BN66 - Time to fight back (Chapter 3)

[moro]

I've been lurking here for months now; created an account last week, now finally got around to posting something.

I was in the MP scheme from 2003-07, so my exposure is probably quite large (I haven't received any closure notices yet) and I probably can't pay it either...so I'm remaining hopeful that MP beat HMR&C on this unfair retrospection.

[Dee]

De-Lurking

Sorry, I've been watching this post for the past 6mths and have to say, you guys are fantastic. Been with MP for 2yrs now, having no intention to leave as I have every faith in them (can't afford to pay Dr Evil).

Keep up the great posts, loving every one of them

[macdat]

Response From MP (local not MontP!!)

I emailed my MP about this and got the following response although I am not sure if he is referring to the correct clause or if I just don't understand the structure.

Can someone clarify this for me and I will respond back to my MP.....

************************************************** *******
"Thank you for your message.

The Finance Bill has now been enacted and the clauses are numbered differently in the Finance Act. I wonder if you are referring to Clause 59 of the Act which relates to "UK residents and foreign enterprises"? However, this part of the Act only applies to income arising on or after 12th March, 2008. Perhaps you can explain your problem in more detail but I have to say that I cannot intervene in court cases.

Yours sincerely,
Michael Mates"
************************************************** *******

Thanks

MD

[AlbionRovers]

My Mps Reply Part1

Though I would post my MP's reply to see what you all make of it, so here goes.
NEed to post in 2 parts so bear with me.......

Starts
"
Hello etc etc
The issue you have raised was announced in the Budget report as follows: 4.68 The Government announces, with retrospective effect from 12 March 2008, clarification of indefinitely retrospective legislation introduced in 1987 to counter double taxation treaty avoidance schemes, so that the legislation applies as intended and is effective. This will ensure that, notwithstanding the wording of any double taxation treaty, UK residents pay UK tax on their profits from foreign partnerships. Budget 2008 announces there will also be a further measure to prevent future tax avoidance through the misuse of double taxation treaties by UK residents. 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. 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. 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. 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 ... 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. Provision to this effect is made in clauses 55 & 54 of the Finance Bill 2008, respectively. Professional bodies have raised concerns about the first of these measures being retrospective. In their commentary on the Bill, the Chartered Institute of Taxation argued that there was "no justification for the introduction of such legislation with such extreme retrospective effect": The proposal to backdate this legislation to the 1987 legislation is excessive and, whatever the issues are surrounding such avoidance, unjustified. The mischief being targeted is not new and has been known to HMRC for some time; it is referred to in the International Manual (ITH 1660). Whilst HMRC are entitled to change their minds and legislate against the planning, to take retrospective action against something that has been acknowledged this way is wrong. This sort of move gives rise to significant concerns about not only the proportionality of the measure but also whether the UK tax system has any certainty and whether the UK is a stable place in which to invest. The Tax Faculty of the Institute of Chartered Accountants also raised concerns: Although we understand that the clause is directed primarily at situations involving Isle of Man or Channel Isles partnerships, we believe the EU law principle of legitimate expectation needs to be respected so that taxpayers are entitled to understand the implications of any transaction that they enter into. Treating this provision as always having had effect runs contrary to Parliament's intent over the past 30 years to lay down rules whereby the tax effect of particular transactions can be 'changed' or advance warning is given of a change in tax treatment in identified circumstances. One of the earliest attempts to set out some rules that ought to apply in such situations was made by Peter Rees (now Lord Rees) in the Standing Committee debates on what became the 1978 Finance Act: these have since been known as the 'Rees rules'. The proposals put forward by Lord Rees were in the context of anti avoidance provisions and the time from which they should have effect. The Rees rules laid down that if some form of anti avoidance provisions were to be legislated then there should be a clear warning in the House of Commons that that was intended, if possible a draft clause should be published as soon as possible which would give effect to the proposal and the clause should be incorporated in the next available Finance Bill/Act. The practical effect of the Rees rules was that they laid the ground rule for retroaction, i.e. the law when it was finally enacted could not have effect earlier than the House of Commons announcement of the upcoming anti-avoidance change. Another approach was adopted in the late 1980s to counter a legal decision that had gone against the Inland Revenue and which the government wished to 'reverse'. In that case although the new law was stated to have always had effect this did not influence any judicial decisions made before the new law was announced. So, for instance, s 62 of Finance Act 1987 was introduced to reverse the decision in Padmore v IRC and the amendment to section 153 ICTA 1970 was deemed always to have had effect, except in relation to any judicial decision before 17 March 1987, the date when the amending legislation was announced, or to any appeal therefrom. In other words the High Court decision in Padmore was not retrospectively declared to be wrong and the old law was not treated as amended for the purpose of any appeal by the Inland Revenue against the High Court's decision. The appellant in Padmore kept the fruits of his appeal, but no other taxpayer was expressly protected by the terms of the legislation. A more recent approach was the statement of the Paymaster General on 2 December 2004 to the effect that legislation would be introduced in the future, effective from 2 December 2004, in relation to: "what the Government considers to be unreasonable tax avoidance schemes involving employment income." The Faculty went on to argue the department should re-examine the rationale for legislation with retrospective effect:
"
More below..........

[AlbionRovers]

My Mps Reply Part2

.....

We wrote to the Paymaster General in February 2005 and in our letter we noted that the Treasury Select Committee had stated in a written report that: 'The Inland Revenue should, without jeopardising their position, publish a paper setting out their thinking on the principles which will guide the way they implement [the Paymaster General's] announcement.' Such a paper has never been published but we believe that the philosophy underlying retrospective or retroactive legislation should now be examined in conjunction with the current move to introduce purposive, or principles based, legislation. If the underlying purpose behind any piece or legislation, or any area of tax law, is clearly articulated then any taxpayer who respects that purpose should have certainty as to the (tax) outcome of their particular transaction. If the underlying policy is to be changed then any change should, in our view, only have effect in relation to future transactions. We recommend that an appropriate modus operandi ought to be agreed by HM Treasury, HM Revenue & Customs and Representative Bodies and then published for the benefit of all taxpayers. These provisions were debated at the Committee stage of the Finance Bill on 22 May, when both the Conservatives and Liberal Democrats argued that clause 55 of the Bill should only apply from the day it was announced - Budget day 2008. In response the Financial Secretary, Jane Kennedy, argued "the avoidance scheme that the clause closes down was designed to frustrate legislation passed by Parliament in 1987 to prevent this type of avoidance, also with retrospective effect ... we have not come to a decision lightly [and] I am satisfied that in these unusual circumstances, retrospective clarification of the law is fair, proportionate and in the public interest. That is the human rights test that we must apply." The Minister went on to give a detailed explanation of the issue, and a long extract from her speech is reproduced below: In 1979, Mr. Padmore, a UK resident, worked in the UK as a patent agent. He was also a member of a Jersey partnership, which had been set up to receive some of the income from Mr. Padmore's activities as a patent agent. In line with the law as it was generally understood at the time, the Inland Revenue sought to tax him on his share of the foreign partnership's profits. In December 1986, the courts upheld his claim that the tax treaty between Jersey and the UK meant that none of the Jersey partnership's profits could be taxed in the UK, even those belonging to UK resident partners. The decision was a surprise, not only to the Inland Revenue but to other tax authorities and most tax advisers. It overturned the generally held view that unless explicitly specified, tax treaties do not remove a country's right to set taxes ... Parliament acted at the next available opportunity-in the 1987 Finance Bill-to make it clear that the UK's treaties did not give, and never had given, tax exemption to a UK member's share of a foreign partnership's income. During the debate on the 1987 Bill ... the then Financial Secretary [Norman Lamont] observed that although the provisions had caused him "considerable concern", he had concluded that the clause should apply with retrospective effect. He noted that that did not involve the "type of retrospection on which the House has normally looked with disfavour" as all that it did was to "restore the general understanding of the law to what it was before a decision of the High Court." -[Official Report, 15 July 1987; Vol. 119, c. 1180-87.] ... UK individuals and companies have been artificially routeing their income through offshore trusts and partnerships and claiming that one of the UK's many double taxation treaties exempts them from tax. That is in wilful contravention of the purpose of the treaty and the 1987 legislation. A fundamental purpose of the clause is to put it beyond doubt that a wholly artificial avoidance scheme designed to frustrate legislation passed by Parliament in 1987 to prevent such avoidance does not work, and never has. Some taxpayers were awaiting the outcome of litigation in the expectation that it would clarify their affairs. The legislative change in the clause will result in the necessary certainty, not litigation, thus enabling tax returns to be finalised. Many descriptive terms have flowed in the discussions that I have had about this avoidance scheme, one of which is "an egregious case". In such a case, the Government consider that the law already defeats the scheme and that it is clear to all concerned that the scheme is in defiance of Parliament's intent. Used in such a context, retrospection preserves the expectation that tax will be applied fairly and consistently. That will build confidence and trust in the law. Nobody could seriously think that the clause is unfair to the people who will be affected by it. Users of the scheme have deliberately tried to frustrate the will of Parliament, and they will have been aware that Parliament had closed down similar schemes 20 years ago with retrospective effect. My understanding is that that retrospectivity was unlimited, in effect, until the end of the Second World War. The Committee might not be aware of the scale of the risk to the Exchequer as a result of this avoidance scheme. HMRC is aware of more than 2,000 scheme users, and it involves tax of £50 million a year-a not insubstantial sum. Given the increasing numbers using the scheme, the rapidly growing amount of tax at risk and the wilful attempt to circumvent the clear purpose of the legislation and of the UK's tax treaties, we consider it appropriate to legislate to provide retrospective clarification and to put the matter beyond doubt. HMRC has learned that the large number of taxpayers who have been using the scheme has suddenly started to grow; I shall explain why in a moment ... The scheme is similar to the Padmore scheme except that UK taxpayers set up offshore trusts as well as partnerships. The trusts are for their own benefit, and the trustees become members of the partnership. UK taxpayers agree to work for the partnership, so that once a scheme is set up, their UK income thereafter becomes payable to the partnership and, through the trust, it is paid straight back to them in the UK. They assert that such an arrangement circumvents the 1987 legislation so that the income is tax-free. HMRC does not believe that the scheme works, but we have taken into account its scale and the wilful attempt to flout the law that retrospectively clarified how tax treaties work. The Government have developed our approach on the detail of the legislation on anti-avoidance rules generally to ensure that they are effective and properly targeted. Business welcomes that approach, and it has led to better legislation ... The Government do not accept that the clause changes the meaning of the law. The law already applies to partnership profits, and we interpret that as including profits enjoyed through a trust. The measure clarifies rather than amplifies the scope of the 1987 legislation and puts beyond doubt what most people understand it to mean. We recognise and acknowledge the difficulties inherent in such legislation. Although the clause is strictly retrospective, as was the case in 1987, it does not change what is generally understood to be the meaning of the law but merely clarifies it. In view of the forgoing it may be appropriate for you to consult again with your legal advisors and be more specific about precisely what level of support you are seeking. May I also emphasise the important fact that as a constituent you are given top priority in Tom's diary and therefore if you so wish I am most willing to arrange a meeting with you and Tom to discuss this matter further.
Regards etc etc
"
Ends

I can't decide which bits have been google'd/cut/pasted and which bits he actually believes in?
Comments etc?

[redkieran]

I'm guessing that the BarCapBoyz are more than one person!

And can anyone summarise that MP response?

[Emigre]

I'm guessing that the BarCapBoyz are more than one person!

And can anyone summarise that MP response?

As AlbionRovers suggests its largely a cut and paste. However, it provides a very good summary of some of the Government statements that have been made. Sadly there are a number of things missing.

A true chronology would be good; DR has a better picture

The MP concerned offers no opinion, party or personal, and no expression of support. The positive is that the MP responded (or at least his/her researcher did) and that must increase their awareness.

One statement that comes out every time I read it is that of the Paymaster General in December 2004 where he refers to "employment income". We are self-employed, not employed. Being employed means that there is an employer. There is no employer. As far as I'm aware our expenses have not been challenged by HMRC and therefore they accept that we are self-employed. PMG statement irrelevant QED.

[Emigre]

I just read it again. Clearly a NewLiebor MP, reciting what looks like what will form the backbone of the HMRC case. If this is the best they can come up with then I'm looking forward to granny popping out of that cake with a 1p cheque.

There is little that cannot be challenged for factual accuracy, or for some of the criteria that they state they aspire to like certainty, proportionality and fairness. They have deprived us of certainty, their actions have been disproportional and unfair in the extreme.

I see an image looming...Jane Kennedy has abused us, now at DEFRA I assume she has been cleared to abuse animals...

[SantaClaus]

Seems like a load of bulltulip from an MP who is not particularly onside.

I was particularly interested in this extract from the letter, though:

During the debate on the 1987 Bill ... the then Financial Secretary [Norman Lamont] observed that although the provisions had caused him "considerable concern", he had concluded that the clause should apply with retrospective effect. He noted that that did not involve the "type of retrospection on which the House has normally looked with disfavour" as all that it did was to "restore the general understanding of the law to what it was before a decision of the High Court."

Does anyone know if Norman Lamont's argument above was accepted by the high court?
This is the same sort of woolly statement that Yvette Cooper is making.

[TheBarCapBoyz]

I'm guessing that the BarCapBoyz are more than one person!


We are indeed a group of four dudes who used to work at, er, Barcap.


I understand one of us four is well-known to BrilloPad, actually.