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Monthly Archives: April 2021

Tax avoidance can be tax fraud – says government and MPs

29th April 2021 by George Turner

In response to critics that have questioned why HMRC has not done more to bring criminal prosecutions against the enablers and promoters of tax avoidance schemes, the government’s standard response has been to state that “there is no criminal offence of promoting or marketing tax avoidance schemes.”

Now, a recent debate in the House of Commons has confirmed a significant shift, with MPs and Ministers recognising that the promotion of tax avoidance often involves fraudulent conduct which can leave promoters liable for several criminal offences.

Tax avoidance and tax fraud

That the promotion of tax avoidance is often linked to fraud is a position that TaxWatch has been advocating for some time.

Speaking at the FS tax conference in November 2020, our Executive Director set out that

“many, and in my opinion the majority of tax avoidance schemes could easily fall foul of the law on cheating. Where there has been an active attempt to conceal the scheme, or a failure to disclose information relating to a scheme, that is clearly fraud.”

It was at this conference that the Director of HMRC’s Fraud Investigation Service revealed, in response to the comments by our Executive Director, that HMRC is conducting multiple criminal investigations into the tax avoidance schemes used by an undisclosed number of multinational companies to avoid tax. This was reported by the FT in January 2021.2

TaxWatch was invited to give oral evidence to the House of Lords Economic Affairs Finance Bill Sub Committee, which published its report on 19th December 2020. This report backed TaxWatch’s calls for HMRC to start more criminal investigations into the promoters of disguised remuneration tax avoidance schemes, including looking at historic cases.

Our Executive Director also responded to the Government’s call for evidence on tackling disguised remuneration tax avoidance, which ran from 21 July to 30 September 2020, In its response the government reflect the views of TaxWatch and others by stating:

“A number of respondents felt that promoters of schemes are not deterred by financial penalties and sanctions. They supported greater use of existing criminal powers including prosecuting promoters for fraudulent conduct.”3

The Government’s response accepted TaxWatch’s analysis on the legal position with regards to the promotion of tax avoidance schemes and marked a fundamental shift from the position that “there is no criminal offence of promoting or marketing tax avoidance schemes”:

“The Government recognises that the design of arrangements that are sold as avoidance schemes may in fact enable fraud.”4

The Finance Bill debate

On Tuesday 20 April 2012 MPs met to scrutinise the detailed provisions of the Finance (No. 2) Bill in a Committee of the Whole House.5

The most substantive amendment of the day,6 in the name of members of the All-Party Group on Anti-Corruption and Responsible Tax, sought to amend schedule 29 of the bill so that anyone subject to the Promoters of Tax Avoidance Schemes (POTAS) regime, and promoting or enabling abusive tax arrangements, should be deemed to have been acting dishonestly unless they can show that they acted in good faith and believed the arrangements to be reasonable.

This would mean, in respect of the criminal offence of cheating the public revenue, that a person would automatically be treated as dishonest where it had been demonstrated that they had promoted abusive tax arrangements as defined in the General Anti-Abuse Rule (GAAR) and there would be no requirement for any prosecution to prove dishonest conduct.

While opposing the amendment on a technicality, the Government re-emphasised it’s recognition “that the design of arrangements that are sold as avoidance schemes may in fact enable fraud.”

According to the Financial Secretary to the Treasury – Jesse Norman PM:

“I fully agree that promoters who break the law should face the consequences of their actions. That is why the Government are putting so much emphasis on anti-avoidance measures and measures against promoters of tax avoidance in the Bill and elsewhere. We should be under no illusions about this. It is not honest to market tax schemes or arrangements that are known not to work and that at their heart feature false statements.

However, cheating the public revenue is the most serious tax offence, carrying a potential sentence of life imprisonment. It is therefore right that the prosecution should have to prove its case beyond a reasonable doubt—the usual standard of proof in a criminal case—and to demonstrate that the person has been dishonest in order to secure a conviction of cheating the public revenue. We all want fraudulent operators to be brought to book, but shifting the burden of proof for such a serious crime on to the defendant to prove their innocence is at odds with the principles of our criminal justice system and would undermine the right of a defendant to remain silent. The burden should be on the prosecution to prove dishonesty to the criminal standard of proof. That is fundamental to the rule of law.”7

We believe that tax avoidance schemes “at their heart feature false statements” as a matter of course.

The Shadow Financial Secretary to the Treasure, James Murray MP , welcomed the amendment, stating ([c.896]:

“This kind of change is crucial if we are to shift towards more criminal prosecutions for the promoters of tax avoidance schemes, and to shift the gear of the Government’s approach.

At the moment, where tax avoidance has occurred, the system lands liabilities on the tax payers, who are usually not tax experts and may have been falsely told that a tax avoidance scheme is lawful.

In contrast, the promoters of tax avoidance schemes are allowed far too often to get away with it. We therefore welcome any efforts to strengthen penalties for the promoters of failed tax avoidance schemes.

But we have seen nothing from the Government today to raise the stakes and to make greater use of the powers HMRC already has to bring criminal prosecutions against the promoters of fraudulent tax schemes.”

“We know that HMRC recognises its power to use criminal investigation approaches to tackle the promotion and enabling of tax avoidance schemes, but in a letter the Financial Secretary sent me in January this year, he admitted that, since the formation of HMRC’s fraud investigation service in 2016, only 20 individuals have been convicted for offences relating to arrangements that have been promoted as tax avoidance. An average of around four people a year does not feel like a concerted effort.”

The principles behind the amendment attracted cross party-support on the back benches.

Andrew Mitchell, co-chair of the all-party group on anti-corruption and responsible tax [c.898] stated:

“Advisers who set up these schemes often have an aura of authority, because they are lawyers, accountants and professional people, which those whom they advise may not be.

I want more to be done to ensure that, where these bad schemes of tax evasion are put together by professional advisers, they do not get off scot-free while the people they put into these devices, or talk into going into them, take the rap. It is not right that they should just lose the fees that they earn, which I think is currently the position: we should toughen the financial penalties.”

Dame Margaret Hodge, co-chair of the all-party group on anti-corruption and responsible tax [c899-900]

“I simply say this to the Minister: he may have reservations about the technicalities of our proposals, but he should at the very least accept the principle that underpins them and say so today.

Big corporations and high net-worth individuals who engage in tax avoidance schemes and financial crime do not dream up these schemes on their own; they are invented and developed by the huge army of tax professionals—accountants, lawyers, banks and advisers—who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help but actively encourage people not to pay their rightful contribution through tax to the common purse for the common good….

If advisers and promoters involved in a scheme know that the scheme does not work, they are committing the criminal offence—mentioned by the Minister—of cheating the public revenue. They are breaking the law, so they should be pursued, charged and convicted with a criminal charge. That does not happen now”.

Kevin Hollinrake, the Member of Parliament from Thirsk and Malton talked about his own experience of being approached by tax avoidance merchants during his career in business. He went onto say that reputable accountants would not market schemes if they were aware that their activities might end up with jail time. [c903-904]:

“It was probably 15 years after we set up our business that our own accountants came to us—we were making reasonable profits by then—and suggested that we take advantage of a tax avoidance measure, and a pretty aggressive one in our view. This was not a particularly unusual accountants—it had a decent reputation locally – but so much money potentially runs through these schemes that some promoters inevitably see an opportunity for themselves.

I must tell the House that we told our adviser that we did not want to take part in such a scheme, and there were two reasons: we believed that people should pay their tax—that we should all pay a fair amount of tax—but also that any person who takes up such measures should be afraid that HMRC will one day come along and say, “Those measures were not appropriate.” By that time, a lot of the money that they think they have saved has gone out in costs to promoters and the rest of it, and they are left with a huge bill.

Had the person who promoted that scheme to us—our accountant—thought that he would potentially end up on jail, I do not think he would have come to us and told us about it. This was a reputable local person, and perhaps he did not even think that tax avoidance at that point was fraud. Nevertheless, it certainly can be fraud, and in many cases it is. If we are willing to hold people to account, ultimately through a criminal prosecution—as HMRC can, of course, as the Minister pointed out earlier—there would be a lot less of this kind of promotion and a lot fewer of these activities.”

Catherine West, the MP for Hornsey and Wood Green cited TaxWatch’s recent report into criminal prosecutions for tax crimes, as compared to criminal prosecutions for benefits crime [c 908]:

“The scale of tax offences is clear, with a recent TaxWatch report finding that between 2009 and 2019, the UK prosecuted 23 times as many people for benefits offences as for tax offences—that theme has been echoed in today’s speeches—despite the fact that the value of tax fraud is nine times higher than that of benefit fraud. …

We know that a lot of this work is about priorities, and we need to prioritise criminal prosecutions so that there is not a decrease in taxation, as there has been of 39% since 2015. We need to look at the balance of the DWP employing 3.5 times more staff in compliance than HMRC. We know that we have to improve that balance, because quite simply there is much more money to be found in illicit finance and among tax avoiders than from those eking out a living on universal credit or personal independence payments.”

Ruth Cadbury, one of the co-chairs of the APPG on the loan charge, criticised the government for not doing enough to hold loan scheme promoters to account [c 910]:

“We need an effective tax avoidance policy that criminalises those promoting tax avoidance, rather than going for the workers inadvertently caught up in them, as this Government and HMRC have been doing with the loan charge in particular. That is the wrong target. While ordinary people who are victims of mis-selling are facing ruin and bankruptcy, the Government have done too little, too late to go after those who promoted the schemes.”

The whole debate can be seen here: https://parliamentlive.tv/event/index/79ba64da-407e-49d9-b8d7-ed56d11ab6ff?in=10:36:31&out=10:43:21

Too good to be true?

In seeking to warn people against using tax avoidance schemes, the government has frequently said that “if it looks too good to be true it probably is”. The increasing recognition from the Government that the “design of arrangements that are sold as avoidance schemes may in fact enable fraud” is a much more powerful message. It tells the public why tax avoidance schemes are “too good to be true”.

Photo credit: Parliament by James Newcombe

1  @LCAG_2019, Twitter, 19 July 2019, https://twitter.com/i/status/1152149052097585153

2 ‘HMRC pursues multiple criminal investigations in corporate tax disputes’, Financial Times, 11 January 2021 https://www.ft.com/content/e7ef0ec3-f4de-40f9-ad95-0e7587ac7e2d

3 Call for evidence: tackling disguised remuneration tax avoidance, Summary of Responses, HMRC, March 2021, paragraph 2.34 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/972080/Call_for_evidence_tackling_disguised_remuneration_tax_avoidance_-_summary_of_responses.pdf

4 Ibid, paragraph 2.34. Emphasis supplied.

5 https://hansard.parliament.uk/commons/2021-04-20/debates/D1535D18-E261-4112-8739-964CE7F5F994/Finance(No2)Bill

6 Amendment 77.

7 Column 896. Emphasis supplied.

“Amazon Tax Cut” features in Parliamentary debate

29th April 2021 by Alex Dunnagan

On Monday 19 April MPs met to scrutinise the Finance (No. 2) Bill in a committee of the whole house. In the debate, TaxWatch’s research into “super-deductions” featured prominently, as MPs sought to amend the legislation to ensure some companies were excluded from the benefit of the super-deduction.

The new policy, at a cost of £12bn for this financial year, allows companies to deduct 130% of the cost of “main rate” assets from their taxable profits in the year that they purchase it. We calculated that many large companies with significant expenditures would be able to reduce and perhaps even extinguish their tax bills as a result of this policy. Logistics companies, energy, infrastructure, Amazon, would all likely gain significantly as a result of super expensing.

More details can be found in our report, “The Amazon Tax-Cut”, which was published in March following the announcement of the policy in the Budget.

Speaking in support of these amendments, James Murray MP, speaking on behalf of HM Opposition, raised the issue of the super-deduction benefiting companies who have seen business increase throughout the pandemic, saying:

“The super deduction that we are debating now is designed to help companies such as Amazon, which do not need any help with their investment. It is important that we see this in the context of those companies that have done well throughout the outbreak and are already avoiding much of the tax they should be paying. It is no wonder that TaxWatch has nicknamed this the “Amazon Tax Cut”. This giveaway from the Chancellor could wipe out Amazon’s UK tax bill entirely.”

Dame Margaret Hodge MP highlighted how small Amazon’s tax bill was, and the fact that the super-deduction could see it wiped out altogether, saying:

“In 2019, Amazon’s UK turnover was £13.7 billion, but by claiming that its UK sales took place in Luxembourg it exported its profits and avoided corporation tax. It declared only a bit of profit in the UK, as the shadow Minister said, on its warehousing and logistics activities. Its corporation tax contribution was less than 0.1% of its turnover. Analysis by TaxWatch shows that even that miserly contribution would be wiped out with super deductions. It would write off its investment in IT equipment and machinery against its deliberately understated profits.”

Rebecca Long-Bailey MP reiterated the fact that due to the amount Amazon spend on plant and equipment, they stand to see their tax bill wiped out entirely while the super-deduction remains, saying:

“I would have no problem if such businesses desperately required the relief in order to protect jobs or to invest in our local economies, but let us look at some of the potential beneficiaries. Amazon has benefited from the pandemic, seeing its sales jump by 50%. According to TaxWatch, the company’s latest accounts show that they spent £66.8 million on plant and machinery, £80.4 million on office equipment and £15.3 million on computer equipment in the same year, so the 130% super deduction could entirely account for the pre-tax profits of the company even before any deductions of staff pay awards.”

Responding to the debate on behalf of the government, Rt Hon Jesse Norman MP, the Financial Secretary to the Treasury said that the deduction had been deliberately broadly drawn to ensure that a range of companies could benefit from this “very generous policy” and that avoidance was best dealt with via other means. He said:

“the deduction has been very carefully assessed and includes important exclusions, including as to related party transactions and second-hand assets. It also includes a new anti-avoidance provision, which is designed to give it additional protections….

It is true that this is a country that takes the question of tax avoidance and tax manipulation extremely seriously. The right hon. Member for Barking (Dame Margaret Hodge), who has been a great campaigner in this area, focused on that. Of course I cannot discuss individual taxpayers. No one knows what an individual company’s taxpaying arrangements are. She purported to know—that is her privilege—but I am not in a position to discuss that. None the less, I can tell her that it would be very bad policy indeed for any Government to base tax policy on a single employer or taxpayer. If she thinks that this country has been soft in any respect on tax, let me remind her that we have led the international charge on base erosion and profit shifting, on diverted profits taxes, and on the corporate interest tax restriction. We have put into law a digital services tax and are consulting on an online service tax. That is not the action of a Government who take these things in any way other than very seriously.”

The debate is available on Parliament Live here, and on Hansard here.

Photo by Deniz Fuchidzhiev on Unsplash

​TaxWatch launches the Tax and the Rule of Law project

8th April 2021 by George Turner

When we created TaxWatch a little over two years ago, our intention was to build an institution that represented the public interest in tax affairs.

The importance of this mission is clear. We are all taxpayers in one way or another. Whether this be the VAT on products and services we all buy, or income tax on our earnings. With tax at around 1/3rd of GDP, the shape of the tax system and how tax law is applied has a broad impact on the economy and society as a whole.

So much of the discussion on tax has been dominated by small, exclusive communities of tax professionals. Often these individuals are highly conflicted in terms of the interests they represent and have an interest in making tax inaccessible.

We believe that the near universal importance of the tax system to our daily lives means tax policy can only be properly developed when the public have access to clear, independent, and above all accessible information on tax issues – and in particular issues of major public concern such as tax avoidance.

To that end, we have sought to engage in high quality research which sets out the facts.

However, no matter how important that part of TaxWatch’s mission has been, our public interest mission extends beyond the production of information. We want to use the knowledge we have gained in order to make sure that the law is enforced to the benefit of all.

Today, we are launching an initiative which opens up a new, innovative and exciting front in our public interest mission – our Tax and the Rule of Law project.

This initiative will seek to improve both the application of the rule of law in tax administration by ensuring that the public interest is more sufficiently and more effectively represented in the courts and by regulators. This will involve a number of activities which we believe are ground breaking.

​Intervening in the public interest

When judges decide cases brought to them in the courts, the importance and effect of the decisions they make often go beyond any immediate impact on the people contesting the claim.

For that reason, it has long been established that there is a role to play for NGOs in making interventions in court cases to make submissions in public interest.

As set out by Lord Hoffmann in E v The Chief Constable of the Royal Ulster Constabulary (Northern Ireland Human Rights Commission intervening) [2008] UKHL 66, [2009] 1 AC 536:

“Leave is given to such bodies to intervene and make submissions, usually in writing but sometimes orally from the bar, in the expectation that their fund of knowledge or particular point of view will enable them to provide the House with a more rounded picture than it would otherwise obtain. The House is grateful to such bodies for their help”

Public interest interventions are common in various areas of law, such as human rights and environmental law. However, we believe that these kinds of interventions have never been made by an NGO before concerning UK tax law.

​Holding HMRC to account on tax compliance

As the government agency responsible for the collection of tax, HMRC play a key role in enforcing the tax system. Our Tax and the Rule of Law project will seek to ensure that the law is enforced fairly, equally and appropriately. We will do this through research and advocacy looking at how the law is applied in the field of taxation.

​Holding regulators to account

Another key area of our work will be holding regulators to account. Regulators play an important role in making sure that tax professionals act in the public interest. But to ensure that duty is being carried out, the public interest has to be represented, particularly in an area where so much regulation is carried out my membership associations.

Recent years have seen a number of scandals involving regulated professionals involved in unethical and unlawful tax practices. We want to ensure that regulators are playing their role in preventing and rooting out such practices.

In order to take forward this project we are hugely pleased to announce that we have hired Dr Osita Mba. Osita comes with a vast amount of experience in tax law, having been an HMRC lawyer for seven years and completed a PhD in tax law.

His PhD research, which studied the nature and meaning of ‘Tax Avoidance’ and ‘Tax Evasion’ in English law, has an obvious relevance to much of the work TaxWatch does and a particular relevance to our new initiative. As such he will make a huge contribution to the team to advancing research and thinking in this area.

We are also pleased to announce we have secured the backing of the Joffee Trust, who has pledged £25k a year to support this project over the next two years.


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