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Treasury clamps down on multi-million pound tax avoidance scam

by William Robins on Dec 21, 2012 at 12:55

Treasury clamps down on multi-million pound tax avoidance scam

The government has closed a tax avoidance scheme marketed as a way for companies to artificially reduce their corporation tax bills, which it says has robbed the Treasury of ‘tens of millions of pounds’.

HM Revenue & Customs (HMRC) was alerted to the scheme, which sought to exploit rules that automatically allow certain types of expenditure to be deducted from profits, this week.

The Treasury said  it was a wholly artificial arrangement set up for no other purpose than to avoid tax and that HMRC would challenge any attempts made to use it before the new legislation comes into effect today.

Exchequer secretary David Gauke (pictured) said: 'This government has made it very clear that we will not put up with tax avoidance which uses artificial structures to aggressively exploit rules contrary to parliament’s intended purpose.'

The scheme sought to generate loss relief from a property business. It was intended that users of the scheme offset losses from the property business against their corporation tax profits.

Legislation specifically banning this arrangement will come into effect today.

The government will introduce a general anti-abuse rule (Gaar) next year which will give HMRC greater powers to shut tax avoidance arrangements.

16 comments so far. Why not have your say?

Not all ETF's are the same

Dec 21, 2012 at 13:32

Is it me, or does David Gauke look remarkably like Jimmy Carr; who if I'm not mistaken has also been playing with his tax to create a loss?.... Yes, it's been a long day / month / year....

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Peter Morris b

Dec 21, 2012 at 13:36

I cannot believe that HMRC and HM Treasury have allowed artificial methods of avoiding tax that are essentially a sham. Like paying your subsidiary in Switzerland for coffee beans that never saw that country. Like paying a sunsidiary in Holland for roasting coffee beans that have never seen Holland let alone be roasted there. Like paying a subsidiary in Holland for the use of a tradmark actually owned in the USA. Like allowing the channelling of all profits to a subsidiary in Bermuda where there is no tax on income. Existing rules on the use of tax havens should have surely stopped these methods for avoiding tax artificially.

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Alistair Hinton

Dec 21, 2012 at 13:53

When jurisdictions other than UK are used and intellectual property rights legitimately registered in them, it's far from clear how new rules made in UK can have much (if indeed any) impact on the tax avoidance schemes that are dependent upon such intellectual property registrations unless and until there is international agreement between all nations losing revenues as a consequence of AND all nations offering such facilities; furthermore, unless and until there is vastly more harmonisation between the corporation tax rates levied by most countries, firms will continue to seek the lowest available ones and such tax will, as John Redwood, MP, recently put it, remain a competitive issue.

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Glint Thrust via mobile

Dec 21, 2012 at 14:07

It always makes me laugh when I read the vituperative comments about LEGAL tax avoidance on this site.

Any good adviser has a duty to tell or offer such schemes to clients,even if we then frighten them away from doing them.

The usual green-eyed suspects.

The kind of person,with too much time on their hands,who,as such,probably doesn't have a tax bill!

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Bob Donaldson

Dec 21, 2012 at 14:43

@Glint Thrust - Yes but the problem is that the majority of people pay their tax in a legitimate fashion and do not have the wherewithawal to employ and army of accountants to look at ways of mitigating such.

Accountants don't make a lot of money from doing tax returns and audit now it is all about tax advice and 9/10ths of that is at ways of avoiding such.

Let us hope the Revenue comes down harder on all these mickey mouse scheme and fly by night schemes for dodging tax.

The public at large are fairly sick of it hence the backlash against Starbucks etc.

It amounts to the same thing as paying your pluber cash you only cheat yourself in the end by doing such.

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Smithling

Dec 21, 2012 at 14:46

Glint

Any good adviser has a duty to tell or offer such schemes to clients?

I sincerely hope that any adviser promoting these schemes is buried under their PI premiums.

Just a quick question for you. If everybody did these schemes.. and I mean everybody, then could you explain to me how the economy would function when we're all paying 5% tax please? I know that's rather simplistic but as with everything that's legal but immoral, we can't ALL do it at once.

To the naive green eyed bystander like myself, it seems that somebody has to end up carrying the can and it's certain people who are happy to let others pick up the tab. In many walks of life there's a word for people like that...

p.s. You shouldn't make assumptions about tax bills. You run the risk of looking like one of the "usual green-eyed suspects" yourself. Maybe some people can just afford to pay the tax.

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DP's IFA

Dec 21, 2012 at 14:51

So HMRC will stop trying to get pennies out of Pensioners & attack Starbucks, Amazon & Co as that is where the real abuse is and big money to be had. Oh I forgot maybe their mate is on the board!!!!

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Opening Doors Finance

Dec 21, 2012 at 14:52

It is very unlikely there will ever be co-operation en masse internationally. Why?

Because governments are, themselves, "Economic Agents" which means they have to compete just like everyone else in the global marketplace. A government's trading edge is their tax structure and related incentives for individuals and corporations.

(Also, wouldn't it be rather dull to live in a completely homogeneous world?)

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Alistair Hinton

Dec 21, 2012 at 15:12

@ Opening Doors Finance:

Absolutely correct - and, for the avoidance of doubt, I neither advocated nor expressed expectation of any such future co-operation in my post on the subject.

Tax and taxation structures and régimes are all competitive products in the marketplace and must be recognised as such; until they are, these arguments will persist but nothing will be done to make more than the most peripheral impact on what some perceive to be the problem. The competitiveness of corporation tax, especially given that

(a) by employing many people, large corporations and their employees generate vast liabilities to income tax and NI

(b) in operating pension schemes, they also ratchet up future income tax liabilities for those employees when they retire and

(c) almost always generate vast VAT revenues on the products and services that they supply,

is such that there might well be an argument for abolishing corporation tax altogether; were Britain to be the first to do so, the number of doors being banged down by those outside UK would almost certainly be incalculable and the immediate benefit to the British economy would probably be likewise

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Peter Morris b

Dec 21, 2012 at 15:25

It seems to me that the idea about international competition between different countries and their tax regimes revolves around what artificial tax avoidance schemes the regulators will cast a blind eye towards. Where large companies are telling their shareholders that they are making record sales in the UK, getting 15% profit in the UK but paying little or no tax for 14 years is indicative. If advisors are marketing tax avoidance schemes to their clients I understand they should be advising HMRC of them so the authorities can veto them or not. Clearly HMRC does not have enough resources to do its job properly.

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John Smyth 3

Dec 21, 2012 at 15:34

Surely is not beyond the wit of intelligent accountantsIt to elicit what the true profits of a corporation is in any particular territory and if companies do not come clean about what profit they are making then they should just be assessed on their turnover. You could look at acheiving the same goal by them being charged a licence fee based on turnover for doing business in the territory.

If they do not like it then they should not be allowed to do business in that particular territory. The UK economy could survive without Google, Starbucks, Amazon etc.

A lot of these multi-nationals do not manufacture or produce anything exportable to help our balance of trade which is what our economy badly needs.

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Opening Doors Finance

Dec 21, 2012 at 15:48

@Alistair Hinton

I couldn't agree more.

I have long held the view that removing Corporation Tax altogether would likely generate more in tax revenues (Income, NI, VAT & Other Duties) than it would sacrifice.

CT generates just 8% (approx) of total tax revenues and is just 1 of 27 categories of tax typically used by the government.

And though I am yet to run the numbers, the probabilities certainly favour a huge surge in business to UK PLC that the remaining 26 categories would more than compensate for. After all, on a pro-rata basis each category of tax would only need to see a 9% uplift in revenue to compensate for the lost CT.

The basis for a tax-free corporate economy is definitely there.

(However, side-effects will always exist as "We don't know, what we don't know".)

Source: OBR

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Alistair Hinton

Dec 21, 2012 at 15:54

@ Peter Morris:

I respectfully disagree; whilst the extent of available tax avoidance schemes may indeed be a factor, the principal source of that competition is in the tax rates and thresholds that different countries offer and, obviously, the lower the rates and the higher the thresholds, the more business they'll hope to attract from other countries; our own PM has publicly expressed a wish to pull business to UK from France in the light of the latter's heavy social charges and uncompetitive tax régime.

I would also question the extent to which the UK economy could survive without Google, Starbucks, Amazon and thousands if not tens of thousands of other firms, many if not all of which use some kinds of tax avoidance measures and, in any case, if they did leave, there may be many redundancies and HMT would no longer enjoy the tax and NI revenues that the ex-employees had paid.

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Tax Breaks

Dec 21, 2012 at 16:42

Smithling

Our Tax system is full of holes and Tax needs to be cut and rationalised the tax will be great - refer to Clarke, Cowperthwaite

and Haddon-Cave in Hong Kong!

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John D

Dec 21, 2012 at 17:05

@Alistair Hinton

"I would also question the extent to which the UK economy could survive without Google, Starbucks, Amazon..."

None of these companies do anything unique. If they did not exist in the UK, consumers here would still buy similar products and services from similar providers, who would employ at least the same number of people, and pay their fair share of UK taxes on their profits.

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Alistair Hinton

Dec 21, 2012 at 17:49

@ John D:

What makes you so confident that those "similar providers" from which "consumers here would still buy similar products and services" - regardless of whether or not they "would employ at least the same number of people", wil be any more likely to "pay their fair share of UK taxes" (whatever that may be) "on their profits"? Google, Starbucks and Amazon may be among the highest profile firms under current scrutiny as the three wise tax avoiders but they're surely not by any means alone.

This "fair share" has in any case yet to be determined in each case but, whatever it might be at any time, it has to be based upon prevailing tax law and, whilst UK can revise its tax laws as it sees fit, it has little or no jurisdiction over those of any other country whose tax rates might be competitively lower. It's also worth remembering that the amount offered by Starbucks is not tax and does not appear on a tax demand; it's a charitable donation made as part of a PR exercise, no more, no less and I have little doubt that they've recouped that amount of pocket change from other sources already.

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