A break for the confused taxpayer
The Inland Revenue has responded to calls for guidance, says Roger Trapp
Wednesday 20 March 1996
And that view is clearly apparent from the Chartered Institute of Taxation's response to the Inland Revenue's consultative document on pre-transaction rulings, or the means by which the organisation gives guidance to tax payers on how a particular tax situation will be treated. Indeed, the institute points out that it has called for a rulings system for some time - especially in the recent book A Request for Rulings by its research fellow Daniel Sandler.
"A rulings system can contribute to the certainty a tax system should have - particularly when that system is a complex one that operates in a complex environment, as is the case in the UK," the institute says in the response published last week.
The document follows the revenue's publication of a somewhat tentative paper on the subject late last year. Its author, Simon Oakes, describes it as a "high-level document" that does not propose the introduction of a specific scheme. Instead, it reviews the reasons for the pressure for reform and looks at different approaches to introducing rulings.
As that document describes, the Inland Revenue in effect already gives pre-transaction rulings that taxpayers can rely upon in certain circumstances. These fall into two categories: statutory clearances and approvals, and informal rulings on the interpretation of the law in other circumstances, in accordance with guidelines set out some time ago. However, this situation falls short of what would be provided under a formal rulings scheme. In particular, such a change would make the rulings more comprehensive and more structured.
Much more attention, though, has been focussed on the revenue's concerns about tax avoidance. This was prompted by the devotion of a section of the paper to the introduction of a general anti-avoidance provision along the lines of those that exist in other countries, notably certain members of the Commonwealth.
This section points out that countries such as Australia and New Zealand, which do rule on avoidance, have general anti-avoidance provisions; that broadly drafted general anti-avoidance provisions add to the uncertainty those involved are seeking to reduce; and that the attitude of the courts "would be a crucial factor in determining the scope and effectiveness" of such a provision.
But having set out the ground, it holds back from actually coming to a view. Mr Oakes merely says: "What is tax planning and what becomes abuse of the tax law is not easy to determine."
The institute is not nearly so ambivalent. Pointing out that any system under which an individual or company obtains an Inland Revenue decision on how it will be treated beforehand should be properly resourced and strike the correct balance between the taxpayer's and the authorities' interests, it says: "The institute does not believe that a rulings system would lead to greater tax avoidance."
John Whiting, the Price Waterhouse partner who is chairman of the institute's technical committee, adds: "We believe a formal rulings system is part of a modern tax system; together with such statutory clearances as there are and the current informal guidance the revenue will give in some areas, there will be proper mechanisms for the taxpayer to comply with self-assessment and other responsibilities."
Though he goes on to say that he looks for a speedy announcement of the intention to introduce a rulings system, he cannot be expecting things to happen so soon. The paper is, as he stresses, "the start of the debate on this issue".
Certainly, Mr Oakes is expecting to have to do more work following the deadline for responses at the end of this month before the matter is completely dealt with.
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