Fraudulent Tax Avoidance

[Alan Jones]

Is “fraudulent tax avoidance” the exocet missile that will bring down tax schemes that fail to be implemented in accordance with the opinion given by Tax Counsel AND/OR where certain operational “nuances” were withheld from Tax Counsel knowing that Counsel would NOT have approved.
There has been much speculation about this new/re-engineered “ weapon”. Let’s assume HMRC came across the following correspondence and/or statement from questioning a Taxpayer under “caution”:
Promoter: In return for a £10,000 fee we guarantee to produce a £100,000 tax loss that can be offset against your other taxable income.
Client: How !!
Promoter: You put up £10,000 and loan £90,000 from LOANCO and request LOSSCO to trade the £100,000 in the derivatives/futures/options markets. LOSSCO will provide you with a report/certificate that you lost £100k. This can then be offset against your very large City Bonus due to be taxed at 50%. Therefore for a sum of £10k you get a £50k reduction in your tax bill.
Client: Excuse me but what about the £90k loan.
Promoter: Don’t worry about that.
Client: Erm , erm. OK.
Promoter: OK so you are expecting a £1m bonus. Therefore I suggest you go for a £600k loss that means I need a cheque for £60k.
Client: BUT if the £540k loan is lost in derivatives trading and I don’t have to repay it then surely LOANCO will be out of pocket.
Promoter: Not really. LOANCO & LOSSCO are part of same group so the losses are not , are not “real”. Erm, let me re-phrase that. That’s our problem/loss.
Client: Sorry not with you.
Promoter: It’s all a “book keeping and/or zero sum” transaction. The only money that “really” changes hands is the £60k that you pay us and the £300k reduction in your tax bill.
Client: Erm, erm
Promoter: Plus, LOANCO & LOSSCO are based half way across the world and no-one can access their books.

If the above is deemed to be fraudulent then we are talking about prison and confiscation order ( see *** below ) for the promoter BUT what about the Client.

***Just take a look at HMRC press releases with particular attention to the confiscation orders that have been made in 2010 e.g. http://nds.coi.gov.uk/clientmicrosit...9&SubjectId=36 . A recent poster to this site (see http://forums.contractoruk.com/accou...ppeal-233.html - see #2329 ) said he had a letter from HMRC requesting a postponement of a “tax tribunal hearing” because the promoter (it can only be assumed of the scheme being disputed by HMRC) was under criminal investigation. Does this mean that they are thinking of doing the same against the Client.

[RichardCranium]

I don't understand your post. But I want to go and comment on the title: "Fraudulent Tax Avoidance".

Tax evasion is illegal and unethical.
Tax avoidance is legal and sensible.

As a citizen you have a duty to pay the taxes you should. But if you can legally arrange your affairs to reduce your tax bill, to do otherwise is foolish.
- As an employee, ensuring you claim all your legal expenses from your employer minimises your tax bill. Not doing so is silly. That is tax avoidance.
- Setting up in business as a LtdCo formalises your activity end makes you produce lots of documentation on how you run your business and puts you in a legal framework describing how you behave. It can also reduce your tax burden. That is tax avoidance.

Tax avoidance is the legal duty of the director of a LtdCo. Part of the duties of the director are to maximise profits, and also to ensure the right amount of tax is paid.
- If there is more than one way to use the tax laws resulting in different tax bills, it is perfectly legal and correct to use the method that results in the least tax being paid. That is tax avoidance.

There is no such thing as fraudulent tax avoidance.

[ASB]

There is no such thing as fraudulent tax avoidance.

Well, yes. That is semantically true. However, the point Alan seems to be making - and I believe it to be valid - is that the taxpayer can believe they are entering an avoidance scheme, however they may in fact be duped into a potentially criminal evasion and the consequences of that are likely to rest with the taxpayer.

[Cosmo]

Remind me what it was you used to do for a living Alan?

Oh, it's ok.... I remember - you used to work for a provider of these schemes?

Bearing a grudge? Axe to grind?

[Alan Jones]

I don't understand your post. But I want to go and comment on the title: "Fraudulent Tax Avoidance".

There is no such thing as fraudulent tax avoidance.

The following is reproduction of article on BBC website.
"A 60-year-old man has been arrested as part of an investigation into a company which has its head office in the Isle of Man, it has been confirmed.
HM Revenue & Customs officers searched the premises of The Montpelier Group on Palace Road in Douglas on 29 September.
A company office in the UK was also targeted in the investigation.
A spokesman from HMRC said: "The investigation centres around the suspicion that tax avoidance schemes have been implemented fraudulently".
Police suspect schemes could have been sold to more than 600 subscribers with an estimated tax loss in excess of £90m.
John Mitchell, from the Isle of Man Financial Crime Unit, said: "A quantity of material was seized on the island but there were no arrests made here."
The Montpelier Group is an international company with offices in the UK, Barbados and Hong Kong.
A spokesman from the group declined to comment."

SO i was merely quoting HMRC who say "The investigation centres around the suspicion that tax avoidance schemes have been implemented fraudulently" i.e. Fraudulent Tax Avoidance.

[Ignis Fatuus]

I don't understand your post. But I want to go and comment on the title: "Fraudulent Tax Avoidance".

Tax evasion is illegal and unethical.
Tax avoidance is legal and sensible.

You think so and I think so. But I think you'll find that HMRC no longer make that distinction. To them, any action that lowers the tax take below what it was intended to be is to be pursued aggressively.

[escapeUK]

You think so and I think so. But I think you'll find that HMRC no longer make that distinction. To them, any action that lowers the tax take below what it was intended to be is to be pursued aggressively.

I totally agree, I will pursue any action that will lower my tax.

[centurian]

There is no such thing as fraudulent tax avoidance.

Buying 2 max allocation ISA's in one year probably fits that.

It's a tax avoidance scheme, but used in such a way that it is fraudulent.

You can argue that this is actually tax evasion, although this term is usually used in regard to deliberate failure to disclose income etc.

I'm not too concerned about the use of the term "fraudulent tax avoidance", as long as it refers to wilful improper use of tax avoidance schemes and doesn't try and paint the picture that tax avoidance is fradulent.

[Jog On]

I think the phrase "fruadulent tax avoidance" is about as clear as "paying your fair share"

[BlasterBates]

The trouble is how do you distinguish between bonafide tax avoidance and tax avoidance that isn't, which could then be classified as fraudulent, with these schemes.

When I was tought tax avoidance on my accountancy course a longtime ago, tax avoidance was "getting married", buying a house and offsetting it from tax, or for businesses or selecting the higher level of depreciation when more than one method is on offer. The sort of things you can openly discuss with the tax office

However when you pay no tax because your entire income is a loan (wink wink nudge nudge) when it really isn't a loan, might be OK but if a judge then decides this is not really a loan and that stands in a court of law, this could quite potentially be then viewed as fraud.

So it depends on how aggressive you are, but if you're being given a loan, and you know it isn't really one, then you're playing with fire, and if you get away with it then good luck, but if not I don't see the great injustice.

In other words you need to distinguish between tax breaks which are intended, and which you maybe entitled to, if you didn't know, and trying to twist a rule. So if the Government wants to encourage ship building (like they did in Germany) and they offer tax incentives on investments in ship building, you can ring up the taxman talk to him about it, invest in a ship yard and avoid a tax by filling out a form from HMRC. This is an example of the sort of tax avoidance you learn about when your training to be an accountant. But what has happened is IOM companies have generated in huge industry in twisting rules arguing it's just tax avoidance. Well not in my book. But good luck if you're doing it.