No To Retro Tax – Campaign Against Section 58 Finance Act 2008

[blabla]

Great Work

Thanks Guys - brilliant effort. I have joined the campaign and sent letter off to Justine Greening - anyone else have her as MP - have they got a reply yet??

Will drum up a few other MTM users as well.

[smalldog]

Innocent until someone changes the law.

I assume if we had gone to the tax commissioners and won the government could still have legislated against us reversing any decision made by the commissioners?

[PlaneSailing]

I assume if we had gone to the tax commissioners and won the government could still have legislated against us reversing any decision made by the commissioners?

I don't think they would have legislated retrospectively in that case. Admittedly, that is exactly what has happened in India.

[SLB]

This was not a secret or contrived scheme. It was HM Inland Revenue who published the scheme in the 1990s in their tax handbook.

Hi Toocan,

Can you explain this further? If the scheme was in the handbook in the 90's, why did montp (or any other tax planning providers for that matter) not start marketing it before 2001? Also, are you saying that the Revenue publish a list of all tax planning schemes that are in operation? Effectively inviting people to take their pick. . . . .

Thanks.
SLB.

[Ninja]

Tax Avoidance

Partington v. Attorney-General (1869)

This case in 1869 set the framework for how tax law is ruled upon by the Courts.

Partington v. Attorney-General (1869), L.R. 4 E. & I. App. 100, per Lord Cairns at p. 122 where his Lordship said:

"If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute."

If they established that in 1869, then why oh why are the cretinous politicians spouting this cr*p still?

[Toocan]

SCIG04150 - Code of Practice 8 cases: Identification of Code 8 cases: Tax avoidance

‘Avoidance’ is not defined in the Taxation Acts and attempts to define it have not in the past been successful. One definition is ‘a situation where less tax is paid than Parliament intended, or more tax would have been paid, if Parliament turned its mind to the specific issue in question’. At a practical level the problem is then essentially one of deciding what Parliament would have intended and identifying who should be asked to decide this.

This highlights an important issue. All fiscal authorities are becoming less and less concerned with fine distinctions between tax planning and tax avoidance and more and more concerned with the effect on the yield to the Exchequer.

That said, Inspectors need to have in simple terms a working concept of ‘avoidance’ in order to properly identify cases which can be worked under Code 8.

The starting point should be that one would normally expect taxpayers to pay tax on their income or profits. Although, in Ramsay v CIR (54TC101) Lord Wilberforce reaffirmed that taxpayers are entitled to arrange their affairs to effect reductions in their tax liabilities, it is reasonable to assume that where a commercial transaction is carried out in a particularly convoluted way, then avoidance is afoot.

Although tax planning is legitimate and arrangements to avoid specific charging sections or to maximise tax allowances, reliefs or exemptions may be perfectly acceptable, it does not follow that this planning always works. An example of an unsuccessful attempt to gain a tax advantage is to be seen in the case of Magnavox Electronics Company Limited v Hall at 59TC610 where the taxpayer simply sought to ensure that a chargeable gain made on a sale to a replacement purchaser arose in the same accounting period as a gain on the sale under the original contract would have done.

In relation to a tax planning scheme Tucker J approved the HMRC challenge (in the Roux case) saying “the taxpayer entered into these schemes presumably after taking professional advice, in the full knowledge of what was involved and with the sole object of avoiding payment of tax. He must have known, or must be presumed to have known, of the risks of Revenue disapproval [of the Pension Scheme] and of all that involved, but he must have considered the fiscal advantages sufficiently attractive to warrant the taking of the risk”.

LisaContractorUmbrella has made this post and I hope won’t mind too much if I pull out a couple of points.

The first thing is that this is taken from an HMRC webpage. As far as I can tell the link is Code of Practice 8 cases: Identification of Code 8 cases: Tax avoidance

This is a current publication, it is not the information that HMRC made available in 2001 or 2002. In other words, it is not information that was available when people had the power to make a choice. It is close to useless to pull up a modern document and say, “well you should have read this”. It wasn’t available.

The page is discussing ‘avoidance’ but the fact is that the scheme we’re talking about did not fit into any definition of avoidance that was current at the time. It did not fit into HMRCs definition and it did not fit in to the OECD definition. There is a good reason for that, and I’ll come back to that later in my post.

As we’re being presented with ‘HMRC guidance’, it is worth considering what it is worth. The recent Gaines-Cooper case found that HMRC guidance has no legal force and HMRC are not required to follow it. So here we have a second reason to doubt this ‘advice’.

Even if we overlook both of those points, and read the HMRC advice NOW being offered – can you see any clear guidance in the article? It is caged in woolly language – we even have an out of context quote which adds very little to what it says. It would be as well say, “got any money? Hand it over.”

Now, the reason that the scheme was not caught by any definition of avoidance is because the UK assigned their taxing rights to the Isle of Man. The UK made a treaty with the IoM that said that in these circumstances it would be the Isle of Man who would have the right to levy tax and not the UK. The scheme did not work by accident – it was not a loophole in that sense. It was by government design.

You might say that it was not intended to be used in the way that it was. But that’s missing the point – the UK knew that the scheme was possible in the 1990s and they knew that it was in use in 2001. They didn’t do anything about it and in fact their behaviour suggested that they had decided to tolerate it. States (the UK) often do tolerate such things. Take charity donations – the UK have been fully aware that wealthy people were choosing to make massive charity donations rather than pay income tax for a long time. They have tolerated it for a long time.

Our complaint is not that the law has changed, but that is has changed retrospectively. I had no warning that this was going to happen despite a warning being part of both HMRCs and Parliaments published policy.

But it’s not just that. We were open and honest. HMRC never asked many questions about the scheme because they already knew all the details of it. Our, the scheme users, behaviour was above reproach. Could HMRC say that? I doubt it. Their justification for s.58 was at best deceptive, and at worst a downright lie.

My most recent letter claimed that the Courts had examined the scheme and found that everything was fine. Once again, the point is missed. We are talking about Parliament being misled. Again and again the courts have said that if Parliament is misled then it is for Parliament to remedy that. They did not examine this at all.

So, as I have said before, this is nothing to do with tax avoidance. The question we have is whether it is okay for HMRC to wilfully mislead the legislature of our country?

[Toocan]

Hi Toocan,

Can you explain this further? If the scheme was in the handbook in the 90's, why did montp (or any other tax planning providers for that matter) not start marketing it before 2001? Also, are you saying that the Revenue publish a list of all tax planning schemes that are in operation? Effectively inviting people to take their pick. . . . .

Thanks.
SLB.

I think because there was no need for it. I suspect it was being used for asset protection, but not by IT contractors or nurses. It was the uncertainty of IR35 the caused the shift. At the time it was impossible to tell what IR35 meant. It is economically sensible to adopt a model that gives certainty in these circumstances (ironic now). There wasn't a huge saving when the economics of the scheme versus LtdCo were considered in the early 2000's. That did depend on the amount put through however.

I don't think a list of schemes was published - but the law is published and the implications of the law. The HMIR tax handbook gave the outline of how the scheme would work - the detail then had to be worked out. As we now know, lots of companies worked out those details very quickly.

HMRC knew that had happened because they published it on their website. Oh yeah, and they opened enquiries into individuals self-assessment returns too. That is something of a give away.

The big question is why did HMIR/HMRC do nothing about it? They could have passed s.58 in 2001 if they had wanted - there is nothing magical about it. Was it because a certain Tony Blair had argued against retrospection in the Padmore case and HMRC had a score to settle with one of the scheme promotors?

If that is the case, is that how a country's tax administration should operate?

I for one would like an answer - and in the fullness of time an investigation will establish the truth.

Everyone who is under investigation should have a look at HMRCs charter - it's on the back of the COP8 booklet that was sent to you when the investigation was opened. Just for fun, why not count how many HMRC have broken.

[Disgusted of Coventry]

Does the CBI know about s58?

...Our complaint is not that the law has changed, but that is has changed retrospectively. I had no warning that this was going to happen despite a warning being part of both HMRCs and Parliaments published policy.
...
[HMRC's] justification for s.58 was at best deceptive, and at worst a downright lie.
...
We are talking about Parliament being misled. Again and again the courts have said that if Parliament is misled then it is for Parliament to remedy that. They did not examine this at all.
...
The question we have is whether it is okay for HMRC to wilfully mislead the legislature of our country?

This is the letter sent to India's Prime Minister signed by the CBI et al.

http://www.cbi.org.uk/media/1442329/...r_to_india.pdf

It claims that "[India's] unfettered retroactivity also departs significantly from the practice followed in other countries, which prohibit or carefully limit the use of retroactive tax legislation."

Really? Would anyone characterize s58 as carefully applied?

I can't help feeling that if the CBI are prepared to confer their signature to this rubbish, then they should be invited to try and reconcile it with s58.

[OneUnited]

This is the letter sent to India's Prime Minister signed by the CBI et al.

http://www.cbi.org.uk/media/1442329/...r_to_india.pdf

It claims that "[India's] unfettered retroactivity also departs significantly from the practice followed in other countries, which prohibit or carefully limit the use of retroactive tax legislation."

Really? Would anyone characterize s58 as carefully applied?

I can't help feeling that if the CBI are prepared to confer their signature to this rubbish, then they should be invited to try and reconcile it with s58.

One of the last sentences in the document reads -

These are only a few of some two dozen retroactive provisions in the Bill. If tax law changes are made, they should not apply retroactively. Past court decisions must stand despite subsequent legislation.

Can we not get Whitehouse to persue this with the CBI on our behalf for s58

[BrilloPad]

I have donated and joined

Sorry I have not donated more - but money is really really tight. I have given what I can.

Now I must see if I can work up the energy to visit my MP. He is labour and was on the finance committe that came up with this stuff. I have written but he says he has no clue what this stuff is about.

I feel like punching him. However he might be interested to see how HMRC have lied to him. If I feel I can visit and be constructive then I will.