The crackdown on tax avoidance is going full steam ahead as the UK Treasury has proposed hefty fines for accountants who use tax avoidance schemes, according to a consultation paper released earlier today.
The HM Treasury consultation paper titled: 'Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document', outlines new penalties for those who help enable tax avoidance to take place, in addition to changes to existing legislation for those who use tax avoidance arrangements defeated by HMRC.
Those in the accounting profession could potentially be fined 100% of the unpaid tax due to proposals by the UK Treasury.
The new measures apply to advisers, in addition to accountants and tax planners, who use avoidance schemes that have been challenged by the UK taxman (or “defeated tax avoidance arrangements” according to the Treasury’s terminology).
The accounting profession hasn’t had a clean slate with an endless string of tax avoidance implications, in particular the Big Four firms.
For example, most recently PwC came under fire following the LuxLeaks trial when two of its accountants in Luxembourg (Antoine Deltour and Raphaël Halet) blew the whistle on the sweetheart tax deals brokered by PwC and the Luxembourg authorities to reduce the tax bills of the firm’s clients.
In April this year, following the Panama Papers revelations, the UK Shadow Secretary of State for International Development, Diane Abbott, told the BBC Radio 4's Today programme that a Department for International Development (DfID) under her leadership would not grant the Big Four firms consultancy contracts due to their involvement "in facilitating tax avoidance on an industrial scale".
"It cannot be right that at the same time that they are making millions out of facilitating tax avoidance, which it doesn't just deprive the British exchequer but a lot of countries [of tax revenues], they are also making millions out of contracts from international development. I would, obviously within the framework of the law, seek to stop that from happening," Abbott said.
The proposed measures are not new however, speaking to The Accountant in August 2015 Richard Murphy told TA that a penalty should be imposed on the person using the tax avoidance scheme as well as the advisor “simple, no ifs or buts” he said.
Murphy also cast doubts on the accuracy and validity of the current tax system. It only has an anti-abuse rule which is rendered useless he says, as it has no clearance procedures and thus “leaves businesses with uncertainty.”
“It has a double reasonableness test; it makes no sense because nobody defines what reasonable is,” suggested Murphy.
Another weakness of the current system is the fact that there is no specified penalty attached. “We need a general anti-avoidance principle in UK law,” he added.
“The law would state that if you intentionally tried to achieve a goal which is contrary to the spirit of the law, you won't get the outcome,” he said.
Accounting bodies have responded to the new measure with caution and scepticism. The Institute of Chartered Accountants in England and Wales (ICAEW) stressed the importance of making sure the new rules apply only to advisors that “promote aggressive tax schemes” and not those engaged in “ordinary tax planning”.
Commenting on the release of the government consultation on penalties for tax avoidance enablers, Frank Haskew, head of the ICAEW Tax Faculty, said: “if the measures now proposed are too widely targeted, there is a danger that reputable professional advisers could end up being caught in the crossfire when advising on legitimate tax planning, while the real targets escape any penalty.”
While the ICAEW focused on the need to protect legitimate tax planners, the Chartered Institute of Taxation highlighted the importance of protecting the taxpayer by having clear definitive definitions.
“Words like ‘assist’ and ‘facilitate’ are extremely vague. They will need to be carefully defined so it is clear what kind of activity is being targeted,” said John Cullinane, tax policy director of the Chartered Institute of Taxation.
A less hesitant response came from the Association of Accounting Technicians (AAT) that fully supported the new proposals. Brian Palmer, AAT tax policy adviser, said: “Tackling tax evasion and aggressive and contrived tax avoidance schemes are issues that need to come under more scrutiny, and AAT supports the Government’s actions in doing so.”
Other organisations that have contributed to the issue of tax avoidance include the UK All Party Parliamentary Group (APPG) on Responsible Tax that proposed tough measures on tax avoidance with its report titled: A more responsible global tax system? Released in the beginning of August.
Commenting on the issue Dame Margaret Hodge MP, chair of the APPG said: “Only when we know who owns what, where the assets are owned, where the money is earned and what tax has been paid, can we have confidence in the fairness and integrity of the tax system.”
ActionAid also proposed new measures to tackle unscrupulous tax advisors, “who act with impunity and damage the reputation of the industry.”
Responding to the proposals for new penalties for tax advisers facilitating tax avoidance ActionAid director of policy, Barry Johnston, said: “This is a welcome early move from the Prime Minister to show she is taking the issue of corporate tax avoidance seriously.”
“Theresa May could be the Prime Minister who finally takes on the scourge of corporate tax avoidance. Tackling British overseas tax havens, ending the race to the bottom on corporate tax rates and stopping the artificial shifting of profits around the world would send a powerful signal.”
“September’s G20 meeting provides the perfect platform to kick start that process,” said Johnston.