Posts Tagged ‘politics’

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Language, Timothy!

March 4, 2013

Back to the Mail Online again today for the story about the top dozen UK companies that pay no tax.  Serendipitously, there’s some thoughtful material on the same subject from Robert Maas in the last issue of Taxation (behind a paywall, sorry) where he asks “Are organisations really dodging tax, or are they just following the rules?”

This brings me back to the language of tax; Maas makes some reasonable points

  • Amazon makes its UK sales through a Luxembourg subsidiary.  It has warehousing in the UK, but under the 1968 Double Taxation agreement with Luxembourg a warehouse doesn’t constitute a “permanent establishment” that would make the sales from that warehouse taxable in the UK.
  • Starbucks has its intellectual property in a Netherlands company (in other words the know-how of how to run a branch of Starbucks) and it franchises UK shops.  So the profits made by an individual franchise would be payable by the franchisee in the UK, but would be decreased by the amount it pays to Holland for the know-how.

but his conclusion – “Most of the so-called avoidance schemes that are being publicly criticised are not avoidance at all” is a bit more difficult if you’re not a tax expert.

The fact is that the person on the Clapham omnibus – the tax muggle, if you will – doesn’t care about the complexity of tax legislation but applies the “it’s not fair” test.  It doesn’t feel fair that I have spent £100 on books without leaving my chair and that a British postman has brought them right to my door, but because I bought them from Amazon instead of [insert name of non-Amazon book seller here.  There must still be one somewhere, right?] then the profits the seller made aren’t taxed here but in Luxembourg.

Similarly it feels wrong if I’m sitting in Sheffield drinking a caramel macchiatto and eating my red velvet cake but somehow the profits from selling them to me get taxed in Holland.

But if we talk about tax avoidance in these terms it seems to me we’re generating heat without light.  “It’s not the firms, it’s the system” yes, maybe – but where does that get us?  The interesting thing to me is the government’s ambition to make the UK a “competitive” tax system, to show that it’s “open for business”.  That’s where I can shrug and agree with Maas that it’s not necessarily a “fault” for a company to arrange its trade in a way that takes advantage of the “competitiveness” of the different tax regimes in different countries: the issue isn’t with the actions of the company but with the people who designed the system in which they operate.

Perhaps, though, the issue takes us back to the one which didn’t really get bottomed out in the PAC hearings – if the fault is in the way the government makes its tax legislation, then the whiff of something smelly comes from the involvement of the same big businesses that profit from “tax competitiveness” in designing the competing systems.  That’s why we shouldn’t have a revolving door between industry and civil service, and why we should have records of meetings between Ministers and civil servants and industry representatives.

And, while we’re at it, why we ought to have the Small Firms Impact Test back in the list of things that must be included in the work of policy development, rather than archived at the back of the bus and replaced by some meaningless warm words.

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One point one billion

January 9, 2013

The coalition government doesn’t like the additional income tax rate of 50% on people with incomes of more than £150,000 a year. It says that the previous government’s estimates of the yield were wrong and published a detailed paper reviewing the actual amounts raised, to support its argument that the rate should be reduced from April.

The detailed report is here and if you will be kind enough to turn to page 39 and look at table 5.3 you will see that the adjusted figure for yield in 2010/11 is £1.1 billion.

In other words, if I’m reading it right, the government says that the additional rate didn’t bring in the five or so billion that Labour had suggested, but it did bring in £1.1 billion.  The conclusion (paragraph 5.64 on page 45) agrees:

Although the estimates are subject to a wide range of uncertainty, they suggest that the underlying yield is much lower than originally forecast, possibly only raising £1 billion at most.

Now, there was some comment yesterday during the debate on the Welfare Uprating Bill, because the Impact Assessment hadn’t been published till a couple of hours before the debate, so the information in it couldn’t really be used to inform the discussion.

Let’s look at it now, shall we?  Here it is: and, oh look!  Here’s what it says about the yield (the amount of money the government will “save” by not uprating benefits to keep pace with inflation)

Overall, it is estimated that savings to the Government from up-rating certain benefits by 1 per cent rather than by the CPI inflation rate, will be around £1.1 bn in 2014/15 and £1.9bn in 2015/16 in cash terms.  The savings will continue into the future and gradually increase in cash terms.

Of course it’s not a straightforward comparison – if it were, would even this coalition think that spending £1.1 bn on tax breaks for those earning over £150k was so important they’d take £1.1bn off of people working in low paid jobs and earning tax credits to pay for it… would they?  The £1.1bn from the top rate tax is the adjusted estimated total yield from the tax and not the total estimated reduction in tax take due from reducing the rate.  But if you look here at the tax information and impact note for the rate change you’ll see that the government aren’t really sure what the effect of reducing the rate will be, which is of course entirely in tune with their argument that we aren’t really sure what the tax brings in in the first place.

The impact assessment, of course, is a tool of evidence-based policy-making, and on these documents the evidence looks a bit uncertain to me.  Is the argument made?  Time will tell.

But in cash terms, what we seem to be talking about is whether incentivising the 300,000 people who pay additional rate income tax by giving them a tax cut of five p in the pound for their income over 150k is more important – more useful to  society?  More likely to get the economy moving?  More just?  More fair?  More… civilised?  Than taking it from people on job seekers allowance because there are no jobs, or on working tax credit because the jobs that exist are low paid?  It seems to be a question of priorities rather than evidence.

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A no brainer.

December 6, 2012

Anyone with a home worth over £1million now facing a visit from elite tax inspectors” Well, up to a point, Lord Copper!

Let’s have a look, shall we?

The announcement was of a further 100 staff for the “affluence unit”, the bit of HMRC that looks at the tax affairs of people with more than a million quid. As the Telegraph article says

The unit, comprising 200 investigators and technical specialists in six locations across the UK, focuses on people who are evading or avoiding tax.

And, looking for the official announcement that was the initial impetus for this non-story, I see that Danny Alexander announced the unit was expanding from 200 to 300 staff, and with a remit to look at people with £1 million rather than, as before, £2.5 million.

OK then.  So how many millionaires are there?  The Treasury press release estimates half a million but – going back to The Telegraph, where we started – that seems to be a pre-crash figure and their current estimate is 280,000.  I’m not saying I prefer the Telegraph’s figures to the Treasury’s, you understand!  But let’s be generous and take the lower figure.

So we have 300 HMRC staff looking into the tax affairs of 280,000 people.

280,000 divided by 300 is 933.333 according to my calculator.  So let’s round it down and say each of these HMRC staff deals with the tax affairs of 900 millionaires.  Yes, according to the Telegraph’s own figures each worker in the Affluent Unit will need to spread their investigative powers over 900 millionaires.  According to the Treasury’s, over perhaps twice that.  Where on earth will they find the time to go nosing around blameless individuals whose houses have just drifted up in value?  It’s scaremongering, forget about it.

What is more interesting is the announcement that HMRC will have more resources in the autumn statement.  It’s here, in line 32 of the policy decisions:


 £ million
 Head 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
+
32 HMRC investment Spend -10 -80 -25 0 0 0

Ten million in the current year, eighty million next year, £25m in the final year of the coalition and then zilch.  Hmmm… David Gauke’s written ministerial statement on December 3rd clarified this a bit: the 100 staff for the affluent unit are in there, plus some warm words about transfer pricing and centres of excellence.  But the figures are a bit off:

 A further £77 million will be provided to HMRC in this spending review period to further expand its anti-avoidance and evasion activity focused on offshore evasion and avoidance by wealthy individuals and by multinationals.

Well, 10+80+25 = 115 in my book, so if HMRC are getting 115 million and using 77 million on anti-avoidance and evasion, what are they going to use the other  38 million on, do we think?  I’m sure it’s hidden in the small print somewhere but I haven’t come across it yet – anyone?  (maybe they’re upping the £42 they can spend on each business for RTI by another, erm, sixteen quid apiece?)

But look here, at the ARC union website.  Now, ARC stands for Association of Revenue and Customs senior staff and it’s the branch of the FDA which covers senior staff in HMRC, tax inspectors, lawyers, senior managers and a bunch of other professions, economists and the like.  And they have a paper, Reducing the UK Tax Gap – Proposals from ARC. (which isn’t exactly prominent on the site, but if you look at the entry for December 3rd you’ll find it in the “notes for editors” from a press release they apparently put out on 30th November, presumably by leaving it in the statutory locked filing cabinet in the basement office marked “beware of the leopard”!)

What interests me is the suggestion that you could put resources into HMRC’s legal services:

Additional legal resources, 150 trained lawyers and 50 legal assistants, to accelerate litigation of the Tribunal backlog and accelerate yield. Cost £35m. Projected yield £2000m

One of the things that worries me about the extra hundred staff for the affluent unit is, where are they going to come from?  Because trained tax professionals don’t actually grow on trees, and HMRC has always been rubbish at planning for the future and making sure it has enough trained tax professionals coming online to replace natural wastage from retirements and resignations.  You can’t just go out and hire a hundred trained tax professionals – largely because the accountancy profession, where you might find people with at least analogous skills – pays a damned sight more than HMRC.

But you could go out and recruit a hundred and fifty lawyers tomorrow.  Because lawyers train themselves, or at least pay for their own training, and there are supply and demand issues in the legal profession which there aren’t in tax at the moment.  So you couldn’t find 150 trained tax lawyers – they get shedloads more than HMRC tax lawyers, I’m told.  But you could get 150 criminal lawyers, trained litigators, and start taking some of the backlog of tribunal cases to tribunal as fast as the tribunal could accommodate them.

ARC think an investment of £35m could bring in two thousand million.  And HMRC seem to have £38m left over, so it’s a no brainer, surely?  Why on earth not?

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Evidently…

December 3, 2012

Hmm.  As I said last week, I replied to the House of Lords Secondary Legislation Scrutiny Committee’s Call for Evidence on the Government’s new approach to consultations and received an acknowledgement this morning.

At the bottom of the call for evidence, it says

Submissions become the property of the Committee which will decide whether to accept them as evidence. Evidence may be published by the Committee at any stage. It will normally appear on the Committee’s website and will be deposited in the Parliamentary Archives. Once you have received acknowledgement that your submission has been accepted as evidence, you may publicise or publish it yourself, but in doing so you must indicate that it was prepared for the Committee. If you publish your evidence separately, you should be aware that you will be legally responsible for its content.

Well I’m all about consultations being open and I was expecting to reproduce here what I had sent to the Committee, so I thought I’d better check.

I emailed back and said

Thank you for the acknowledgement, but is this a different category from being “accepted as evidence” please?  I’d like to publish it on my tax blog but the instructions on your website suggests to me there might be two categories into which a submission fits, “received” and “accepted as evidence”?  Or am I being over-sensitive?

Apparently not.

notification of receipt does not constitute acceptance as evidence, as that is the exclusive decision of the Committee

and

If your submission is accepted as evidence it will be listed as such in our eventual Report.

OK… I can see why they don’t simply bundle up everything they are sent and publish it regardless (if only because the temptation for someone to stage an “email fillibuster” by sending them 42 copies of, say, the complete works of Dickens) but, nevertheless, I think they’re using the word “evidence” to mean some category that I haven’t quite got my head around yet.

Anyone know anything more sensible about what they mean and why?  Otherwise, let’s compose ourselves in patience and… watch this space.

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Don’t ask me?

November 23, 2012

I had a very kind note from a reader which said:

Hi Wendy

I suspect that the Government is getting fed up with your repeated responses to consultations – they are not used to people actually responding. The reason I suspect this is that they appear to have changed the rules on time allowed for responses, to give you much less time to get your thoughts together.

Much as I would like to think that I had some power over the government’s actions, I don’t think it’s just me!  As I mentioned in an earlier post, the Cabinet Office has already quietly posted some revised consultation guidelines onto its website.

And on 14th November BIS responded to a Freedom of Information Act request I made by saying amongst other things that

You asked for agendas and minutes from the last four meetings of the consultation co-ordinators. Our records indicate that the consultation co-ordinators have not met for over 18 months, and prior to that we have no agendas or minutes held on file. We believe some Departmental Better Regulation Units might still run their own consultation discussions, but the Better Regulation Executive has not been advised of any such meetings.

I deduce from those two pieces of information that there hasn’t been a Whitehall wide discussion that has led to the restriction on consultation deadlines but that someone else, someone central, is driving this change.

My guess would be that the person in the driving seat is Oliver Letwin, if only because he is the Minister of State in the Cabinet Office in charge of Getting Things Done (or, at least, ensuring that the government carries out its programme)

And, interestingly, he is appearing before the Merits Committee, or, as they are now called, the House of Lords Secondary Legislation Scrutiny Committee on 11 December to give evidence on exactly this point, the new approach to consultation.

There was a Guardian Public Leaders Network discussion of this issue last week which is worth a read (if only because it was the first time I’d come across the charmingly-named outfit “Guerilla Policy” – see here for their thought-provoking piece on the class element in consultation) and there is a call to arms from the institute of Employment Rights.

The message from all of these is: you have another week.  If you have thoughts (and, more particularly, evidence!) about how consultations work and whether the twelve week expectation is a Good Thing or not, well, you should put your evidence in to the Lords to inform their discussions with the Minister.

Yes, I shall be responding.  But the Secondary Legislation Scrutiny Committee takes ownership of submissions and may publish them in due course:

Submissions become the property of the Committee which will decide whether to accept them as evidence. Evidence may be published by the Committee at any stage. It will normally appear on the Committee’s website and will be deposited in the Parliamentary Archives. Once you have received acknowledgement that your submission has been accepted as evidence, you may publicise or publish it yourself, but in doing so you must indicate that it was prepared for the Committee. If you publish your evidence separately, you should be aware that you will be legally responsible for its content.

so I think it only polite to wait and see what response I get.  But please note that this is a call for evidence and the Committee specifically asks for signal boost:

This is a public call for evidence. Please bring it to the attention of other groups and individuals who may not have received a copy direct.

In other words: tell your friends!

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Wouldn’t it be nice…

September 14, 2012

…if we treated our paralympians and other fellow citizens with disabilities or terminal illnesses the way we treat our tax avoiders?  I’ve just written a long post, below, in response to a consultation about the General Anti-Avoidance Rule Notion.  I just wanted to pick out one small aspect of that suggestion, the proposed definition of abuse.

Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action, having regard to all the circumstances…

This is called the double reasonableness concept: it’s not enough that the action is reasonable, it also has to be reasonable to regard it as reasonable.

Wouldn’t that be a great way of re-testing disabled people to make sure they’re still entitled to disability benefits?  Say something like

Disability assessments are “abusive” if they lead to an action such as the removal of benefits which cannot reasonably regarded as a reasonable course of action, having regard to all the circumstances…

Just a thought.  (but the consultation on the tax GARN closes today.  You’ve still got time to drop them a line at study.gaar@hmrc.gsi.gov.uk suggesting they pass on their double reasonableness test to the DWP…)

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Garn!

September 14, 2012

I’m having trouble finding the work of literature in which I first encountered the word “Garn!” but I’m reassured by Wiktionary listing it as a cockney word that “expresses disbelief or mockery” (and hinting it was probably Pygmalion).   Having established its existence – garn, you didn’t believe I was making it up, did you? – I propose forthwith that we stop calling for a General Anti Avoidance Rule (GAAR) and instead talk about the General Anti-avoidance Rule Notion – GARN.

Because I don’t believe we’ll ever have one.  Not a rule that actually works, anyway, where “works” is defined as “making a difference”.  Look, for example, at page 33 of the consultation on A General Anti-Abuse Rule, the Tax Impact Assessment, where the Exchequer impact is given as follows:

The GAAR will support the Government’s aim of reducing tax avoidance and will both raise and protect revenue. The revenue impact will reflect the targeting on artificial and abusive avoidance schemes, but will depend on the final design of the proposal. Any final Exchequer impact will be assured by the Office for Budget Responsibility.

Uhuh.  Now, you may recall that I obtained the internal instructions on how to prepare a tax impact assessment under the Freedom of Information Act (go here to see the full instructions) but let me just quote the bit about what to say in a formal consultation document about the Exchequer Impact:

If the measure is not yet scored so a 5-year scorecard costing has not been published, don’t enter one. Instead enter a statement giving an indication of the order of magnitude of the costing, and stating that the final costing will be subject to OBR scrutiny.  (my emphasis)

Well, I see a reference to the Office for Budget Responsibility (“OBR scrutiny”) but what indication is there of the order of magnitude of the problem and the amount of any tax to be raised or saved as a result of introducing these proposals?

Anyway, this is what I sent to the policy team: the consultation closes today so you’ve still got time to send an email to study.gaar@hmrc.gsi.gov.uk if you’d like to add your two-pennorth.

This is an individual’s response and is also being published, with commentary, on my blog at http://tiintax.com

First of all, Graham Aaronson’s report says that “tax planning is an entirely appropriate response to the complexities of a tax system such as the UK’s” and section 2 of the condoc says “The GAAR should not affect what the Report describes as “the centre ground of tax planning”.” I wonder therefore why you are tinkering at the edges rather than trying to simplify the tax system so that avoidance and the “centre ground of tax planning” is engineered out of the system altogether?

However I appreciate that isn’t within the scope of this consultation so I will address the specific questions you have asked.

1. Do you agree that the GAAR should be limited to the taxes and duties set out in clause 1(3) of the Draft GAAR initially?

No: but then I feel the best options, in order of preference, are a radical simplification of the tax system to engineer out avoidance, or if that cannot be effected, a broad-spectrum GAAR. In this case the GAAR itself is so narrowly drawn it will make little or no difference that its scope is also limited. It’s a fly-whisk, when you need an elephant gun.

2. Do you agree that the GAAR should be capable of counteracting UK tax advantages obtained under double tax agreements?

Yes

3. Do you agree that (1) the proposed “main purpose” rule serves as a useful filter, when coupled with the concept that arrangements must also be “abusive” and (2) a specific exclusion for arrangements without tax intent is not required? If you think a specific exclusion is required, please explain why.

I disagree: “purpose” is irrelevant. If an arrangement produces an abusive tax consequence I personally don’t care if the abuse was accidental! (And, in case it’s not obvious I’m being sarcastic here, let me be plain and say I think you’re tying yourselves in knots unnecessarily. The concept of “abuse” should be decisive enough a test.)

4. Do you agree that the proposed “double reasonableness” test operates as intended to counteract only artificial and abusive schemes (such as those described in Annex B)?

Yes. (And, incidentally, wouldn’t it be a good idea to have a similar test introduced into – say – matters like removing disability benefits from people. So the government would only stop paying mobility allowances to someone with a missing limb if they could show it was reasonable to believe that it was reasonable for the person to do without it!)

5. Do you agree that the counteraction provision in the draft GAAR is appropriate?

Yes. I assume if HMRC had sufficient grounds to penalise avoiders they would take action under that appropriate provision and the GAAR would not come into effect at all – that it’s “belt and braces” – the GAAR will be the braces, but the belt will be tried first.

6. The Government is continuing to develop its analysis regarding the appeals processes in relation to counteraction and consequential adjustments under the GAAR, and welcomes views which may inform detailed proposals to be published later in the year.

No comment

7. The Government would welcome views on the options set out regarding commencement, how transitional arrangements should be dealt with, and whether there should be different rules for different taxes where appropriate.

Good grief, we’re talking about ABUSIVE arrangements here! It should apply from the date it’s announced – preferably 1 October 2012 – and to any transaction completed after that date, just as it would if you were introducing retrospective legislation to close an obvious tax loophole. No, there’s no need for transitional arrangements – send the message, tax abuse stops today.

8. The Government welcomes views on clause 5(1) of the Draft GAAR.

No comment

9. Do you agree that it is appropriate for particular weight to be given in the legislation to the GAAR guidance and the opinion(s) of the Advisory Panel on the arrangements?

Not unless the makeup of the Advisory Panel is radically changed! At the moment it reminds me of that line in 1066 and all that, about the barons wanting to be tried by “a jury of their peers, who would understand”! At present the panel seems to consist purely of legal tax professionals. It needs to have some members who are there to represent the law-abiding taxpayer such as union or other civil society group representatives; there to represent the interests of the non-avoiding taxpayer base.

10.The Government welcomes comments on whether particular issues arise in relation to Self Assessment (where the relevant taxes operate within a Self Assessment regime) or within the existing administrative rules for those taxes that do not operate within a Self Assessment regime.

11.The Government invites comments on the general proposal that the GAAR should as far as possible operate within existing administration rules for the taxes involved; and on what adaptations may be necessary to existing administrative rules to ensure that the GAAR operates with as little as possible additional administration cost and burden for taxpayers, advisers and HMRC. Is there a case for having a new type of assessment given the cross-regime range of the GAAR?

No comment

12.The Government invites comments on whether time limits should be set for each of stages two, three and four and if so what those time limits should be.

Yes: probably one to three months. The work needs to be resourced to risk, so HMRC will need to allocate appropriate resource to push these cases forward. And the tax avoider will have little or no incentive to cooperate if there isn’t also a time limit for them to respond or lose the case by default.

13.The Government welcomes comments on the proposals relating to the Advisory Panel.

See answer 9. The Advisory Panel needs to have lay members.

14.The Government would welcome views on the proposals for producing and updating the guidance.

The government already has rules in place around guidance – that it should be ready when legislation is published, that it should be compiled in collaboration with the affected taxpayers, that it should be in plain English – if it follows its own rules it won’t need to make more!

15.HMRC would welcome comments or evidence that can improve the TIA assessment of impacts, costs and yield of the GAAR proposals.

The Exchequer Impact does not follow the internal guidance to give the order of magnitude of the problem. What amounts are expected to be raised and/or saved as a result of the introduction of the GAAR? Without that information, it’s hard to see whether the GAAR will amount to a hill of beans.