TI-UK Position Statement on Tax Avoidance by Individuals

Interim Position Statement on Tax Avoidance by Individuals January 2013 1.

Tax avoidance has attracted increasing media attention and public attitudes in the UK to tax avoidance are hardening, partly as a reaction to the current difficult economic conditions. TI-UK has been asked whether there is a TI policy on avoidance of tax by individuals.

2.

The global TI Movement does not currently have a policy on tax avoidance by individuals, though there are some discussions about it within the Movement. TI-UK would want to align its policy with any Movement-wide policy in the future. Consequently, this position statement by TI-UK is provisional and subject to subsequent change in the light of further deliberations.

3.

The issue of tax avoidance is a complex one. Some forms of avoidance are generally regarded in the UK as legitimate, such as buying modest quantities of duty free goods for personal consumption. Some legislation has been enacted by successive governments with the explicit intention of providing tax incentives in order to encourage certain economic behaviour, for example the creation of tax free Individual Savings Accounts ( ISAs), and certain reliefs against capital gains for small businesses.

4.

UK tax legislation is extremely complex. It is applied by a strict interpretation of the written statute, although the Courts have interpreted the law having regard to its purpose where this has been made clear by Parliament. However, the complexity and volume of tax statutes has provided taxpayers and their professional advisers with the means to devise tax avoidance arrangements which are regarded by some as being abusive. There has been criticism of some schemes that have been exploited in ways that were not intended by the original legislation, such as film partnership schemes which were originally introduced to encourage investment in the British film industry but primarily became tax avoidance vehicles with little or no financial risk to investors. Other tax avoidance schemes have been criticised as being artificial and abusive but the Courts have been powerless but to find that they work in the absence of specific legislation to close the loophole.

5.

In December 2010 Graham Aaronson QC was appointed by the UK Government to lead a study programme to establish whether a General Anti Abuse Rule (“GAAR�) could be framed so as to be effective in the UK tax system and, if so, how the provisions of the GAAR might be framed. He was asked to consider in particular whether such a GAAR could provide the Government with an effective means of deterring and countering tax avoidance; ensure that the rules work fairly; ensure that the rules would not erode the UK tax regime’s attractiveness to business; and ensure that sufficient certainty about the tax treatment of transactions could be provided without undue compliance costs for businesses and individuals; 6.

The study programme included a wide consultation with tax practitioners and not surprisingly the attitude towards tax avoidance varied. Some still held the view that whilst Parliament may tax certain transactions in an effort to generate certain income that taxpayers were entitled to use their wiles and skills to legitimately reduce their tax burden. In his study on the need for a GAAR, Graham Aaronson QC took the view that the levying of tax was the principal means by which the state pays for the services and facilities that it provides for its citizens. It follows that it is reasonable to impose some form of anti1

avoidance legislation to limit the means by which taxpayers can use weaknesses or loopholes in the tax legislation in order to avoid their share of the tax burden.

5.

The Aaronson study was published in November 20111 and in June 2012, the UK Government issued a Consultation Paper on a draft GAAR) targeted at artificial and abusive tax avoidance’2. The consultation ended in September 2012 and the Government intends to bring forward legislation on this in a Finance Bill in 2013. Annex B of the Government’s Paper provides examples of artificial and abusive tax avoidance. These include schemes that ‘take advantage of an unintended gap left by the interactions between two different sets of statutory provisions’ and schemes to create artificial losses and deductions through, for example, ‘accounting tricks’ and ‘dividend buying’. The Government’s Paper makes it clear that the Government does not favour a ‘broad spectrum general anti-avoidance rule’ and that the proposed GAAR will have narrower application than anti-avoidance rules in some other countries. For example, under the proposed GAAR, it would appear that a UK citizen whose spouse is domiciled in a low or zero tax jurisdiction and complies with HMRC disclosure requirements, would not be considered to be involved in abusive tax avoidance.

6.

Against this background, TI-UK has provisionally adopted the following position on tax avoidance by individuals, linked to a definition of tax avoidance that may be enshrined in a new law in 2013: 

Individuals should scrupulously abide by the law and relevant rules and regulations in the jurisdictions in which they are based and/or operate;



TI-UK is opposed to artificial and abusive tax avoidance, as outlined in the Government’s Consultation Paper of June 2012 which proposes a ‘General AntiAbuse Rule’ targeted at artificial and abusive tax avoidance.

7.

This interim position statement will be made available on the TI-UK website, and will be provided to those who enquire about our position on tax avoidance by individuals, including potential donors.

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http://www.hm-treasury.gov.uk/tax_avoidance_gaar.htm http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_Con sultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032113 2

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