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By Ben Stupples
The U.K. government is investigating several tax avoiders to face its anti-abuse penalty amid continued efforts to bolster Britain’s public finances by targeting contrived arrangements.
Her Majesty’s Revenue and Customs is “actively pursuing a number of potential” cases that could face its General Anti-Abuse Rule (GAAR) penalty, a spokesman told Bloomberg Tax by email Feb. 20. In addition, “other cases may progress through the GAAR process over the coming months,” he added.
The comments highlight how HMRC is looking to use the GAAR more often as it aims to raise an extra 5 billion pounds ($7 billion) a year by 2020, largely through tackling non-compliance. HMRC filed its first GAAR cases in 2017, four years after the government brought in the penalty.
“There have been a few GAAR cases now, and I think HMRC will use the legislation,” Judith Freedman, professor of tax law at Oxford University, told Bloomberg Tax by email Feb. 20. The advisory panel, which is currently recruiting new members, is dealing with “more and more jobs” as it will also review HMRC’s use of penalties for enablers of tax avoidance schemes, she added.
On top of the tax due, the GAAR allows HMRC to impose a penalty worth as much as 60 percent of the unpaid sum. The measure accompanies the U.K.’s anti-avoidance laws, only targeting arrangements that prioritize a “tax advantage,” according to the government’s latest guidance.
The GAAR covers personal and business taxes, including corporation tax, capital gains tax, and inheritance tax. It also applies to the U.K.’s diverted profits tax, commonly known as the “Google Tax,” introduced two years after the GAAR.
Set up in 2013, an 11-member panel approves HMRC guidance on the GAAR and gives opinions on cases where the law may apply. After reviewing four cases in 2017, the panel issued its first opinion of 2018 on Feb. 26 over the abuse of an employer-financed retirement benefit scheme.
“By adopting a series of carefully orchestrated and contrived steps the taxpayer and its advisers sought to frustrate the intent of Parliament and gain an unfair and unintended tax ‘win,’” the opinion said. The complex tax planning in the latest case is “abnormal and contrived,” it added.
The GAAR only applies to tax arrangements set up on or after July 17, 2013, when the U.K.’s Finance Act 2013 became law. The main aim of the penalty is to deter individuals and businesses from engaging with abusive tax schemes, HMRC’s spokesman told Bloomberg Tax. The GAAR’s success shouldn’t thus “be measured by the number of times the rule has been invoked,” he added.
Patrick Mears, chair of the advisory panel, told Bloomberg Tax the penalty’s start date was the main reason behind the long wait for the first case.
Including notifying the taxpayer they may face the GAAR, there are usually seven stages to process before HMRC refers a case, he said by email Feb. 20.
“All sorts of factors will go into determining whether the pipeline of cases currently being considered by HMRC turn into referrals—for example, HMRC may decide not to run a GAAR argument, or the taxpayer may decide to settle,” Mears said.
Five of the 11 current members of the advisory panel plan to step down this year, according to the February 2018 information pack.
Led by Mears, the recruitment process closes March 6 and comes as the Economic Affairs Committee of parliament’s second chamber seeks its own tax specialist. The part-time adviser would work on the House of Lords panel’s Finance Bill Sub-Committee and focus on the finance bill currently passing through parliament, according to a description of the role.
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