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Dear Ed Balls… why Labour should support my anti-tax avoidance proposals

Today MICHAEL MEACHER will push again for a stronger anti-tax avoidance regime. Here, he urges the Labour frontbench to support his proposal.

Dear Ed,

A few months ago I put forward my General Anti-Tax Avoidance Principle Bill (GANTIP) for second reading. As a Private Member’s Bill low in the order it did not make progress, though it did receive sympathetic support from the Front Bench. I am now putting it forward again on the first day of the Finance Bill committee stage tomorrow, and am now asking that you use this opportunity for Labour to give a clear commitment that it will introduce GANTIP as soon as it is elected to office. There are several very strong reasons to do so.

First, whilst it is true that the Guidance to the General Anti-Abuse Rule (GAAR) published yesterday does reject legal precedents, notably the Duke of Westminster case of 1936, which have hitherto provided the foundation for the UK tax avoidance industry, the government’s GAAR scheme as set out in sections 203-212 of the Finance Bill is still fatally flawed. In particular the GAAR Advisory Panel is subject to a blatant conflict of interest. The panel will be drawn almost exclusively from highly-paid City lawyers who have spent their careers giving expensive advice on corporate tax avoidance. The HMRC who might be expected to provide the main body of independent membership of the panel have been barred from it by the government.

Second, the GAAR will only be applied at all if the panel can show that the arrangements at issue “cannot reasonably be regarded as a reasonable course of action”. This ‘double reasonableness’ test is inherently biased in favour of tax abuse. If City lawyers who have made a fortune defending corporate tax abuse are asked whether it would be reasonable to hold the view that the arrangement was a reasonable course of action, it is a virtual certainty they would agree – at which point the case never even gets near an independent judge in court at all. It is surely outrageous that HMRC cannot commence GAAR action on its own initiative – like forbidding the courts to take action against a thief until the honorary City Guild of Thieves had approved of the action.

Third, the GAAR is far too narrowly drawn, tackling only the most egregious and aggressive forms of tax avoidance. The implication, no doubt deliberately intended by the government, is that a veneer of respectability is cast over the great majority of other artificial devices designed to avoid tax.

Fourth, there is no clear penalty regime for the GAAR which is certainly needed if others are to be deterred from exploiting every opportunity to go down the tax avoidance route.

Fifth, the burden of proof that an arrangement is abusive has been placed on HMRC. This is contrary to all tax logic where the burden of proof falls on the taxpayer.

By contrast, GANTIP, by giving the courts the power to strike down any arrangement for which they believe the primary purpose is the avoidance of tax, would preclude all these problems. That is why I believe Labour should give a firm commitment to GANTIP tomorrow.

Yours sincerely,

Michael

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