Mar 20, 2017 - that were in the public domain at the time. Our concerns. We understand the ... straightforward and cheap
ICAEW REPRESENTATION 56/17 TAX REPRESENTATION
PENALTIES FOR ENABLERS OF DEFEATED TAX AVOIDANCE
CLAUSES 125 AND SCHEDULE 27 FINANCE BILL 2017 PUBLISHED ON 20 MARCH 2017
BRIEFING WITH SUGGESTED AMENDMENTS
Contents Section Summary of measure
1
Our concerns
2
Recommendation
3
Ten Tenets for a Better Tax System
The Institute of Chartered Accountants in England and Wales Chartered Accountants’ Hall Moorgate Place London EC2R 6EA UK icaew.com/taxfac
Appendix 1
T F E
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This memorandum of 21 April 2017 has been prepared on behalf of ICAEW by the Tax Faculty. Internationally recognised as a source of expertise, the Faculty is a leading authority on taxation. It is responsible for making submissions to tax authorities on behalf of ICAEW and does this with support from over 130 volunteers, many of whom are well-known names in the tax world. Appendix 1 sets out the ICAEW Tax Faculty’s Ten Tenets for a Better Tax System, by which we benchmark proposals for changes to the tax system. ICAEW is a world-leading professional accountancy body. We operate under a Royal Charter, working in the public interest. ICAEW’s regulation of its members, in particular its responsibilities in respect of auditors, is overseen by the UK Financial Reporting Council. We provide leadership and practical support to over 147,000 member chartered accountants in more than 160 countries, working with governments, regulators and industry in order to ensure that the highest standards are maintained. ICAEW members operate across a wide range of areas in business, practice and the public sector. They provide financial expertise and guidance based on the highest professional, technical and ethical standards. They are trained to provide clarity and apply rigour, and so help create long-term sustainable economic value.
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ICAEW tax representation: Finance Bill 2017, cl 125 25: Digital reporting and record-keeping
Summary of measure Clause 125 and Schedule 27 introduce a new penalty on a person who helps to make available (‘enable’) a tax avoidance scheme to a taxpayer that is later defeated. The new penalty is follows extensive consultation on the discussion paper Strengthening tax avoidance sanctions and deterrents. That paper was published on 12 August 2016 and the ICAEW responded in ICAEW REP 153/16. Following that consultation, HMRC published amended draft legislation on 5 December 2016 together with a summary of responses. Paragraph 7 of Sch 27 defines an enabler as someone who satisfies one of the following tests: (a) a designer of the arrangements (defined in para 8), (b) a manager of the arrangements (defined in para 9), (c) a person who marketed the arrangements (defined in paragraph 10), (d) an enabling participant in the arrangements (defined in para 11 – broadly someone who was essential to the success of the arrangements), or (e) a financial enabler in relation to the arrangements (defined in para 12 – broadly someone who provided a financial product that enabled the taxpayer to participate in the arrangements). For the purposes of the new penalty, arrangements are defeated when a final adjustment has been made to counteract the tax advantage. For these purposes an adjustment (which must be final) can include as a result of an appeal, or where HMRC has raised an assessment, or where the taxpayer has amended a return or entered into a contract settlement. The penalty charged is equal to the fee received by the enabler for their role in enabling the defeated tax avoidance arrangements. Where a fee covers two or more transactions, it must be apportioned on a just and reasonable basis. Where the arrangements are entered into by multiple users, a penalty can only be charged where more than 50% of the arrangements have been defeated. Before any penalty can be issued, HMRC must take account of any opinion issued by the GAAR Advisory Panel in respect of the arrangements. A person issued with a penalty notice can appeal, and in any appeal the tribunal or court must take account of any opinion of the GAAR Advisory Panel and may (note, not must) take account of any statements, established practice etc that were in the public domain at the time. Our concerns We understand the policy purpose of the measure and have supported it in principle. We also have welcomed the extensive consultation undertaken by HMRC and believe that the legislation is now much better targeted. Our concern at this stage is that the measure will have potentially far-reaching and important consequences and should not be rushed into force. This measure was intended to be introduced with effect from Royal Assent which, under normal circumstances, would have been expected in mid to late July 2017. This timetable would have allowed time for proper scrutiny of what is an important measure and also allowed time for any accompanying draft regulations (for example in relation to the operation of the GAAR panel) and also initial drafts of the proposed guidance that would accompany this measure. We understand that the guidance would also repeat the statement originally published with the summary of responses published by HMRC on 5 December 2016, namely that a professional tax adviser operating ‘wholly within’ the spirit of the recently updated Professional Conduct in Relation to Taxation published by a consortium of bodies whose members advise on tax (including ICAEW) should not normally be affected by this new penalty. We believe it is important that this statement should be made available at the time the new penalty is enacted. The new measure will require those who advise on tax to reconsider their internal compliance arrangements and ensure that all staff have been made aware of the new provisions. There is a now a danger that this measure will become effective next week (we have heard that Royal Assent is pencilled in for Thursday 27 April 2017) with potential penalties now being in point even though we have not yet seen the accompanying regulations and guidance.
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ICAEW tax representation: Finance Bill 2017, cl 125 25: Digital reporting and record-keeping
Recommendations Clauses 125 and schedule 27 should be withdrawn from the Finance Bill 2017 and reintroduced into the first Finance Bill after the election on 8 June 2017. If the Government decides to proceed with the measure, we think it reasonable that the start date for the measure should not be Royal Assent but at some date which would have been expected had the Finance Bill been enacted in the normal way. We therefore suggest a start date of 1 August 2017 which should give time for the accompanying regulations and guidance to be laid (at least in draft) and for advisers to put in place arrangements to ensure compliance with the new measure. We would also welcome confirmation that the statement published on 5 December 2016 in respect of PCRT compliance will be continued pending republication as part of any guidance.
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ICAEW tax representation: Finance Bill 2017, cl 125 25: Digital reporting and record-keeping
APPENDIX 1 ICAEW TAX FACULTY’S TEN TENETS FOR A BETTER TAX SYSTEM The tax system should be: 1.
Statutory: tax legislation should be enacted by statute and subject to proper democratic scrutiny by Parliament.
2.
Certain: in virtually all circumstances the application of the tax rules should be certain. It should not normally be necessary for anyone to resort to the courts in order to resolve how the rules operate in relation to his or her tax affairs.
3.
Simple: the tax rules should aim to be simple, understandable and clear in their objectives.
4.
Easy to collect and to calculate: a person’s tax liability should be easy to calculate and straightforward and cheap to collect.
5.
Properly targeted: when anti-avoidance legislation is passed, due regard should be had to maintaining the simplicity and certainty of the tax system by targeting it to close specific loopholes.
6.
Constant: Changes to the underlying rules should be kept to a minimum. There should be a justifiable economic and/or social basis for any change to the tax rules and this justification should be made public and the underlying policy made clear.
7.
Subject to proper consultation: other than in exceptional circumstances, the Government should allow adequate time for both the drafting of tax legislation and full consultation on it.
8.
Regularly reviewed: the tax rules should be subject to a regular public review to determine their continuing relevance and whether their original justification has been realised. If a tax rule is no longer relevant, then it should be repealed.
9.
Fair and reasonable: the revenue authorities have a duty to exercise their powers reasonably. There should be a right of appeal to an independent tribunal against all their decisions.
10.
Competitive: tax rules and rates should be framed so as to encourage investment, capital and trade in and with the UK.
These are explained in more detail in our discussion document published in October 1999 as TAXGUIDE 4/99 (see http://www.icaew.com/-/media/corporate/files/technical/tax/taxnews/taxguides/taxguide-0499.ashx).
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