Monthly Archives: June 2014

Links between tax avoidance and complexity workshop

On the 26 June, the OTS held a workshop involving a small but diverse group of renowned tax professionals and commentators. The aim was to discuss the links between tax complexity and tax avoidance, to help inform OTS thinking.

Going forwards, the OTS team will gather further views and data on avoidance and complexity, and present some emerging themes and proposals at a longer workshop in the autumn, and then publish a report by the end of the year.

A comprehensive readout of the discussion, which highlights a number of interesting points, can be accessed in PDF format by clicking on the following link: OTS avoidance and complexity workshop – 26 June 2014 

The group began by discussing how poorly designed legislation provides opportunities for tax avoidance, regardless of whether the legislation is simple or complex.

Attendees discussed how avoidance is born of out of uncertainty or a lack of clarity or understanding in legislation, and when provided with a set of rules, people will interpret them in the way that is most beneficial to their circumstances. However, it was explained that there is a thriving market for people that do not want to take risks when it comes to dealing with tax, and are willing to pay for as much ‘certainty’ as is possible.

It was also explained that opportunities for tax avoidance originate because of badly designed boundaries in the tax system, in particular, boundaries between different taxes that can be crossed too easily to create a more advantageous tax position.

The group went on to talk about whether expressing the intention behind legislation better would help tackle avoidance. But there were mixed views as to whether it would help to state the policy intention in legislation as an aid to the Courts.

The group felt that there had always been a market for tax avoidance, but opportunities ebbed and flowed over the years in the light of legislation and case law (and public opinion).

If you want to join in the debate we’d love to hear your thoughts – email them to ots@ots.gsi.gov.uk

 

The PAC report on tax reliefs

The Public Accounts Committee (PAC) has today published a report on tax reliefs. We read it with interest, as we conducted a report into tax reliefs in 2011.

The OTS also contributed to the work that produced the PAC report, giving the National Audit Office an updated total of tax reliefs across the tax system. In our original report in 2011 we found there were 1,042 reliefs in the tax system; earlier this year we updated our list for intervening Finance Acts and came to a figure of 1,128. We’ll review the list further in the light of the current Finance Bill when that is passed by Parliament.

The OTS work on tax reliefs focussed on a sample of 155 reliefs. Our report recommended various abolitions and enhancements, but to us the main point we were making was that there was no systematic review and evaluation process of tax reliefs. The OTS report is referred to regularly in the PAC report, which is pleasing.

Our review went back to the original policy for each relief (which of course took some digging for some long-established provisions!); we looked at how the relief was operating today – and whether it seemed to be meeting those original aims. We were interested in the administrative costs – to taxpayers and HMRC – of its operation. Whether the relief was delivering value for money was something we tried to review but inevitably that gets more into policy judgments. We also recognised that some reliefs have been abused for tax avoidance, leading to complex anti-avoidance rules.

The PAC report picks up our theme of there needing to be more systematic review of the operation of reliefs, referring to a need for a ‘system of control’. We remain interested in the subject of reliefs and although we haven’t formally carried on our 2010/11 project, inevitably it’s a subject that crops up in all our projects (for example our current Competitiveness review has heard a lot about improving the operation of Research and Development tax relief). So we would welcome the chance to do further work in the area.

John Whiting

26 June 2014