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Tax Avoidance - Time to Stop Evading Clearer Thinking

30/07/2013 13:28 BST | Updated 25/09/2013 10:12 BST

Tax avoidance is a hot topic exercising politicians, pundits, press and experts in the field, but what could be burnt unintentionally is an understanding of perfectly acceptable behaviour to limit liability.

It used to be simple. Avoidance was legal use of the tax regime to reduce what was owed within the law. Its evil cousin, evasion, was bypassing tax by illegal means. Everybody more or less knew where they stood, as evidenced by Seventeenth Century property owners bricking up windows to skirt the windows tax, and not minding who saw them doing it.

So whilst The Joy of Taxpaying is unlikely to be written any time soon, there were certainties. But where are they now in our Alice In Wonderland world where the heads of multinationals are hauled before Parliamentarians to explain why they have not paid tax they had no need to pay?

Her Majesty's Revenue and Custom, HMRC, has introduced more and more legislative changes intended to curb perceived tax avoidance, whilst public resentment at low corporation tax bills, a frenzy whipped up by press and politicians, is driving multi-national corporations to effectively make tax donations just to protect their businesses. Starbucks, for instance, decided it had better volunteer £20 million to calm its customer base.

Into this weird world, and without illuminating anything in particular, comes the new General Anti-Abuse Rule, GAAR. It seeks to tackle abusive tax avoidance, but without any details about what, exactly, constitutes abuse. In reply to Alice, HMRC would claim the aim is to ensure that all taxpayers pay their fair share; to reject the legalistic tradition whereby taxpayers use elaborate and ingenious methods to avoid paying taxes, often in a contrived scheme of transactions.

HMRC insists that the Rule is not intended to apply to reasonable choices that a taxpayer might make, such as whether to be in business as a company or sole trader. In guidance, HMRC refers to strategic litigation, challenging scheme it dislikes before they even go to market and legislation to close down perceived abuses. In this spirit has come, for example, warnings about The Business Premises Renovations Allowances Scheme used to spur regeneration in deprived areas, but almost all of these schemes are "seriously flawed" according to HMRC which has promised to investigate anyone seeking to exploit BPRA for tax avoidance.

But aside from intent, the legislation is broad and untested, with, for example, no system in place for pre-transaction approval. This makes an unsettling situation for both individuals and their advisers.

Anyone thinking about restructuring their affairs must now consider the impact of GAAR as well as other specific tax regulation. For goodness sake get some professional advice, too, because a lot of how the Rule is applied will mean second guessing HMRC.

Of course, HMRC has never liked tax avoidance, and perhaps properly has seen its role to challenge exotic efforts sometimes put together in that cause. But it is also true that an equally strong obligation falls on any multi-national company to minimise tax liabilities, subject to local laws, in the interests of their stakeholders.

An uncomfortable truth is also that HMRC has actually always had the power to challenge tax avoidance by multinationals, but has seemed reluctant to do so. There is a perception of it being in thrall to the accounting practices of the Big Four advisory firms that dominate in handling the tax affairs of international corporations, and of preferring to reach discreet agreements than risk the glare of a court hearing.

Obviously, HMRC needs the resources to tackle large complex cases and to work with global tax authorities. Equally, it must demonstrate an equitable, transparent and consistent approach to the collection of taxes which will, in turn, help build a stronger and sustainable British economy. It is certainly a world getting curiouser and curiouser.

"Would you tell me, please, which way I ought to go from here?"

"That depends a good deal on where you want to get to," said the Cat.

"I don't much care where -" said Alice.

"Then it doesn't matter which way you go, "said the Cat

" - as long as I get SOMEWHERE," said Alice.

"Oh, you're sure to do that," said the Cat, "if you only walk long enough."

Alice's Adventures in Wonderland, by Lewis Carroll