BN66 - Court of Appeal and beyond

[TalkingCheese]

is Andr*w Tyrie (Conservative MP for Chichester) your local MP, if so could you contact him and ask him to look into section 58 as well.

Not mine... anyone else ?

[DonkeyRhubarb]

Any MP on the Treasury Committee would do:

Treasury Committee - membership - UK Parliament

[Buzby]

MPs to investigate retrospective tax

Not mine... anyone else ?

I have emailed him even though he isn't my MP, can't do any harm.

[Toocan]

Mention in your e-mails

Any MP on the Treasury Committee would do:

Treasury Committee - membership - UK Parliament

If anyone is e-mailing, please remember this this isn't just about retrospective tax - it's about HMRC attempting to cover up their failure to do their job by using retrospective taxation.

The Montpelier scheme ran from 2001 to 2008 and during all of that time HMRC never mentioned the areas of the law that section 58 (Finance Act 2008) modified retrospectively. HMRC knew all the details of the scheme from the first years.

In addition, the Padmore change did not use retrospection to tax anyone - it only prevented new claims for past years. It was completely different from section 58. The 1987 committee were quite certain that they should not tax anyone retrospectively.

HMRC used the word "retrospection" to justify section 58 in terms of the 1987 Padmore legislation in the same was as the word "produce" is used in the sentance "The garden was used to produce produce". Same word, different meaning.

[SantaClaus]

Any MP on the Treasury Committee would do:

Treasury Committee - membership - UK Parliament

Excellent, Andy L0ve is my MP and on the committee.

[BolshieBastard]

Im going to send this to my MP.

You may remember I wrote a number of letters to you regarding BN66 and Section 58 of the Finance Act, 2008.

Although you kindly forwarded my correspondence to David Gauke who, I may say was a verciferous opponent of this retrospective legislation when in opposition has, in my honest opinion, cowardly hid behind the legal process when actually in a position to do something about it when he now sits in Government.

As you may recall, BN66 was introduced after HMRC misled Parliament to retrospectively close a tax loophole, a tax loophole HMRC had known about since 2001 (if not earlier), had identified 4 test cases to put before the Tax Commissioner in approximately 2005 but decided not to proceed to the Commissioner, when legal advice suggested HMRC may not win.

Due to HMRC’s prevarication, time dragged on until learnered council suggested sometime in 2008 (that is a full 7 years after HMRC were fully informed of the Tax loophole) to use retrospective legislation back to 1987(!) and ‘clarify’ the relevant part of Tax Law.

Naturally, all the people who were using the tax vehicle were aghast that HMRC managed to mislead Parliament and have such a retrospective change made.

This was persued through the legal system (High Court, Court of Appeal) to declare the use of retrospective legislation as against the ECHR. It has to be said, unfortunately, the courts did not agree with this and ultimately, leave to appeal to the Supreme Court has been refused.

Therefore, the process that Mr Gauke has used to hid behind has, effectively finished. We have now been informed HMRC intend to collect back taxes plus interest to punish all the scheme users.

This is reprehensible for a number of reasons;

1. The scheme was fully disclosed to HMRC on tax returns submitted in accordance with tax return deadlines.
2. HMRC to a number of years to combat the scheme (from 2001 to 2005 at least) but did not submit the 4 test cases, the result of which everyone in the scheme was prepared to accept the decision of the Tax Commissioners.
3. HMRC’s own tax manuals conceded the loophole existed but could not give Tax Officers substantive reasons how to defeat the scheme.
4. It is generally accepted, HMRC mislead Parliament to get retrospective legislation in the form of BN66 on the statute book via a Budget Finance Act meaning Parliament’s supremacy could not be legitimately overturned by the Courts even if they so wished.
5. The use of interest on tax now deemed outstanding due to retrospection is, pernicious given that HMRC knew of the scheme yet did nothing until 2008, some 7 years after the scheme first came to their attention.
6. Dave Harnett, the HMRC Permanent Secretary, has allowed global companies to escape their tax liabilities in exchange for being wined and dined.

How can it be ‘reasonable’ in any civilised society that people can be retrospectively punished when the Government Department responsible knew of the loophole for a number of years yet did nothing?

How can Mr Gauke sit piously in Government saying this is a matter for the Courts to decide yet when seeking election for the present Government speak verciferously against BN66?

Mr Gauke can no longer hide behind his do nothing attitude? The following are Mr Gauke’s own words against BN66

“
The retrospective nature of the clause is deeply troubling.

The existing legislation appears to deal with the issue where the UK residents or domiciled individuals are partners in the relevant offshore funds, but it does not seem to work where the partners are trusts and the UK individuals are benefiting from the arrangement. The proposal essentially states that the amendments contained in the clause are to be treated as always having had effect. Either the law exists or it does not. It is troubling when the Government state that the law in the past is something because that is what they say it is now.

This is partly an issue of simple democracy. It raises issues about EU law and legitimate expectations.

Indeed, one leading tax expert described it as unprecedented. The Minister smiles, but I would be grateful if she gave some examples. She may seek to give the example of the 1987 case, but distinctions can be drawn with that. The 1987 provision, with regard to section 62 of the Finance Act 1987, seeks to reverse the Padmore case, to which we have referred. It says that the measure is deemed to have an effect except in relation to any judicial decision made before the amending legislation was announced. That is an important carve-out. It benefited not only Mr. Padmore, but a number of other individuals who had entered into arrangements and waited for the conclusion of the judicial proceedings relating to Mr. Padmore. In doing so, they benefited from that carve-out.

There is the issue of timing, which we touched on in relation to the previous clause. I do not think that anyone would dispute that the provision is retrospective. It goes back at least to 1987, so that is 21 years. As I said earlier, there is the issue of HMRC and the Treasury not necessarily acting terribly quickly when becoming aware of the arrangements. The explanatory notes refer to the “new avoidance scheme”. This is not the first time in these proceedings that I have had to query the explanatory notes, but I am not sure that the expression “new avoidance scheme” is entirely justified. How long have the Government, whether through HMRC or the Treasury, been aware of the arrangements? There is certainly evidence that HMRC has been aware of the arrangements for some years. That raises the question that I asked earlier. It is incumbent on the Government to act reasonably quickly. 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. I would press the Government to move quickly if they saw something wrong, rather than sit on it for a long time and then seek to introduce retrospective legislation.

It comes back to legitimate expectation. If the Government do not act on something, perhaps they have taken the view that they will not pursue it. That argument has become stronger in recent years, as the Government now benefit from a disclosure regime. Schemes that result in people making tax savings are disclosed to HMRC, which has the opportunity to review the situation and introduce legislation.

It might be worth returning to the Rees rules, which we discussed on Tuesday. My hon. Friend the Member for Fareham discussed them with the Economic Secretary,
and there was some disagreement over interpretation. However one looks as those rules, this provision does not comply with them. 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. I am not sure that it has. The Government are not on particularly strong ground.

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. That is what we see here. 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”.

The Minister says that in the opinion of HMRC, the clause merely clarifies the existing law, and that there has been no litigation. That is presumably because HMRC has not pursued litigation. If HMRC is so confident that the measure merely clarifies the law—I am not making a case one way or the other—why is it not bringing litigation against the users of the scheme?


[Large section edited out due to exceeding the thread limit]


At the very least, Mr Gauke should now throw his weight behind moves to remove the retrospective imposition of penalty interest charges. If he is not prepared to do this now he sits in Government, he should consider his stance when speaking against BN66 and come to the conclusion his position is untenable and therefore resign his Government post. I would be delighted if you brought the current position on this sorry mess to Mr Gauke’s attention and ask him his intentions.

At the same time, I also ask your goodself should take HMRC to task in the House to drop the penalty interest charge that will be levied retrospectively against all scheme users affected by BN66. Some of whom face bankruptcy.

It is the very least we could expect given that Dave Harnett has wined and dined by global international companies to obtain concessions on company taxation.

I urge you to raise this matter in the House as I am aware a number of other MP’s have been contacted by their constituents over this treatment. A number of MP’s calling for serious debate in the House over this issue is the only democratic way forward given Parliament’s supremacy on Finance Acts.

I look forward to you reply.

[Disgusted of Coventry]

Im going to send this to my MP.

You may remember I wrote a number of letters to you regarding BN66 and Section 58 of the Finance Act, 2008.

...

I look forward to you reply.

GO FOR IT!

(but please change verciferous to vociferous).

[SantaClaus]

Im going to send this to my MP.

You may remember I wrote a number of letters to you regarding BN66 and Section 58 of the Finance Act, 2008.

Although you kindly forwarded my correspondence to David Gauke who, I may say was a verciferous opponent of this retrospective legislation when in opposition has, in my honest opinion, cowardly hid behind the legal process when actually in a position to do something about it when he now sits in Government.

As you may recall, BN66 was introduced after HMRC misled Parliament to retrospectively close a tax loophole, a tax loophole HMRC had known about since 2001 (if not earlier), had identified 4 test cases to put before the Tax Commissioner in approximately 2005 but decided not to proceed to the Commissioner, when legal advice suggested HMRC may not win.

Due to HMRC’s prevarication, time dragged on until learnered council suggested sometime in 2008 (that is a full 7 years after HMRC were fully informed of the Tax loophole) to use retrospective legislation back to 1987(!) and ‘clarify’ the relevant part of Tax Law.

Naturally, all the people who were using the tax vehicle were aghast that HMRC managed to mislead Parliament and have such a retrospective change made.

This was persued through the legal system (High Court, Court of Appeal) to declare the use of retrospective legislation as against the ECHR. It has to be said, unfortunately, the courts did not agree with this and ultimately, leave to appeal to the Supreme Court has been refused.

Therefore, the process that Mr Gauke has used to hid behind has, effectively finished. We have now been informed HMRC intend to collect back taxes plus interest to punish all the scheme users.

This is reprehensible for a number of reasons;

1. The scheme was fully disclosed to HMRC on tax returns submitted in accordance with tax return deadlines.
2. HMRC to a number of years to combat the scheme (from 2001 to 2005 at least) but did not submit the 4 test cases, the result of which everyone in the scheme was prepared to accept the decision of the Tax Commissioners.
3. HMRC’s own tax manuals conceded the loophole existed but could not give Tax Officers substantive reasons how to defeat the scheme.
4. It is generally accepted, HMRC mislead Parliament to get retrospective legislation in the form of BN66 on the statute book via a Budget Finance Act meaning Parliament’s supremacy could not be legitimately overturned by the Courts even if they so wished.
5. The use of interest on tax now deemed outstanding due to retrospection is, pernicious given that HMRC knew of the scheme yet did nothing until 2008, some 7 years after the scheme first came to their attention.
6. Dave Harnett, the HMRC Permanent Secretary, has allowed global companies to escape their tax liabilities in exchange for being wined and dined.

How can it be ‘reasonable’ in any civilised society that people can be retrospectively punished when the Government Department responsible knew of the loophole for a number of years yet did nothing?

How can Mr Gauke sit piously in Government saying this is a matter for the Courts to decide yet when seeking election for the present Government speak verciferously against BN66?

Mr Gauke can no longer hide behind his do nothing attitude? The following are Mr Gauke’s own words against BN66

“
The retrospective nature of the clause is deeply troubling.

The existing legislation appears to deal with the issue where the UK residents or domiciled individuals are partners in the relevant offshore funds, but it does not seem to work where the partners are trusts and the UK individuals are benefiting from the arrangement. The proposal essentially states that the amendments contained in the clause are to be treated as always having had effect. Either the law exists or it does not. It is troubling when the Government state that the law in the past is something because that is what they say it is now.

This is partly an issue of simple democracy. It raises issues about EU law and legitimate expectations.

Indeed, one leading tax expert described it as unprecedented. The Minister smiles, but I would be grateful if she gave some examples. She may seek to give the example of the 1987 case, but distinctions can be drawn with that. The 1987 provision, with regard to section 62 of the Finance Act 1987, seeks to reverse the Padmore case, to which we have referred. It says that the measure is deemed to have an effect except in relation to any judicial decision made before the amending legislation was announced. That is an important carve-out. It benefited not only Mr. Padmore, but a number of other individuals who had entered into arrangements and waited for the conclusion of the judicial proceedings relating to Mr. Padmore. In doing so, they benefited from that carve-out.

There is the issue of timing, which we touched on in relation to the previous clause. I do not think that anyone would dispute that the provision is retrospective. It goes back at least to 1987, so that is 21 years. As I said earlier, there is the issue of HMRC and the Treasury not necessarily acting terribly quickly when becoming aware of the arrangements. The explanatory notes refer to the “new avoidance scheme”. This is not the first time in these proceedings that I have had to query the explanatory notes, but I am not sure that the expression “new avoidance scheme” is entirely justified. How long have the Government, whether through HMRC or the Treasury, been aware of the arrangements? There is certainly evidence that HMRC has been aware of the arrangements for some years. That raises the question that I asked earlier. It is incumbent on the Government to act reasonably quickly. 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. I would press the Government to move quickly if they saw something wrong, rather than sit on it for a long time and then seek to introduce retrospective legislation.

It comes back to legitimate expectation. If the Government do not act on something, perhaps they have taken the view that they will not pursue it. That argument has become stronger in recent years, as the Government now benefit from a disclosure regime. Schemes that result in people making tax savings are disclosed to HMRC, which has the opportunity to review the situation and introduce legislation.

It might be worth returning to the Rees rules, which we discussed on Tuesday. My hon. Friend the Member for Fareham discussed them with the Economic Secretary,
and there was some disagreement over interpretation. However one looks as those rules, this provision does not comply with them. 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. I am not sure that it has. The Government are not on particularly strong ground.

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. That is what we see here. 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”.

The Minister says that in the opinion of HMRC, the clause merely clarifies the existing law, and that there has been no litigation. That is presumably because HMRC has not pursued litigation. If HMRC is so confident that the measure merely clarifies the law—I am not making a case one way or the other—why is it not bringing litigation against the users of the scheme?


[Large section edited out due to exceeding the thread limit]


At the very least, Mr Gauke should now throw his weight behind moves to remove the retrospective imposition of penalty interest charges. If he is not prepared to do this now he sits in Government, he should consider his stance when speaking against BN66 and come to the conclusion his position is untenable and therefore resign his Government post. I would be delighted if you brought the current position on this sorry mess to Mr Gauke’s attention and ask him his intentions.

At the same time, I also ask your goodself should take HMRC to task in the House to drop the penalty interest charge that will be levied retrospectively against all scheme users affected by BN66. Some of whom face bankruptcy.

It is the very least we could expect given that Dave Harnett has wined and dined by global international companies to obtain concessions on company taxation.

I urge you to raise this matter in the House as I am aware a number of other MP’s have been contacted by their constituents over this treatment. A number of MP’s calling for serious debate in the House over this issue is the only democratic way forward given Parliament’s supremacy on Finance Acts.

I look forward to you reply.

That is a seriously excellent letter Bolshie!

[FredBasset]

Im going to send this to my MP.

I don't post here often, but I have been putting together a letter to my MP raising many of the points you have - go for it and I'll do the same.

Regards
Fred

[Toocan]

Im going to send this to my MP.

You may remember I wrote a number of letters to you regarding BN66 and Section 58 of the Finance Act, 2008.

<...clip>

Bolshie - That letter ranks as one of the best posts on here in my opinion. I hope everyone that reads what you have written will be inspired to write a letter to their MP too.