BN66 - Time to fight back!!!

[malvolio]

Hate to throw cold water on things, but (a) the Treasury Committee will not accept submissions from people it hasn't asked for submissions, much less take any notice of them and (b) their line is that this is not retrospective legislation anyway, it's the same legislation correctly applied and it's hardly their fault if people chose to misinterpret what was a badly drafted clause (OK, they should have complained a lot sooner, but until recently they hadn't bankrupted the country).

There is a case to be made of course and you're right to fight it, but yours will be a small voice in the overall scheme of things.

[neilawuk]

malvolio u have hit the nail on the head, a bad clause will struggle to be enforced be it hector or anybody else in court....the fact they have to clarify it in the first place means it was badly worded and is unlikely to be enforcable.

HMRC will posture of course in the hope that some people will pay on account so they get some money out of a bad situation. They arent really going to take thousands of people to court and potentially bankrupt a lot of them. They might try a test case or two with some of the big hitters of course but I'd be very surprised. IMHO they will redraft the clause, shut it down from 12th march, hope some people pay on account out of fear and leave it there....

lets see....

[neilawuk]

DaveB if hector hadnt introduced IR35 none of this would have happened anyway....they bought it upon themselves and have actually lost more tax in the process....If they had left everyone alone to pay CT out of their LTD's and dividend tax the IR would have been much better off. They were just being greedy and Dim Prawn just thought we would all sit back and let it go and pay up like good little contractors.....yeh right!!!!

[DaveB]

Well this is what HMRC has to say about it, and to my mind seems quite clear.

Budget 2008 BN66 12 March 2008 DOUBLE TAXATION TREATY ABUSE

Who is likely to be affected?

1. UK residents who are participating in the avoidance scheme described below.

General description of the measure

2. UK residents are taxable on their income wherever it arises. A wholly artificial scheme seeks to avoid UK tax by artificially diverting income of a UK resident individual to a foreign partnership comprised of foreign trustees. The scheme is designed to ensure that the income nonetheless continues to belong to the UK resident as they will be a beneficiary of the foreign trust.

Legislation will be introduced in Finance Bill 2008 to:

• clarify, retrospectively, legislation introduced in 1987, which itself was retrospective, so that it has effect as intended. This will ensure that, notwithstanding the wording of any double taxation treaty, UK residents pay UK tax on their profits from foreign partnerships; and

• prevent tax avoidance through the misuse of Double Taxation Treaties by UK residents.

Operative date

3. The first measure will be treated as having always had effect. The second will have effect for income arising on or after 12 March 2008.

Current law and proposed revisions

4. UK law taxes a UK resident beneficiary of certain trusts on the income to which they are entitled under the trust arrangement as it arises. This means that, in cases exploiting the above avoidance scheme, the UK resident should be taxable in the UK on his or her share of the profits of the partnership comprised of the foreign trustees.

5. But the users of the scheme claim that a provision, known as the Business Profits Article, common to most tax treaties, exempts the partnership profits from UK tax – not only in the hands of the foreign partners but also in the hands of the UK beneficiaries.

6. The first provision will make clear that (in line with retrospective legislation introduced in Finance (No2) Act 1987) tax treaties do not exempt UK residents from UK tax on any profits of a foreign partnership to which they are entitled.

7. The second measure will ensure that the Business Profits Article in the UK’s tax treaties cannot be read as preventing income of a UK resident being chargeable to UK tax.

8. Draft legislation and explanatory notes have been published today on the HM Revenue & Customs website.

Further advice

9. If you have any questions about this change, please contact Martin Brooks on 020 7147 2651 (email: martin.brooks@hmrc.gsi.gov.uk) or Simon Davis on 020 7147 2666 (email: simon.davis@hmrc.gsi.gov.uk).

Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk

So what is effectively happening is legislation to clarify the meaning of existing legislation from 1987 which was already clear that UK residents should pay tax at UK rates on income recieved from profits of a foreign partnership regardless of the wording of relevent taxation treaties.

What they are planning on stopping is the use of creative interpretation of one particluar clause in the Dual Taxation Treaty to artificially create a "loophole" in order to avoid paying relevent taxes.

This has no relevence to S660 since that legislation has been tested in court and found to be clear and correct, believe it or not. In that case it was HMRC who were found to have been creative in their interpretation.

Correct me if I'm wrong but new legislation ( the response to S660 ), as opposed to clarification of exisiting legislation ( Finance (No2) Act 1987), cannot be restrospective.

The 21 year restrospective period applies in this case since that takes it back to the date the original legislation was enacted.

[DonkeyRhubarb]

the Treasury Committee will not accept submissions from people it hasn't asked for submissions, much less take any notice of them

This is the response I had from the Treasury Committee when I inquired about the procedures.

If you would like to submit evidence to the Committee, please put it in writing and email it to this address.

Sounds fairly receptive to me.

[malvolio]

Yes, but they will not take a lot of notice of it. To be precise, they will weight it against the other submissions and against the opposing submissions and make an assessment of the various crediblity factors. Don't forget this is hugely important to you but trivial to 99.9% of the country.

Also, you need to talk to your MP, who will pass things up to the relevant minister. You never know, it might do some good.

That's why we need lobbying organisations - they carry a lot more weight than individuals, not matter how right they are. About 400 people had a pop at their MPs about FBT, but it was the lobbyists representing a million or so that won the concession. There is due process, but you need to have a very loud voice to be heard.

[DonkeyRhubarb]

So what is effectively happening is legislation to clarify the meaning of existing legislation from 1987 which was already clear that UK residents should pay tax at UK rates on income recieved from profits of a foreign partnership regardless of the wording of relevent taxation treaties.

Slippery word "clarify".

PWC and the Institute of Taxation do not share your willing acceptance:

http://www.parliament.the-stationery...30/430we03.htm

RETROSPECTION

It is one of the general principles of UK tax law that tax changes are not made with retrospective effect. That said, the Paymaster General's statement that accompanied the December 2004 Pre-Budget Report gave warning of possible retrospective action against avoidance schemes—but only in a limited area and only back to 2004.


To find that a measure (BN 66) is being introduced which will have retrospective effect back to 1987 is unacceptable. It is not even on an area dealt with by the PMG's statement. The subject of the change may be an avoidance scheme, but that is not an excuse for such far-reaching action which is well beyond "clarification", as claimed by the note. This is a dangerous precedent for the integrity of the UK's tax system.

[DaveB]

Originally Posted by neilawuk

DaveB if hector hadnt introduced IR35 none of this would have happened anyway....they bought it upon themselves and have actually lost more tax in the process....If they had left everyone alone to pay CT out of their LTD's and dividend tax the IR would have been much better off. They were just being greedy and Dim Prawn just thought we would all sit back and let it go and pay up like good little contractors.....yeh right!!!!

IR35 is irrelevent. Providing you take reasonable measures to ensure your contracts are appropriately drawn up and working practices are reasonable, which any business should, then you have a perfectly defendable position without the need to resort to exotic taxation arrangements. The appeal of these offshore schemes is not that it gets you out of IR35, they do nothing of the sort, it is that you pay sustantially less tax by using them.

If the clause was unclear then the obvious option is to ask for clarification from HMRC at the time. If you did this and were told that what you were planning was perfectly ok, then you have nothing to worry about. If you didnt, then the question has to be asked "why not?"

If these schemes were clearly the right side of the fence then every professional accountant would be recommending them as a legitimate means to minimise your tax liabilities. Guess what, they arn't and never have been.

They only people who promote these schemes are the ones runnning them and who will profit from them at no risk to themselves.

[dude69]

Originally Posted by DonkeyRhubarb

I am in the process of preparing a submission to the Treasury Committee, basically taking issue with the following:

Don't care. Paying 15% of your income to some dodgy offshore companies was never going to be wise. HMRC aren't going to give you a credit for that agains your tax bill.

I'm happier paying 20% actual TAX.

Sorry.

Basically, you tried to exploit the law, trusted some slimy salesman and got it wrong.

It's no different to responding to a Nigerian scammer.

The whole thing was BS from the beginning.

[neilawuk]

DaveB its not appropriate or should it be to clarify every piece of tax legislation back to the IR. The only real reason these schemes came to be is as a result of IR35.

It is not the publics or corporate responsibility to QA HMRC's policies for accuracy and thoroughness and report back when an anomoly or loophole is found. Its their responsibility and if there is a loophole it will be used, be it a large corp like BP or an individual. This is a cat and mouse game that has always existed and will always exist. To expect people to go back to HMRC and say "dear hector, now are you sure thats what it means" everytime an avoidance measure is found in legislation is naive as of course it would be shut down.

As far as these schemes are concerned it didnt need clarity, it was a loophole plain and simple.....