THE LISBON INTERNATIONAL & EUROPEAN TAX LAW SEMINARS

Transcription

1 THE LISBON INTERNATIONAL & EUROPEAN TAX LAW SEMINARS A GENERAL ANTI-AVOIDANCE RULE (GAAR) FOR THE UK? Prof. Dr. JUDITH FREEDMAN(Uni. Oxford) May 4, 2012 >> Lisbon Law School Sponsors: SECIL IBFD Org. >> IDEFF/ Prof. Dr. Ana Paula Dourado/ Adv LLM José Almeida Fernandes/ Mestre Gustavo Courinha

2 OXFORD LAW The Lisbon International & European Tax Law Seminars Instituto de Direito Económico, Financeiro e Fiscal Faculdade de Direito da Universidade de Lisboa May 4, 2012 Professor Judith Freedman. University of Oxford Law Faculty and Centre for Business Taxation

3 o Aaronson GAAR study November 2011 proposes moderate rule targeted at abusive arrangements but not applying to reasonable tax planning. o NOT a broad spectrum anti-avoidance rule o I was member of Aaronson study group but speaking entirely personally. Report is Aaronson s QC. Study group members- three judges (one retired- Lord Hoffmann), two academics and one tax director (BP) o Aaronson published report and illustrative draft o UK Budget announces there will be a GAAR in 2013 but consultation document not yet published detail of proposal not known- draft clauses being drawn up by Parliamentary draftsman- publication expected in June 2012.

4 o No statutory general anti-avoidance rule (GAAR) o No judicial doctrine? o UK has no general concept of abuse of legal forms although abuse of law applies to VAT via Court of Justice o Disclosure provisions for selected transactions within five days of being made available by promoter o Specific provisions and over 300 targeted antiavoidance rules- main purpose or one of main purposes. o No penalties for avoidance o No general statutory clearance (binding rulings)system, but some individual provisions have clearances

5 o Uncertainty for business under current system o Competitive pressure on business to engage in schemes o Increasing complexity of specific provisions o Attempts by HMRC to use voluntary methods- tax law in the boardroom, CSR, Bank Code. o Barclays case- retrospective legislation o Increasing NGO and media criticism in climate of austerity. o Coalition agreement

6 Do we still have a Ramsay principle? House of Lords (now Supreme Court) says o Ramsay case did not introduce a new doctrine operating within the special field of revenue statutes but rescued tax law from island of literal interpretation o Going too far to say that transactions or elements of transactions with no commercial purpose should always be disregarded. o Transaction using capital allowances valid despite money going round in a circle- just happenstance!

7 91m deposit Barclays (IoM) Counterindemnity BMBF 91[.5]m loan guarantee Barclays Bank 91m deposit sale 91m headlease Deepstream Jersey 91m deposit Transportation agreement BGE sublease sublease rentals BGE (UK)

8 o Same day same court as BMBF o Since the decision in Ramsay, language of taxing statute will often have to be given wide practical meaning which requires the courts to have regard to the whole of a series of transactions which were intended to have a commercial unity. o Insertion of commercially irrelevant contingency does not prevent composite effect of transaction to hold otherwise would destroy the value of the Ramsay principle.

9 o Ramsay as a normal principle of statutory interpretation or more? o Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46 - Ribeiro PJ: The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically. Cited in BMBF and thereafter in every case o Stretching interpretation OR judicial doctrine? o Anglo-saxon viewpoint-differences in approach - compare abuse of law in EU o Do judges need a legislative tool or can they achieve the same end through interpretation?

10 o HMRC v Tower MCashback LLP 1 [2011] UKSC 19 decided in favour of HMRC o Special Commissioner and Supreme Court decide against taxpayer BUT High Court and Court of Appeal judges would have found for taxpayer o Mayes CA 2011 decided in favour of taxpayero The Ramsay principle does not allow legal events to be deprived of their legal or fiscal effects simply because they are inserted for a tax saving purpose or can be described as unreal or artificial o Toulson LJ concurs but it instinctively seems wrong, because it bears no relation to commercial reality and results in a windfall which Parliament cannot have foreseen or intended

11 o Targets contrived and abusive schemes. o Word artificial in report but not illustrative legislation- compare Portugal Art 38, no 2 and EU law. Why not just apply EU law of abuse of law as in VAT? o Burden of proof on HMRC to show abnormal arrangement as defined and that counteraction reasonable o Rules of evidence- again note differences from EU law- see below o Advisory Panel o Guidance o Sign off by senior revenue official o Covers cross border and intended to override Treaties

12 o Material to be taken into account would include o Parliamentary, ministerial and HMRC material o Published guidance including that from advisory panel o Evidence of HMRC practice at time of arrangement o Evidence of practice commonly adopted at time of arrangement

13 o Applies to counteract abnormal arrangements which, but for this Part, would achieve an abusive tax result from the application to the arrangements of the provisions of the Acts, and which are contrived to achieve such a result. o Words in bold are defined in the draft

14 o Abnormal arrangements- no significant purpose apart from abusive tax result o OR o Has features that would not be in arrangement if it did not also have as its sole purpose or one of its main purposes achieving an abusive tax result. o Seems wider than Portuguese sole or principal objective? o Abnormal arrangements non exhaustive and non conclusive list of features which may be taken into account eg true economic profit or gain or loss.

15 o An abusive tax result is an advantageous tax result which would be achieved by an arrangement that is neither reasonable tax planning nor an arrangement without tax intent o Advantageous tax result achieves a reduction in tax, an increase in deductions or a deferral or acceleration.

16 o An arrangement does not achieve an abusive tax result if it can reasonably be regarded as a reasonable exercise of choices of conduct afforded by the provisions of the Act (reasonable tax planning) If advantaged party shows it was not designed or carried out with intention of achieving advantageous tax result (arrangements without tax intent)

17 o Overriding statutory principle to which other tax legislation is subject, not a rule of construction [Aaronson Report para 5.4] o Not a move away from Parliamentary intention - the principle is part of the statutory language o Should reduce need for retrospective legislation and/or strengthen argument against it o Better underlying legislation is only fundamental solution but GAAR should increase the case for principled legislation as GAAR only works if taxpayer is not exercising reasonable choice of conduct under Acts.

18 Importance of several issues beyond the GAAR management of discretion; guidance etc Advisory panel as part of regulatory conversation GAAR giving us a language and focus for public debate Await consultation document from government

19 THE LISBON INTERNATIONAL & EUROPEAN TAX LAW SEMINARS UPCOMING SEMINAR THE CONCEPT OF BENEFICIAL OWNER IN THE DUTCH TAX SYSTEM AND DOUBLE TAX CONVENTIONS Prof. Dr. ERIC KEMMEREN (Fiscal Institute Tilburg - Univ. Tilburg) Sponsors: SECIL IBFD Org. >> IDEFF/ Prof. Dr. Ana Paula Dourado/ Adv LLM José Almeida Fernandes/ Mestre Gustavo Courinha