Last Thursday, the Chancellor said in a Commons reply to Andrew Tyrie MP that retrospective taxes are acceptable where "the wishes of Parliament have been abused and avoided". But, as we are often told, tax avoidance costs the UK £billions each year. Yet, there have been only a few instances of retrospective taxes in the last 10 years. The selective use of retrospective tax laws leaves an unpleasant taste in the mouth for anyone who believes that respect for the law applies to Government as well as the people. What was the basis of selection and was it fair and even-handed? Why did more egregious cases of avoidance go unpunished?
So, there is a rule of law issue here. The right way to tackle tax avoidance is by passing laws which make it ineffective in the future. Retrospective legislation needs to be a last resort, reserved for those cases where ample warning has been given of an intention to legislate in specific circumstances. If the Chancellor is prepared to use retrospective taxes to negate all avoidance, there would be no need of the GAAR which he is about to introduce. There was, however, some poetic justice in the outcome of the last instance of retrospection. The Chancellor accused the Indian Government of using retrospective taxes against British investors in India, only to have the accusation thrown back in his face.
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