Draft legislation for a General Anti-Avoidance Rule, or GAAR, is expected from the Treasury shortly. Gordon Brown is determined to change the rules and decide that schemes designed to reduce or avoid taxation must have have been given prior approval.
This is a fundamental change in the way taxation has been regulated in the UK. But it could have serious implications, in the view of my professional body, the Chartered Institute of Taxation, which represents 10,000 UK chartered tax advisers. The institute would prefer anti-avoidance measures to continue to be aimed at specific abuses rather than used as a catch- all.
If there is to be a GAAR it must not get in the way of business decisions. It must be a last resort rather than something that will be wielded all the time. The Government should be ready to give rulings that are quick and clear as well as being seen to be fair. There must be properly-resourced clearance procedures so taxpayers can be certain of their plans quickly.
A GAAR must also operate both ways; it must be open to the taxpayer to invoke it to prove entitlement to a tax relief and not just a method for the revenue automatically to shut down all innovations in the tax industry. An appeals procedure would have to be set up to make sure there is an adequate opportunity to challenge the working of the GAAR in practice and ensure that taxation can never be levied purely at the whim of the authorities.
The fact that it is only human nature to try to avoid paying taxation and to employ the best professional brains to help reduce the tax bill is no excuse for catch-all regulations. Nor is the fact that the Chancellor's initial plans to collect a further pounds 1.5 billion through attacking avoidance arrangements may be over-optimistic. The press releases issued after the Budget speech, coupled with the necessary pages in the Finance Act to come, will consume enough forests to contribute greatly to global warming. Will he collect those extra funds? I doubt it, because people will change their behaviour to avoid the extra charges. If you think this unpatriotic, or an abuse of the system through "not paying your fair share", might you not do the same?
But there is much more the Chancellor could have done to reduce tax avoidance. Let meconfess that I am a tax avoider, and I propose in the next few weeks to organise what could be described as a highly artificial offshore arrangement that will deprive the UK government of significant tax revenues.
I live near the coast and around Easter I will, instead of doing my shopping at Tesco in Folkestone, do it instead at Tesco in Calais. It will be fairly liquid shopping for my own consumption. To be sure, I will pay a variety of French taxes in the process but at far lower levels than if I had followed my normal practice and shopped here. There, it's now out in the open. It's a fair cop. Take me away, Gordon.
The point of this story is that some of the mischiefs Mr Brown has attacked are far more innocuous than my overseas trips. He considers that, if you are an engineer and go and work for your United Kingdom employer in the Saudi Arabian desert building a pipeline for over a year, it is unfair for you not to pay United Kingdom tax. This "loophole" is to be closed, notwithstanding that since 1799 this has been the position. There is, however, the risk that the Chancellor reads this newspaper and feels he has been too generous on the loophole front. Act soon (unless you are in Saudi Arabia).
q John Andrews is president of the Chartered Institute of Taxation and a partner in Coopers & Lybrand.Reuse content