UK: International Tax - April 2011

Last Updated: 2 July 2011
Article by James Quarmby

Mind the gap

The 'tax gap' is one of those phrases (like 'fairness' and – even worse 'hard working families') that politicians like to throw around when discussing the nation's finances. The tax gap is based on the fanciful idea that there is a sum of money that each taxpayer (be that an individual or company) should pay in his/her or its circumstances. The reality, however, is that with such a complex taxation regime as ours - let's not forget we now have the longest tax code in the world – it is virtually impossible to say how much tax each taxpayer should pay.

Therefore, any calculation of the tax gap will be based on wild assumptions and founded on a political ideology which despises personal wealth whilst, at the same time, relying on it to prop up our bloated public finances.

If the government really wanted to reduce the tax gap then it would make our tax laws simpler for ordinary human beings to understand. It would also reduce the punitive rates of tax now suffered by high earners and which provide a real motivation for taxpayers to avoid tax. Remember, we now have an effective rate of tax of 60% for people earning over £100,000, due to the effect of the removal of the personal allowance. This then settles down to 'just' 50% for those over £150,000 (or 52% if you are employed). The experience in many countries, including our own, has shown that when you lower tax rates for the higher paid you actually increase the overall tax take as this benefits the economy and generates wealth. However, that would involve long term thinking and courage – something our politicians sadly lack.

HMRC's new anti avoidance strategy

In the HM Treasury's document entitled "Tackling Tax Avoidance", released on Budget Day, it says that the government has "inherited a tax system with a tax gap of around £40billion". This document promises new – and exciting – anti avoidance measures to try and reduce that gap. So, what do we have to look forward to?

  • There will be a system to 'list' specific avoidance schemes. If taxpayers then enter into those schemes they will be taxed as if they hadn't entered into the scheme at all and will therefore be expected to pay the tax that the scheme purports to avoid. It's like a rather exciting game of 'pretend'. What is worrying about this development is that it enables HMRC to decide what works or not, without the inconvenience of going to the courts. It therefore substantially weakens the rule of law which is designed to protect our citizens from the arbitrary exercise of executive power.
  • They haven't given up on the idea of a general anti avoidance rule (GAAR) and a study group led by Graham Aaronson QC is supposed to be report by 31 October 2011.
  • There is a commitment to keep introducing targeted anti avoidance legislation for specific measures. Whilst on that subject, it mentions that we can expect more legislation on the use of double taxation treaties to avoid UK taxation. I suspect this will be another attempt to unilaterally override treaty benefits.
  • It seems that HMRC will continue with its pronouncements on what it thinks are the high risk areas of tax avoidance, particularly through the use of their ominously named "Spotlights". For some reason, these always make me think of WWII era prisoner of war guard towers. Am I the only one?
  • The rules on disclosure of tax avoidance schemes (DOTAS) will apparently be 'improved'. Readers will be aware that these rules have already been significantly 'improved' with the inclusion of an obligation for promoters to provide lists of clients who have taken up avoidance schemes. We can now expect new "hallmarks" for schemes which must be disclosed.

So what do we do now?

It's certainly going to be more difficult to use structured tax avoidance techniques going forward. However, there is a glimmer of light. A couple of weeks ago the EU Commission issued a formal request to the UK government to review the anti-avoidance legislation in Section 720 Income Tax Act 2007 and Section 13 Taxation of Chargeable Gains Act 1992. The Commission thinks that these provisions are incompatible with the fundamental freedoms under the EU Treaty.

Of course, the Commission is right. For a number of years now I have been advising clients to use companies in low tax EU jurisdictions, such as Malta and Cyprus, as an alternative to the usual BVI or Cayman option. EU law is one area where our Parliament is not supreme and this means that if taxpayers rely on EU law for their tax planning, they will have a far more robust position to those just relying on loopholes in our domestic law.

Taxation Awards

I am delighted to report that Thomas Eggar has been shortlisted for the 2011 Taxation Awards – 'Best Tax Team in a Law Firm' category. Wish us luck!

Household tip

Relevant for anyone going away on holiday. One way of reducing irritation from mosquito bites is to wet a bandage in cold water, rub with soap and apply to the bite. I've no idea whether this actually works, but it sounds plausible.

Tax Engine gets a re-fit

The tax engine has been chugging away without a break for a couple of years now and, to be honest, the bodywork could do with a lick of paint. I've also noticed a squeaky wheel or two and a mysterious oil leak. So, we have decided to shunt the Engine into the Tax Sheds for a complete re-fit. As the "Fat" Controller, it is my job to supervise these works and , as such, I will also be away for the next three months. But, fear not, there are plenty of Thin Controllers to help you in my absence. Do give them a call if you need any help.

The contents of this brochure are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.

Thomas Eggar LLP is a limited liability partnership registered in England and Wales under registered number OC326278 whose registered office is at The Corn Exchange, Baffin's Lane, Chichester, West Sussex, PO19 1GE (VAT number 991259583). The word 'partner' refers to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of the members of the LLP is displayed at the above address, together with a list of those non-members who are designated as partners. Regulated by the Solicitors Regulation Authority. Lexcel and Investors in People accredited.

Thomas Eggar LLP is not authorised by the Financial Services Authority. However, we are included on the register maintained by the Financial Services Authority so that we can carry on insurance mediation activity which is broadly the advising on, selling and administering of insurance contracts. This part of our business, including arrangements for complaints and redress if something goes wrong, is regulated by the Solicitors Regulation Authority. The register can be accessed via the Financial Services Authority website. We can also provide certain further limited investment services to clients if those services are incidental to the professional services we have been engaged to provide as solicitors.

Thesis Asset Management plc, our associated financial services company, provides a comprehensive range of investment services and advice. Thesis is owned by members of Thomas Eggar LLP but is independent of and separate to it. No lawyer connected with Thomas Eggar LLP provides services through Thesis as a practicing lawyer regulated by the Solicitors Regulation Authority. Thesis is authorised and regulated by the Financial Services Authority. Thesis has its own framework of investor protection and professional indemnity cover but Thesis clients do not enjoy the statutory protection of solicitors' clients.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions