BN66 - Court of Appeal and beyond

[BrilloPad]

Hi BrilloPad,
Thanks for your response. I have a a couple of angles. I have also written to my MP.
Maybe we should discuss other possible ways if you think Media is counterproductive.
I'm in the process of composing a letter that can be used to send, although I think BB has composed a gem for his MP:-)
How do we pass PM addresses as Mr HMRC is watching...
Thanks.

PM sent with my email address. Hello Mr B

[Emigre]

Part 1 of letter sent to Gauke in 2010

7 July 2010

David Gauke MP
House of Commons
London
SW1A 0AA


Dear David

Section 58 FA 2008

I quote below a selection of comments made by you in Opposition to what was then Budget Notice 66 prior to it becoming S58 FA 2008. Extracts from Hansard.

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?

I do not think that the Minister has reassured Conservative Members at all. There is an essential contradiction in what she said. She said that HMRC is confident that the clause merely reasserts existing law, that it is not a change in law and that the schemes are in clear breach of the law, yet she suggests that some £200 million in back tax is at risk. If the law is as she says—I have no reason to doubt it—that sum is not at risk, because all that is required is for HMRC to litigate. It prompts the question why HMRC will not litigate. Why is it not prepared to take the matter to court?
It relates to the point made by my hon. Friend the Member for Cities of London and Westminster. The Government are saying, essentially, that they will pass new law if they think that the law is in some way flawed or there is an alternative interpretation of it that they do not like. Rather than allowing the courts to interpret that law, they will rewrite it retrospectively so that it says what they wanted it to say in the first place. Such an approach gives individuals and businesses no reassurance that the law is what they think it is, as it is written down and what has been passed by Parliament. The impression is that it is something that can be changed if not at a whim, at the discretion of the Government retrospectively.

We have a well-developed legal system that should work on the basis of laws being interpreted on the grounds of what they say, not what the Government want them to say—even if that is not what they said at the time.

A Government should pursue and litigate on the basis of the existing law. When they identify an abuse, they should issue a warning and announce that they will change the law at the first opportunity, and then do so. The Minister said that HMRC was first aware of the schemes in 2001, but they were not pursued widely because the warnings given by HMRC proved to be sufficient. None the less, there was an awareness at that time by HMRC of some ambiguity in the wording of the 1987 legislation.

Notwithstanding the fact that the schemes were not being pursued, why were such measures not introduced under the Finance Act 2001 or subsequent Acts? There has been plenty of them. Given that there were two Finance Acts in 2005, there have probably been about eight. The matter causes great concern, and the Government’s approach should be to pursue it rigorously and to litigate if there is some doubt about the law. In the meantime, warnings should be given and legislation should be made. The Government have not done that. They have sat on the matter, have come back subsequently some years later and taken action when the scheme started to develop, having been aware of the ambiguity under the 1987 legislation.

Indeed, I am more inclined to interpret the proposal to make it retrospective as an admission that the 1987 Act does not do what the Government said it does. That is not based on a legal analysis but, if they were so confident that the 1987 legislation prohibits the behaviour that we are talking about, why on earth have they not litigated on the matter?

For those reasons I am more convinced than ever that the retrospective nature of the clause is unacceptable.

[Emigre]

Part 2 of letter sent to Gauke in 2010

Continued from Part 1

On 24 June 2010 you responded to a Parliamentary question by Zac Goldsmith (Con – Richmond). Extract from Hansard.
Zac Goldsmith: To ask the Chancellor of the Exchequer (1) what his policy is on continuing the provisions of Section 58 of the Finance Act 2008 in respect of UK residents and foreign partnerships; and if he will make a statement; [3745]
(2) whether he plans to introduce proposals to repeal legislative provisions that ensure UK residents retrospectively pay UK tax on their profits from foreign partnerships; and if he will make a statement. [3810]
Mr Gauke: UK residents are taxable on their worldwide income wherever it arises—including situations where it arises by way of foreign partnerships. Section 58 of Finance Act 2008 was enacted to help put that beyond doubt. The Government are, in general, opposed to retrospective legislation. However, the retrospective element of section 58 is currently the subject of judicial review by the courts and the Government's view is that it is best dealt with there
Further, I am aware of a written response made to a number of MPs on behalf of their constituents made also during June 2010 where the same words have been used. Previous responses from MPs had indicated that the nation’s economic position is also a consideration.

No one affected by S58 FA2008 disagrees with your comment that resolution is best dealt with through the Courts. However, the very belief that recourse is best addressed through the Administrative Court (by way of Judicial Review) is in itself a continuance of what we believe to be a suppression of our Human Rights. All we want is a fair hearing in the RIGHT court, the Tax court. Repeal of the retrospective clauses in S58 FA 2008 would allow proper process to be restored. I believe that you are a lawyer and, as such, would I hope fully understand this differentiation.

The views that you espoused in Opposition are principles. Principles, and the maintenance of them, are the means by which the integrity of individual MPs and Governments are valued. There is no place in a civilised society for principles of this nature to be so compromised and the state of the nation’s finances to be quoted as the reason for so doing. I would argue that repeal of the relevant passages of the legislation would be fiscal neutral in the short term and fiscal positive in the longer term on the basis of sending a clear message of certainty to would-be inward investors to the UK.

I draw your attention to the fact that more comments have been received for this cause on the Civil Liberties part of Nick Clegg’s Your Freedom site than any other.

HM Government

I encourage you to read them. The majority of comments are from ordinary people, many of whom will be forced into bankruptcy and state dependency by the continuing existence of the retrospective elements of S58 FA 2008.

These events span a little over 2 years. Please explain to me why the views and principles that you expressed so eloquently and forcefully in 2008 no longer apply. Please also explain what effort has been expended to determine the estimated financial impact on the Exchequer from retention of the retrospective clauses of S58 FA 2008.

Thank you for your time.

Yours sincerely




Emigre


Copies to:
Emigre's MP
House of Commons
London
SW1A 0AA

Zac Goldsmith MP
House of Commons
London
SW1A 0AA

[Emigre]

Reply from Gauke in 2010

"Its in the hands of the Courts"

[reckless]

Letter and Advert

I've sent off a letter to my MP today as well, containing many of the relevant and pertinent observations, arguments and injustices that have been discussed on this forum. Regarding the full page advert that has already been suggested, I still believe this to be a good idea and would happily contribute a couple of hundred quid. I suggest that in order to draw wider interest, it alerts the wider business and general tax paying community to the implications of this 'foot in the door' achievement for retrospective tax legislation. Something along the lines of;

Be afraid, very afraid...........recent developments by HMRC have now opened the door to retrospectively moving the goalposts as far as UK tax legislation is concerned............so far this has affected a group of 3,000 self-employed contractors potentially resulting in widespread bankruptcies and personal distress........it has also now recently been applied to Barclays............it would now appear that anyone and any businees in te UK could suffer unexpected and catastrophic financial loss through retrospective tax law changes carried out to ensure the original intention (rather than the actual legal wording) of the legislation is fullfilled.........although this may not impact you or your business today, one day, in the not so distant future it may................

Something like this that alerts business and the self-employed to the pit-falls that could now await them would certainly escalate matters up the Westminster tree.

[Left4Good]

Forward it to Jeremy Paxman

"Its in the hands of the Courts"

Emigre. I did not see (iPlayer doesn't stream to countries that prohibit retrospective legislation in their constitution ;-) - although I am sure HMRC debt collectors can still knock at my door!) Jeremy Paxman's recent interview that this forum discussed the other day but perhaps he would be interested in your letter and reply from Gauke??? Just a thought

[harmony]

I'll PM you the full letter tonight, mate.



A 'tax loophole' is what it was though. Im just an ordinary Joe (Bolshie) who uses everyday words. Im no lawyer so I just called it as it was.

But thanks anyways!

Any chance you could send it on fella?

[Toocan]

Writing a letter?

When writing letters don't forget to cover how HMRC has dealt with us over the years. You can see how important this factor is in our case by reading this article about pure avoidance by David Gauke MP:

Aggressive, contrived tax avoidance is anti-business - Telegraph

• HMRC never mentioned s.858 at any time prior to announcing s.58 despite claiming that s.58 was a clarification
• HMRC outlined the structure of the DTA scheme in their International Tax Handbook in the late 1990's, and published almost the entire formula on their website well into the 2000's. This gave the message that the structure would be tolerated. Which it was.
• HMRC issued a technical argument against the scheme (Archer-Shee and s.739) which clearly did not apply. This further enhanced the reputation of the scheme as it plainly worked.
• The HMRC personnel working on the scheme have a long history in fighting cases against the scheme promotor. One has to ask if this is why they are using retrospection. Here's one that's been going since 1997 HMRC arrested advisor on day of client's tribunal - 01 Nov 2011 - Accountancy Age

[BolshieBastard]

Any chance you could send it on fella?

Will do. Have to send it in 4 PM's though as it exceeds the PM word limit!

[BolshieBastard]

I slightly changed the letter before I sent it to my MP. He is named in the 2nd to last para in the one I copied to 3 people. If you use this, dont forget to replace my MP's name with your MP!

As for HMRC reading, good! I hope they know the tulip storm coming their way. Tally-ho!