BN66 - Time to fight back (Chapter 3)

[SantaClaus]

However, because section 58 uses HMRC’s ‘‘nuclear option’’ of fully retrospective legislation, it may have a deterrent effect beyond the specific structures it purports to close down.

...

Whatever the justification of the extreme measure in section 58 FA 2008, HMRC would probably not be displeased if it is regarded as a warning shot across the bows of taxpayers who are thinking of using particularly aggressive planning schemes and of the practitioners who devise them.

http://www.freshfields.com/publicati.../nov08/BTR.pdf

I like this bit of the document:

What makes section 58 FA 2008 unusual is that the Government has again opted to make its effect retrospective. The debate in the Public Bill Committee on the relevant clause of the Finance Bill saw the Minister, Jane Kennedy, struggling slightly when asked why a retrospective provision was required. She explained:
‘‘As I understand it, a number of people are proposing to use the scheme and some tax advisers will recommend the use of it unless we act to make it clear that the scheme does not work.’’
While this justifies introducing anti-avoidance legislation it does not explain why it has to be retrospective. Pressed further, she said, ‘‘I hope I get this right. It is because HMRC has not consistently made the case throughout the time period that the scheme does not work,. . .’’.

This reply raises some interesting possibilities. Could it mean that HMRC made concessions that they later came to regret and that the only way out of the hole they had dug for themselves was to use retrospective legislation? And is HMRC’s previous lack of consistency the reason that a number of people are now proposing to use the scheme? Professional bodies were less than impressed that retrospective legislation was being used. During the debate we heard that the Chartered Institute of Taxation thought it was ‘‘extreme and unjustified’’; the Law Society believed it was ‘‘wrong in principle’’; and the Institute of Chartered Accountants in England and Wales warned, ‘‘it sends out a very damaging signal about the stability of the UK tax system’’. The Minister could only promise to check the representations she had received.


P.S. Can anyone point me to an official document that shows retrospective taxation is illegal under the Human Rights Act. I would like to follow up a recent letter from Stephen Timms (via my MP) who claims it is legal.

[MuddyFunster]

‘‘I hope I get this right.

It makes you think she doesn't have a danny what she's talking about...

[DonkeyRhubarb]

Human Rights Act - Retrospective Tax Legislation

P.S. Can anyone point me to an official document that shows retrospective taxation is illegal under the Human Rights Act. I would like to follow up a recent letter from Stephen Timms (via my MP) who claims it is legal.

My understanding is that retrospective taxation is not in itself a breach of the Human Rights Act.

http://www.tax.org.uk/showarticle.pl?id=55

Retrospective legislation - may well give rise to a breach of Article 1 of the First Protocol, as it is clearly interfering with settled legal rights. The decisions of the ECtHR however suggest that States will be given a considerable margin of appreciation in this area if they have a good reason for making the legislation retrospective.

...

If a conflict between legislation and Convention rights cannot be cured by interpretation, then the UK legislation wins. There is no override of UK legislation. This is why the Act is only a partial incorporation of the ECHR. An applicant can, however, seek from the High Court and above (not tax tribunals) a declaration of incompatibility. This has no effect on the parties’ rights, but merely alerts the government to the conflict, which, hopefully, would take steps to amend the law.

http://www.murraystable.com/files/ar...the%20ECHR.pdf

Article 1 of the First Protocol protects the right to property but expressly preserves the right of states to levy tax and to secure the payment of those taxes. Again, the Convention organs have been reluctant to interfere in the tax sphere. In A, B, C, D v. UK (Application No.8531/79) the ECtHR found retrospective legislation contained in Finance Act 1978, (FA 1978), s. 31 to prevent tax avoidance to be compatible with the ECHR. Wide measures for the enforcement of taxes including the seizure of property and the levying of fines for procedural non-compliance have also been upheld.

...

Few cases succeed under Article 1 in the tax field. Where they do there is an element of clear arbitrariness and they have arisen in the enforcement field.

[SantaClaus]

My understanding is that retrospective taxation is not in itself a breach of the Human Rights Act.

If that is true DR, then how can we win?

The decisions of the ECtHR however suggest that States will be given a considerable margin of appreciation in this area if they have a good reason for making the legislation retrospective.

Well, the govt. claim they have very good reasons for doing this. So from where I'm sitting now it doesnt look so good.

[DonkeyRhubarb]

If that is true DR, then how can we win?



Well, the govt. claim they have very good reasons for doing this. So from where I'm sitting now it doesnt look so good.

Retrospective tax may not in principle breach HRA but that does not mean that this particular retrospective tax does not. It will come down to the specifics of the case.

The goverment may claim that countering tax avoidance is a good reason for doing it but the court may not share this view, particularly when all the facts come to light.

I don't know if you have received the latest MP letter but the arguments put forward by HMRC as to why Section 58 does not breach HRA are very weak indeed.

PS. it is not enough that Section 58 is "retrospective", we have to prove that it breaches HRA but I believe we have got a very strong case.

[BigBlackDog]

Did you forward the CN onto montp?

Oh yes CN with Montp and appeal lodged.

[DonkeyRhubarb]

Worth re-reading

I think it's worth reading over this again because the arguments put forward by the opposition MPs are probably how it's going to play out in court. But this time the government will not have the luxury of a parliamentary majority to bulldoze it through.

http://www.parliament.the-stationery...m/80522s04.htm

If they become aware of a scheme that they do not like but they sit on their hands and do nothing about it, and then some years later say, “Okay, we will introduce retrospective legislation,” that raises real concerns, because again there is a continued period of uncertainty.

Where the Government are known to be aware of a practice and do not move to close it down, is it not the case that taxpayers have a reasonable expectation that the Government have chosen to tolerate that course of action, and plan accordingly?

If the Government do not act on something, perhaps they have taken the view that they will not pursue it.

The rules set out three circumstances that apply with retrospective tax legislation. If anti-avoidance provisions are to be legislated, there should be a clear warning in the House of Commons, where feasible a draft law should be published as soon as possible—to give effect to the proposal—and the clause should be incorporated in the next available Finance Bill. I would be grateful if the Financial Secretary could enlighten us on the extent to which that process has been followed with these provisions.

It is not acceptable that the Government permit something that they consider unacceptable to exist for some years, and then seek to introduce retrospective legislation to address it.

The comments from the professional bodies are universally critical. The Chartered Institute of Taxation described the retrospective nature as “extreme” and “unjustified”, the Law Society described it as “wrong in principle”, and the Institute of Chartered Accountants in England and Wales said that “it sends out a very damaging signal about the stability of the UK tax system”.

As I understand it, the legislation 21 years ago made it absolutely clear that it was not in any way trying to unravel arrangements that had been put into place before the Padmore case of 1987, where as the wording of the subsection to which I referred, about the legislation being treated as always having had effect, should have alarm bells ringing in all of us as parliamentarians.

For the Revenue to use retrospective legislation to mop up bits of revenue law is simply unacceptable. If the Revenue is confident that the law has always been as it is now intended to be stated, surely it should challenge the case through the courts.

The Law Society has briefed me that paragraph 1660 of HMRC’s international tax handbook shows that HMRC had known for some time about the way that tax professionals have been interpreting section 858 of the Income Tax (Trading and Other Income) Act 2005.

The current drafting of the Bill would give HMRC the right to turn a blind eye to a scheme and come back retrospectively and decide that it is illegal.

[KiwiGuy]

great post Donkey

[BrilloPad]

I think it's worth reading over this again because the arguments put forward by the opposition MPs are probably how it's going to play out in court. But this time the government will not have the luxury of a parliamentary majority to bulldoze it through.

http://www.parliament.the-stationery...m/80522s04.htm

If they become aware of a scheme that they do not like but they sit on their hands and do nothing about it, and then some years later say, “Okay, we will introduce retrospective legislation,” that raises real concerns, because again there is a continued period of uncertainty.

Where the Government are known to be aware of a practice and do not move to close it down, is it not the case that taxpayers have a reasonable expectation that the Government have chosen to tolerate that course of action, and plan accordingly?

If the Government do not act on something, perhaps they have taken the view that they will not pursue it.

The rules set out three circumstances that apply with retrospective tax legislation. If anti-avoidance provisions are to be legislated, there should be a clear warning in the House of Commons, where feasible a draft law should be published as soon as possible—to give effect to the proposal—and the clause should be incorporated in the next available Finance Bill. I would be grateful if the Financial Secretary could enlighten us on the extent to which that process has been followed with these provisions.

It is not acceptable that the Government permit something that they consider unacceptable to exist for some years, and then seek to introduce retrospective legislation to address it.

The comments from the professional bodies are universally critical. The Chartered Institute of Taxation described the retrospective nature as “extreme” and “unjustified”, the Law Society described it as “wrong in principle”, and the Institute of Chartered Accountants in England and Wales said that “it sends out a very damaging signal about the stability of the UK tax system”.

As I understand it, the legislation 21 years ago made it absolutely clear that it was not in any way trying to unravel arrangements that had been put into place before the Padmore case of 1987, where as the wording of the subsection to which I referred, about the legislation being treated as always having had effect, should have alarm bells ringing in all of us as parliamentarians.

For the Revenue to use retrospective legislation to mop up bits of revenue law is simply unacceptable. If the Revenue is confident that the law has always been as it is now intended to be stated, surely it should challenge the case through the courts.

The Law Society has briefed me that paragraph 1660 of HMRC’s international tax handbook shows that HMRC had known for some time about the way that tax professionals have been interpreting section 858 of the Income Tax (Trading and Other Income) Act 2005.

The current drafting of the Bill would give HMRC the right to turn a blind eye to a scheme and come back retrospectively and decide that it is illegal.

I wish you were our barrister for the JR.....

[SantaClaus]

Thanks DR, you have put my mind at rest and also given me some good stuff to reply to my MP with