Combatting Tax Avoidance
John Barnett CTA (Fellow) TEP
Partner, Burges Salmon LLP
Combatting Tax Avoidance – STEP
Autumn Series 2015
The War on Tax Avoidance
Disclosure of Tax Avoidance Schemes (DOTAS) update
Accelerated Payment Notices
Information Powers
General Anti-Abuse Rule (GAAR) – what’s happening
DOTAS
Combatting Tax Avoidance – STEP
Autumn Series 2015
Broad outline of DOTAS regime (FA 2004)
Triggering Conditions
(s306-307)
Exceptions
Report
(s308-310)
Reference
Number
(s311)
Client
(s312) Tax
Return
(s313)
Combatting Tax Avoidance – STEP
Autumn Series 2015
Broad outline of DOTAS regime (FA 2004)
Triggering Conditions
(s306-307)
Exceptions
Report
(s308-310)
Reference
Number
(s311)
Client
(s312) Tax
Return
(s313)
Offshore
Promoters
Contents of
Report
Time Limits
In-house
Promoters
Time Limits
Penalties
Penalties
Penalties
No Promoter
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Hallmark
Promoter Notifiable
Proposal or
Arrangements
Relevant
Business
Design Making
Available
Organisation or
Management
Arrangement
or Proposal
Tax
advantage
Main Benefit
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Any trade, profession or business which involves the
provision to other persons of services relating to
taxation
OR
A bank or securities house
(s307(2) FA 2004)
i.e. all of us
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Devising a tax scheme from first principles
“Do you have any solutions?”
Idea brought to advisor - changes suggested
Specific Commercial objective brought to advisor who
suggests bespoke solution
General Commercial objective brought to advisor who
advises
[Revenue Guidance]
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Distribution of solution designed by another
Seeking client with objectives to match your solution
Incorporating an existing solution into advice
“Do you have any solutions?”
[Revenue Guidance]
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Little guidance
But only if connected to a party who designs or makes
available (reg 5 SI 2004/1865)
Presumably involves being a party to the transactions
(e.g. as trustee)
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Any scheme, transaction or series of transactions
Proposal = proposal for the above
s318(1) FA 2004
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Any relief or increased relief from tax
Any repayment or increased repayment of tax
Avoidance or reduction of a charge to tax or
assessment of tax
Avoidance of a possible assessment of tax
Deferral of any payment of tax
Advancement of any repayment of tax
Avoidance of any obligation to deduct or account for
tax
“Tax” = IT, CGT, CT, PRT, IHT, SDLT, SDRT, ATED [VAT
and NICs]
s318(1) FA 2004
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Relevant
Business
Design
Making
Available
Organisation or
Management
Arrangement or
Proposal
Tax
advantage
Main Benefit
Objective Test
Question of Fact
“A” main benefit
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Promoter Notifiable
Proposal or
Arrangements
Relevant
Business
Design Making
Available
Organisation or
Management
Arrangement
or Proposal
Tax
advantage
Main Benefit
Hallmark
Combatting Tax Avoidance – STEP
Autumn Series 2015
Hallmarks
Confidentiality (non-disclosure agreements)
Premium Fee
Standardised Tax Products
Loss schemes
Leasing arrangements
Employment income
SDLT, ATED, IHT and NIC specific hallmarks
Generic
(except
currently SDLT,
IHT, ATED)
Specific
Combatting Tax Avoidance – STEP
Autumn Series 2015
Hallmarks – Confidentiality (Promoters)
Identify the element expected to give rise to the tax
advantage
Either:
- A promoter might reasonably wish to keep that element
confidential from other promoters; or
- The promoter wishes to keep the element confidential
from HMRC to facilitate repeated or continued use
Combatting Tax Avoidance – STEP
Autumn Series 2015
Premium Fee
Fee arises by virtue of the tax avoidance elements
Attributable to a significant extent to the tax advantage
OR contingent on it
Hypothetical client test
Hypothetical promoter test
Combatting Tax Avoidance – STEP
Autumn Series 2015
Standardised Tax Products
Product
- Substantially standardised documents
- Not tailored to any material extent to the client’s circumstances
- Must enter into standardised series of transactions
Tax Product
- reasonable to conclude that the main purpose is to obtain a tax advantage
Standardised Tax Product
- promoter makes available for implementation by more than one person
Combatting Tax Avoidance – STEP
Autumn Series 2015
Loss Schemes
Individuals only
Promoter expects more than one individual to participate
Reasonable to conclude that the main benefit is provision
of losses
Individuals could expect to use those losses to reduce IT
or CGT liability
Combatting Tax Avoidance – STEP
Autumn Series 2015
IHT hallmark
Existing Hallmark:
- Arrangements which result in property becoming
relevant property
- Tax advantage in relation to (20%) relevant property
entry charge
- Is the tax advantage a main benefit of the
arrangements
- Are the arrangements grandfathered (same or
substantially same as pre 6/4/2011 arrangements)?
DOTAS - exceptions
Combatting Tax Avoidance – STEP
Autumn Series 2015
Triggering Conditions
Exceptions
Report
Reference
Number
Client
Tax
Return
Broad Outline
Combatting Tax Avoidance – STEP
Autumn Series 2015
Exceptions
Secondary Designers
Non-promoter
Multiple promoters
Reasonable Excuse
Legal professional
privilege
Standardised Tax products
– specific exemptions
Standardised Tax products
grandfathering (1 Aug
2006)
IHT grandfathering (6 April
2011)
Generic Specific
Combatting Tax Avoidance – STEP
Autumn Series 2015
Secondary Designers
SI 2004/1865 reg 4
Benign tax advice
Non-tax advisor
OR
Ignorance
• Reg 4(2)
• Overall scheme has tax advantages
• Only responsible for design of part of the overall scheme
• That part is not the part which gives rise to the tax advantage
Combatting Tax Avoidance – STEP
Autumn Series 2015
Secondary Designers
SI 2004/1865 reg 4
Benign tax advice
Non-tax advisor
OR
Ignorance
• Reg 4(3)
• Firm provides tax advice generally
• But not in relation to this particular matter
• N/A Banks
• By concession includes “routine” tax input
Combatting Tax Avoidance – STEP
Autumn Series 2015
Secondary Designers
SI 2004/1865 reg 4
Benign tax advice
Non-tax advisor
OR
Ignorance
• Reg 4(4)
• Not responsible for designing all the elements
• Could not reasonably be expected to know whether tax advantage
• Could not reasonably be expected to explain tax
• Falls outside own professional expertise
Combatting Tax Avoidance – STEP
Autumn Series 2015
Non-promoter
See Revenue guidance
Neither “designer” nor “making available”
Intermediate professional (although now likely to be
caught as “Introducer”)
Second opinions (including suggesting minor changes)
Counsel?
Combatting Tax Avoidance – STEP
Autumn Series 2015
Multiple promoter
s308(4) FA 2004
Disclosure by any person discharges duties of all
promoters
How will you know?
Combatting Tax Avoidance – STEP
Autumn Series 2015
Reasonable Excuse
Revenue Guidance
The Revenue will not impose a penalty where we can be
satisfied that:
- a promoter has made a judgement on a reasonable
basis in determining whether or not a disclosure is
required; OR
- the promoter can demonstrate there is a reasonable
excuse for the failure to comply
Probably difficult to argue in practice
Combatting Tax Avoidance – STEP
Autumn Series 2015
Legal Professional Privilege
General position
s314 FA 2004
Revenue and Law Society disagree
Law Society statement 20 September 2004
“Does any information I would otherwise be required to disclose to the Revenue form part of the substance of confidential communications between me and my client for the purposes of obtaining and giving legal advice?”
Combatting Tax Avoidance – STEP
Autumn Series 2015
Legal Professional Privilege
Not as useful as might be thought
- Communication must be confidential
- Confidentiality as regards a group
- Communication between lawyer and client
- LPP belongs to the client
- Has the client waived LPP?
- For the purposes of giving and obtaining legal advice
Combatting Tax Avoidance – STEP
Autumn Series 2015
Legal Professional Privilege – recycling
ideas
Lawyer has tax-saving idea with wider application and:
- writes to existing client who has specifically asked for updates
- writes to existing client who has general interest
- writes to existing client who may or may not be interested
- writes to group of existing clients (general marketing shot)
- writes to target clients
- delivers as part of presentation to a conference
Combatting Tax Avoidance – STEP
Autumn Series 2015
Legal Professional Privilege – no
promoter
Para 6 SI 2004/1865
If advisor claims LPP then treated as “No promoter”
Combatting Tax Avoidance – STEP
Autumn Series 2015
Legal Professional Privilege
Triggering Conditions
Exceptions
Report
No Promoter
LPP
Exception
Reference
Number
Client
Tax
Return
Combatting Tax Avoidance – STEP
Autumn Series 2015
Legal Professional Privilege – no
promoter
If advisor claims LPP then treated as “No promoter”
? Is this effective ?
- Substance of privileged communications
- Privilege belongs to client
- Name and address; details of the para of disclosure regs;
Unless client waives LPP and allows advisor to make report
Combatting Tax Avoidance – STEP
Autumn Series 2015
Standardised Tax products – specific
exemptions
SI 2006/1543 reg 11(2)
ISAs
Plant or Machinery leases
Approved SIP, SAYE,
CSOP
EIS, CVS, VCT
vanilla EMI schemes
Trustees of registered
pension schemes
Trustees of personal injury
damages
Community investment tax
relief
Not on the list (SEIS,
SITR)
Combatting Tax Avoidance – STEP
Autumn Series 2015
DOTAS – IHT grandfathering
A. Property does not become relevant property
B. Single step qualifying for relief or exemption
C. BPR held for 2 years before settled
D. APR held for 2/7 years before settled
E. Pilot settlements
F. Discounted Gift Trusts
G. Excluded Property Trusts; EBTs; Disabled Trusts; QIIPs
H. Transfers on death
I. Variations
Combatting Tax Avoidance – STEP
Autumn Series 2015
DOTAS – IHT grandfathering
J. Nil-rate band every 7 years
K. Loan Trusts
L. Insurance policy trusts
M. Chargeable Transfer then PET
N. Deferred shares
O. Items of National importance
P. Pension death benefits
Q. Reversionary interests
R. Not a transfer of value
S. Gifts to companies
DOTAS - consultation
Combatting Tax Avoidance – STEP
Autumn Series 2015
DOTAS and IHT consultation
Draft IHT Hallmarks regulations
One of the main purposes of the arrangements is that a
person might reasonably be expected to obtain an
advantage in relation to inheritance tax; and
Either:
- An element of the arrangements would be unlikely to
have been entered into but for the tax advantage; OR
- Arrangements involve one or more contrived or
abnormal steps
Combatting Tax Avoidance – STEP
Autumn Series 2015
DOTAS and IHT consultation
Draft IHT Hallmarks regulations
Exceptions where the only arrangement is:
- Making or amending will or codicil
- Discounted Gift Trust (incl insurance bond)
- Gift & Loan Trust (incl insurance bond)
Combatting Tax Avoidance – STEP
Autumn Series 2015
DOTAS and IHT consultation
Testing the draft regulations:
- Buy BPR Product / AIM shares
- Intestacy; deed of variation (redirect property to widow)
- Advise non-dom to set up a trust
- Convert loan-stock to shares in private company
- Set up a lifetime NRB trust every 7 years
- Give away house; pay rent to live there
- Make a PET
Accelerated payment
Combatting Tax Avoidance – STEP
Autumn Series 2015
Accelerated payment– Part 4 Chap 3 FA 2014
Enquiry or appeal in
progress
Accelerated
Payment notice
• Must make payment
Follower
notice
GAAR
opinion of
2/3 panel
DOTAS
disclosed
Settle Substantive
appeal
Make
Representations
Combatting Tax Avoidance – STEP
Autumn Series 2015
Accelerated Payment
DOTAS schemes – about 1,200 scheme reference numbers
- Last reviewed July 2015 (unchanged since April 2015)
- Next review October 2015
- www.gov.uk/government/publications/tax-avoidance-schemes-on-which-accelerated-payments-may-be-charged-by-hmrc
Can DOTAS disclosure for one tax lead to APN for another?
Judicial review
Combatting Tax Avoidance – STEP
Autumn Series 2015
Accelerated Payment
Rowe v HMRC [2015] EWHC 2293
Ingenious Film partnership
HMRC issued partner payment notices (PPNs) to the partnership
Taxpayer sought judicial review on 5 grounds:
- Breach of natural justice
- Ultra vires
- Breach of legitimate expectation
- Unreasonable/irrational
- Breach of A1P1 and article 6 of ECHR
Combatting Tax Avoidance – STEP
Autumn Series 2015
Accelerated Payment
Natural Justice: whole regime has insufficient appeal rights
Ultra vires: technical argument based upon distinction between
current year and carry-back of losses for partnerships
Legitimate expectation: HMRC had made carry-back
repayments
Irrationality: HMRC had treated PPNs as a rule; fettering their
discretion
Human Rights: disproportionate interference with possession
Information powers
Combatting Tax Avoidance – STEP
Autumn Series 2015
Common Reporting Standard – clause 46
Clause 46 Summer Finance Bill 2015
Obligation on tax advisers to give specified information to
clients
Tax advisers = a person appointed to give advice about
the tax affairs of another person (whether appointed
directly by that person or by another tax adviser of that
person) AND any other person who in the course of a
business gives advice to another person about that
person’s financial or legal affairs or provides other
financial or legal services to another person
Combatting Tax Avoidance – STEP
Autumn Series 2015
Common Reporting Standard – clause 46
Clause 46 Summer Finance Bill 2015
Obligation on tax advisers to give specified information to
clients
Specified information = such information as Treasury may
specify (by statutory instrument)
Clients includes clients, customers or former clients or
customers or such of these as Treasury shall specify
Combatting Tax Avoidance – STEP
Autumn Series 2015
Common Reporting Standard – clause 46
An obligation to tell all your clients about CRS
Currently intended to be one-off notification
HMRC want this just to go to clients whom adviser knows to have offshore accounts
Would notifying every client be better?
Clients in the last 6 years?
Notification to be HMRC branded
Between 31 December 2015 and 30 September 2016
Penalty of “more than £100” per failure
GAAR
Combatting Tax Avoidance – STEP
Autumn Series 2015
GAAR- what’s happening
Not a lot
Combatting Tax Avoidance – STEP
Autumn Series 2015
Part D Examples – D25A and D36
D25A
New example
Disguised remuneration and NICs
Contrary to the policy and principles of the legislation
D36 – partnership and bare trust over property
Deleted example because now blocked by specific rules
Combatting Tax Avoidance – STEP
Autumn Series 2015
PCRT – new GAAR guidance
PCRT – new edition – see handouts
Is non-advice an option?
Where uncertain – additional and appropriate disclosure
Measures commensurate with the size of practice:
- Training
- Internal guidance supplementing HMRC’s
- Protocols
- Caveat advice
- Letters sending out tax returns
- Monitor output of GAAR panel
Combatting Tax Avoidance – STEP
Autumn Series 2015
GAAR penalties – second consultation
Specific GAAR penalty
Only chargeable once Panel process (and any subsequent
appeal) are concluded
Relates back to filing return
So not charged if GAAR self-assessed
Or if settle with HMRC prior to GAAR panel
Proposed 60% penalty (> careless; < fraud)
Total penalty should not exceed 100% (or offshore maximum)
Power for HMRC to mitigate
Combatting Tax Avoidance – STEP
Autumn Series 2015
GAAR – watch this space
HMRC considering adverse GAAR panel opinion
Follower Notice
Provisional GAAR counteraction to protect time-limits
Combatting Tax Avoidance – STEP
Autumn Series 2015
This presentation gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care
over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.