Combatting Tax Avoidance - STEP · Autumn Series 2015 The War on Tax Avoidance Disclosure of Tax Avoidance Schemes (DOTAS) update Accelerated Payment Notices Information Powers

Combatting Tax Avoidance

John Barnett CTA (Fellow) TEP

Partner, Burges Salmon LLP

Combatting Tax Avoidance – STEP

Autumn Series 2015

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

DOTAS


Autumn Series 2015

Broad outline of DOTAS regime (FA 2004)

Triggering Conditions

(s306-307)

Exceptions

Report

(s308-310)

Reference

Number

(s311)

Client

(s312) Tax

Return

(s313)


Autumn Series 2015

Broad outline of DOTAS regime (FA 2004)


(s306-307)

Exceptions

Report

(s308-310)

Reference

Number

(s311)

Client

(s312) Tax

Return

(s313)

Offshore

Promoters

Contents of

Report

Time Limits

In-house

Promoters

Time Limits

Penalties

Penalties

Penalties

No Promoter


Autumn Series 2015


Hallmark

Promoter Notifiable

Proposal or

Arrangements

Relevant

Business

Design Making

Available

Organisation or

Management

Arrangement

or Proposal

Tax

advantage

Main Benefit


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

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)

i.e. all of us


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

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]


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

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]


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

Little guidance

But only if connected to a party who designs or makes

available (reg 5 SI 2004/1865)

Presumably involves being a party to the transactions

(e.g. as trustee)


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

Any scheme, transaction or series of transactions

Proposal = proposal for the above

s318(1) FA 2004


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

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


Autumn Series 2015


Relevant

Business

Design

Making

Available

Organisation or

Management

Arrangement or

Proposal

Tax

advantage

Main Benefit

Objective Test

Question of Fact

“A” main benefit


Autumn Series 2015


Promoter Notifiable

Proposal or

Arrangements

Relevant

Business

Design Making

Available

Organisation or

Management

Arrangement

or Proposal

Tax

advantage

Main Benefit

Hallmark


Autumn Series 2015

Hallmarks

Confidentiality (non-disclosure agreements)

Premium Fee

Standardised Tax Products

Loss schemes

Leasing arrangements

Employment income

SDLT, ATED, IHT and NIC specific hallmarks

Generic

(except

currently SDLT,

IHT, ATED)

Specific


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

IHT hallmark

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)?

DOTAS - exceptions


Autumn Series 2015


Exceptions

Report

Reference

Number

Client

Tax

Return

Broad Outline


Autumn Series 2015

Exceptions

Secondary Designers

Non-promoter

Multiple promoters

Reasonable Excuse

Legal professional

privilege

Standardised Tax products

– specific exemptions

Standardised Tax products

grandfathering (1 Aug

2006)

IHT grandfathering (6 April

2011)

Generic Specific


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

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?


Autumn Series 2015

Multiple promoter

s308(4) FA 2004

Disclosure by any person discharges duties of all

promoters

How will you know?


Autumn Series 2015

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


Autumn Series 2015

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?”


Autumn Series 2015


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


Autumn Series 2015

Legal Professional Privilege – recycling

ideas

Lawyer has tax-saving idea with wider application 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


Autumn Series 2015

Legal Professional Privilege – no

promoter

Para 6 SI 2004/1865

If advisor claims LPP then treated as “No promoter”


Autumn Series 2015



Exceptions

Report

No Promoter

LPP

Exception

Reference

Number

Client

Tax

Return


Autumn Series 2015

Legal Professional Privilege – no

promoter

If advisor claims LPP then treated as “No promoter”

? Is this effective ?

- Substance of privileged communications

- Privilege belongs to client

- Name and address; details of the para of disclosure regs;

Unless client waives LPP and allows advisor to make report


Autumn Series 2015

Standardised Tax products – specific

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)


Autumn Series 2015

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


Autumn Series 2015

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

DOTAS - consultation


Autumn Series 2015

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


Autumn Series 2015


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)


Autumn Series 2015


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

Accelerated payment


Autumn Series 2015

Accelerated payment– Part 4 Chap 3 FA 2014

Enquiry or appeal in

progress

Accelerated

Payment notice

• Must make payment

Follower

notice

GAAR

opinion of

2/3 panel

DOTAS

disclosed

Settle Substantive

appeal

Make

Representations


Autumn Series 2015

Accelerated Payment

DOTAS schemes – about 1,200 scheme reference numbers

- Last reviewed July 2015 (unchanged since April 2015)

- Next review October 2015

- www.gov.uk/government/publications/tax-avoidance-schemes-on-which-accelerated-payments-may-be-charged-by-hmrc

Can DOTAS disclosure for one tax lead to APN for another?

Judicial review

http://www.gov.uk/government/publications/tax-avoidance-schemes-on-which-accelerated-payments-may-be-charged-by-hmrc
























Autumn Series 2015

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


Autumn Series 2015

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

Information powers


Autumn Series 2015

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


Autumn Series 2015


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


Autumn Series 2015


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

GAAR


Autumn Series 2015

GAAR- what’s happening

Not a lot


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

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


Autumn Series 2015

GAAR – watch this space

HMRC considering adverse GAAR panel opinion

Follower Notice

Provisional GAAR counteraction to protect time-limits


Autumn Series 2015

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.

Documents

Combatting Tax Avoidance - STEP · Autumn Series 2015 The War on Tax Avoidance Disclosure of Tax Avoidance Schemes (DOTAS) update Accelerated Payment Notices Information Powers