A tax crackdown ordinary folk might welcome

COMMENT: 'Advisers hate the idea of general anti-avoidance provisions because clients would then demand the exercise of their judgement to steer them through the grey areas. But why are they so reluctant to do this?'

The discovery that the Inland Revenue is thinking of introducing general anti-tax avoidance measures has brought a predictable bout of whingeing from tax advisers. The idea is to require businesses to demonstrate that transactions are carried out for a business purpose rather than for pure tax reasons. This would make life harder for companies such as News International, which has moved profits around the group to minimise tax in the UK.

While ordinary folk might think that the new approach might keep corporations on the straight and narrow, tax specialists are concerned that it would not work. They admit that general anti-avoidance provisions do exist in such territories as Canada and New Zealand, but claim they are not particularly effective.

What they are really worried about is the lack of certainty if they have to prove a business rather than a tax minimising purpose behind each transaction. It might seem that tax advisers benefit from confusion in the law, because of the amount of work it generates. They deny this, claiming it is better for business to be able to tell clients that they will definitely be taxed on X, but will be caught for Y. Hence the warm welcome for last week's paper on tax simplification - because professionals believe clearer legislation will be easier to understand and create certainty about what the law says.

They hate the idea of general anti-avoidance provisions because clients would then demand the exercise of judgement as their advisers steer them through the grey areas.But why are they so reluctant to do this? Surely judgement and expertise are what professionals are in business to offer clients?

One prominent tax specialist even conjures up the old notion of a threat to Britain's commercial reputation. Companies might be put off making deals because companies would be under much greater pressure to go to the Inland Revenue for an advance ruling on whether a transaction is acceptable or not. That would require mountains of paperwork.

Perhaps it is this line of argument that best proves the sense of the Revenue's case. Does it not imply that many transactions make better tax sense than business sense? The really compelling argument, though, is that pre-transaction rulings are already routine in some areas of UK taxation as well as elsewhere in the corporate arena. Indeed, the Office of Fair Trading allows advisers not only to ask for prior approval of mergers but to negotiate deals to make them more acceptable.Tax advisers should be relishing the thought of similar freedoms.

Amec wins reprieve, not a rescue

After fighting a poor campaign, Amec beat off Kvaerner by a much wider margin than it expected or perhaps deserved. There was, after all, that unsuccessful foray at the beginning when it tried to talk merger with Sir Alfred McAlpine, and only last week the company dropped its public relations advisers after an embarrassing fracas with the Takeover Panel over leaks. Kvaerner's advisers, SG Warburg, must be reflecting there is no justice in the world.

But it is clear enough why they lost. The 90p a share offer for the preference shares was lower than expected and went down poorly. And the decision to make the bid final and set a foreshortened 21 day timetable - as the rules allow - removed all flexibility for negotiation and left institutions feeling they were being pushed around.

Amec is at the bottom of the engineering and construction cycle and there are two reasons to take it over now: the industrial logic of the merger, as argued in detail by Kvaerner, and the scope for speculative gains by buying a company cheaply just on the turn of the market.

Amec has not excelled itself in recent years, and Sir Alan Cockshaw was in charge then and remains at the helm of the company. There was natural scepticism about whether he could deliver the fruits of the recovery as well as he promised. But the card in his favour was that institutions were looking at an each-way bet that will probably be resolved, one way or another, during 1996.

Kvaerner, which was hinting a few days ago that it would dump its 26 per cent stake if it lost, failed to repeat this threat in its statement last night, after the result came through. The stake will overhang the market, but it will also make a renewed bid - either by Kvaerner in a year's time or another party before then - a distinct possibility. No wonder PDFM, the fund managers with a 14 per cent stake, felt justified in backing the management, for the moment. But this is a reprieve, not a rescue.

Why Fed should ease pressure now

Markets on either side of the Atlantic plunged yesterday on fears that chairman Alan Greenspan and the rest of the Federal Open Market Committee won't cut US interest rates today. But there must be a very good chance that they will. They certainly should.

The latest shenanigans in Washington over the budget clearly prompted the sell-off on Wall Street. With some reason: the US Fed has indicated that a budget deal would be rewarded with a further cut in interest rates following the quarter per cent reduction in early July. So the second partial shutdown of the Federal Government in a matter of weeks was hardly designed to cause a market rally.

But a more compelling view is that the markets had simply run ahead of themselves in the long bull run. Last week, the US long bond dipped below 6 per cent on several occasions during the course of trading. In other words, investors who were willing to lock up funds for 30 years were being paid a yield of a princely quarter of a per cent more than the short-term rate of interest set by the US Fed. Even after yesterday's mayhem, investors in long bonds were only getting half a per cent more for their pains.

The markets have thus clearly been signalling their view that the Fed's policy is too tight. The most recent readings on the state of the economy suggest they are right. They have pointed to a slowing economy and an absence of any inflationary threat.

Jobs growth in the last two months has been modest. Industrial production has been flat since August, bringing the annual rate of increase sharply down to under 2 per cent compared with over 6 per cent at the beginning of the year

The inflationary background is also favourable. Consumer prices were unchanged in November - the first time there has been no monthly increase in four years. The annual rate of inflation fell from 2.8 to 2.6 per cent.

This picture of a slowing economy and a favourable inflation outlook should persuade the Fed to act today despite the latest theatre in Washington over the budget negotiations. If the Fed doesn't ease rates down by a further quarter point, the markets should contain their disappointment: it will then be likely to cut by even more - a half percentage point - in January.

Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
News
Morrissey pictured in 2013
people
Sport
sportVan Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Life and Style
Martha Stewart wrote an opinion column for Time magazine this week titled “Why I Love My Drone”
lifeLifestyle guru Martha Stewart reveals she has flying robot... to take photos of her farm
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
filmReview: Sometimes the immersive experience was so good it blurred the line between fiction and reality
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices