Combatting Tax Avoidance. John Barnett CTA (Fellow) TEP Partner, Burges Salmon LLP

Transcription

1 Combatting Tax Avoidance John Barnett CTA (Fellow) TEP Partner, Burges Salmon LLP

2 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

3 Broad outline of DOTAS regime (FA 2004) Triggering Conditions (s ) Exceptions Report (s ) Tax Return (s313) Client (s312) Reference Number (s311)

4 Broad outline of DOTAS regime (FA 2004) Triggering Conditions (s ) Exceptions In-house Promoters Offshore Promoters No Promoter Report (s ) Contents of Report Penalties Time Limits Penalties Reference Number (s311) Tax Return (s313) Penalties Time Limits Client (s312)

5 Triggering Conditions Promoter Notifiable Proposal or Arrangements Design Relevant Business Making Available Organisation or Management Arrangement or Proposal Tax advantage Hallmark Main Benefit

6 Triggering Conditions Relevant Business Design Making Available Organisation or Management 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) Arrangement or Proposal i.e. all of us Tax advantage Main Benefit

7 Triggering Conditions Relevant Business Design Making Available Organisation or Management Arrangement or Proposal 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] Tax advantage Main Benefit

8 Triggering Conditions Relevant Business Design Making Available Organisation or Management 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] Arrangement or Proposal Tax advantage Main Benefit

9 Triggering Conditions Relevant Business Design Making Available Little guidance But only if connected to a party who designs or makes available (reg 5 SI 2004/1865) Organisation or Management Presumably involves being a party to the transactions (e.g. as trustee) Arrangement or Proposal Tax advantage Main Benefit

10 Triggering Conditions Relevant Business Design Making Available Any scheme, transaction or series of transactions Organisation or Management Arrangement or Proposal Proposal = proposal for the above s318(1) FA 2004 Tax advantage Main Benefit

11 Triggering Conditions Relevant Business Design Making Available Organisation or Management Arrangement or Proposal Tax advantage 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 Main Benefit

12 Triggering Conditions Relevant Business Design Making Available Organisation or Management Arrangement or Proposal Objective Test Question of Fact A main benefit Tax advantage Main Benefit

13 Triggering Conditions Promoter Notifiable Proposal or Arrangements Design Relevant Business Making Available Organisation or Management Arrangement or Proposal Tax advantage Hallmark Main Benefit

14 Hallmarks Confidentiality (non-disclosure agreements) Premium Fee Standardised Tax Products Generic (except SDLT, IHT, ATED) Loss schemes Leasing arrangements Employment income SDLT, ATED, IHT and NIC specific hallmarks Specific

15 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

16 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

17 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

18 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

19 DOTAS and IHT 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)?

20 Broad Outline Triggering Conditions Exceptions Report Reference Number Client Tax Return

21 Exceptions Secondary Designers Non-promoter Multiple promoters Reasonable Excuse Specific Product Exemptions Legal professional privilege Standardised Tax products grandfathering (1 Aug 2006) IHT grandfathering (6 April 2011)

22 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

23 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

24 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

25 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?

26 Multiple promoter s308(4) FA 2004 Disclosure by any person discharges duties of all promoters How will you know?

27 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

28 Specific Product 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)

29 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?

30 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

31 Legal Professional Privilege Cold Calling Lawyer devises fully fleshed out tax scheme 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

32 Legal Professional Privilege no promoter Para 6 SI 2004/1865 If advisor claims LPP then treated as No promoter

33 Legal Professional Privilege Triggering Conditions Exceptions LPP Exception No Promoter Report Reference Number Client Tax Return

34 Legal Professional Privilege no promoter If advisor claims LPP then treated as No promoter Unless client waives LPP and allows advisor to make report? Is this effective? - Substance of privileged communications - Privilege belongs to client - Name and address; details of the para of disclosure regs;

35 Legal Professional Privilege What if HMRC do not issue an SRN? Does this alter the LPP position? No Law Society Guidance: - Even in cases where a proposal is notified and there is no subsequent matching of a proposal through the reference number system the view of the Society is that a solicitor is still being asked to disclose part of privileged communications in circumstances where the identity of the client could become known to the Revenue

36 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

37 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

38 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

39 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)

40 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

41 Accelerated payment Part 4 Chap 3 FA 2014 Enquiry or appeal in progress Follower notice DOTAS disclosed GAAR opinion of 2/3 panel Accelerated Payment notice Make Representations Must make payment Settle Substantive appeal

42 Accelerated Payment DOTAS schemes about 1,200 scheme reference numbers - Last reviewed July 2015 (unchanged since April 2015) - Next review October Can DOTAS disclosure for one tax lead to APN for another? Judicial review

43 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

44 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

45 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

46 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

47 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

48 GAAR- what s happening Not a lot

49 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

50 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

51 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

52 GAAR watch this space HMRC considering adverse GAAR panel opinion Follower Notice Provisional GAAR counteraction to protect time-limits

53 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.