enabler of that avoidance arrangement would be subject to penalties in their own right, irrespective of the final penalty position of the user of the arrangements."

However, Cullinane pointed out that "court cases on tax matters are not only about avoidance." He noted that they are often disagreements between HMRC and taxpayers as to how the rules operate, with the courts being asked to adjudicate. "Losing a case of this kind in the courts should not be seen as tax avoidance by the taxpayer or as enabling avoidance by their advisers," he warned.

TAGS: court | compliance | tax | tax compliance | tax avoidance | law | United Kingdom | ministry of finance | tax authority | offshore | agreements | legislation | penalties | trade association | trade | Tax | Tax Evasion

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