AS THE Finance Bill meanders through Parliament, the flagship policy designed to rid the UK of tax avoidance has taken centre-stage. The General Anti-Abuse Rule (GAAR) responds to intense focus upon companies failing to “pay their fair share of tax”. And it builds on Labour’s foray (via section 58 of the 2008 Act) into retrospective taxation, then aimed at individual non-payers.
What’s good enough for aggressive and abusive tax-avoiding citizens should apply equally to Google, Starbucks and Amazon. Or should it?
The Treasury has neglected to provide a firm definition of what counts as tax abuse, falling back on a standard “just and reasonable” test. This risks creating an unprecedented transfer of power from Parliament to HMRC. An agency of the state will be empowered not only to apply the law, but to rewrite it as it – or a campaigning press – wishes it had been written. Imagine the outcry if such a power was bestowed on the police. Would anyone stand by if they could arrest people for doing something that was not illegal, but where officers wished it had been a criminal offence?
And the GAAR may end up creating more problems for HMRC (which itself has become a watchword for incompetence) than it solves. More of its fire is likely to be directed not at Google and Starbucks, but at ordinary taxpayers. Many are already afraid that the extension of retrospection will lead to established rules being changed under their feet.
As part of its crackdown on avoidance, the Treasury recently heralded the hiring of 2,500 tax inspectors. Surely it is a fair concern that this will lead to more interpretations of what is “fair”, “aggressive” or “abusive”, to the detriment of taxpayers.
And HMRC’s arbitrary approach runs counter to the UK’s mercantile tradition, further damaging the coalition’s aim to make Britain open for business. Alarm bells are already ringing at the casual interchanging of the terms “avoidance” and “evasion” by senior coalition figures, not to mention the emergence of the concept of “aggressive avoidance”. This is not simply of concern to tax advisers. In a free society, individuals and businesses should be entitled to organise their affairs to minimise their tax liability.
I would be more sympathic with the Treasury, as it tries to play catch-up with new loopholes, if it put its own house in order. A simpler and more certain tax code (faithfully promised by our party when in opposition) would be the surest way to minimise anti-avoidance. The once-derided size of the Indian tax code has now been exceeded by our own government.
If we are to adopt a GAAR it must go hand-in-glove with the creation of a comprehensive pre-clearance regime. This would allow firms and their tax advisers to road-test proposed taxation schemes with HMRC officials. Ideally, if this were to work efficiently, no new scheme would be permitted to be marketed until approved.
The UK will only attract new jobs, investment and growth if we remain attractive to multinational businesses. We need to hear less from our elite political class about morality, and witness a greater commitment to a simpler, more certain tax regime.
Mark Field is Conservative MP for the Cities of London and Westminster.