Britain could slash its £30bn a year corporate tax avoidance industry in one swoop – and raise more money from higher tax revenues – if it switched to a principles-based approach rather than the present one of "legal certainty", according to the Queen's lawyers.
Robert Field, the head of tax at Farrer & Co, lawyers to the Royal Family, said last week: "Rather than tinkering with the present system of specific rules which leads to companies looking for loopholes to avoid tax, there are grounds for arguing that the UK could generate billions more by introducing a principle-based approach to the rule-book."
Corporate tax avoidance has been thrust into the spotlight by UK Uncut and other campaigners, alleging that multinationals such as Vodafone, Barclays and Tesco, have avoided huge sums through complex loopholes, mainly by being based offshore. Farrer believes the subject is so important that it is hosting a debate in London on 19 May which will be attended by some of the country's top tax experts, including David Hartnett, the head of HM Revenue & Customs, as well as bankers and accountants.
The motion – "Clear and unambiguous tax law is an invitation to raid the public purse" – will be proposed by a leading QC, Kevin Prosser of Pump Court Tax Chambers, while Paul Lasok QC of Monckton Chambers will oppose. Already, 250 tax experts have applied to attend.
Mr Field said: "I don't think there has ever been a tax event like it. Everybody wants to come. Most people accept that we need change if taxing companies is to be made fairer. There is clearly a problem with corporate tax avoidance and one which we have seen has taken on a moral dilemma with lobbying groups like UK Uuncut taking a stand.
"That's why we are asking whether the moment has come to look at whether the hallowed principle of legal certainty – the basis of all tax law – should give way to a more fuzzy concept of fairness."
Legal certainty is a constitutional principle underlying all law-making, but it has become open to challenge when it comes to tax, he said. Working out how much money is lost by tax avoidance is impossible, although many billions more could be raised if Revenue & Customs were to change its approach.
"The boundary between acceptable tax mitigation and unacceptable tax avoidance should be defined in a much vaguer way, so that professional advisers are unable to advise on a strict interpretation. The best advice would be for the advisers to say 'Stay away'. But, if they give boundaries, then the avoidance industry will find ways around it."
International banks, such as UBS and Deutsche Bank, have met problems after their attempts to pay staff tax-free bonuses through employee benefit trusts – which they had been advised were legitimate structures – were blocked by the courts.
One of the ironies of legal certainty is that small businesses find it too costly to find their way around tax law, but big companies can afford to challenge Revenue & Customs. The Treasury is looking at introducing a general anti-avoidance rule, while a commission investigating tax avoidance, headed by Graham Aaaronson, is due to report this autumn. The Treasury Select Committee is also waiting for a slot in its busy timetable to tackle the issue.
Tax lobbyists such as UK Uncut claim Revenue & Customs let Vodafone off a £6bn tax bill on profits which were put through a Luxembourg subsidiary, a claim denied by the tax agency. UK Uncut protesters have demonstrated against Sir Philip Green's Topshops claiming that he avoids personal income tax because the £1.2bn dividend paid to him goes into to a family trust which is registered in his wife's name and based overseas. Barclays has been criticised following the disclosure that it paid just £113m in UK corporation tax in 2009 after making profits globally of almost £12bn.Reuse content