The British government and a Labour MP are battling out over support for a general anti-avoidance tax law for the UK.
The government has already launched consultation and plans to implement the rule (GAAR) but Labour MP Michael Meacher has introduced a private member’s bill that gives HM Revenue & Customs far more powers to deal with tax management schemes.
Meacher’s bill covers taxes and scenarios that are outside the scope of the current proposed law, like tax management by companies dealing with VAT and National Insurance.
Most commentators see Meacher gaining little support from the coalition – and claim even HMRC, who have everything to gain, are unlikely to back the bill.
Legal white elephant
“It is obvious that they only want to stop the most abusive of tax schemes,” said Richard Murphy of the Tax Justice Network.
“There are probably at most a handful a year that will be stopped as a result and since they’ll now probably never see the light of day because of the GAAR. It is quite possibly true that the government’s proposed law might be a massive white elephant in that it might never be used.
“Meacher’s bill is broader by design than the government’s. It covers VAT and national insurance for a start, almost doubling the value of the taxes that it would cover compared to the government’s Bill, which omits both these taxes.”
Murphy also explains that the Meacher bill is designed to tafkle a wider range of tax scenarios than the government’s GAAR.
Attack on income shifting
“It attacks shifting income from one tax to another to reduce the tax paid and it challenges any scheme resulting in tax paid late. It also tackles any scheme that might artificially shift a profit subject to tax out of the UK,” said Murphy.
“In addition if it seems that the wrong person is paying tax on a source of income or that the source of income in question is wrongly described e.g. as investment income when it actually seems to come from a profit or employment, then Meacher gives HMRC the power to challenge the arrangement.”
“It gives HMRC the right to look at what has really gone on in a transaction, and who really seems to be involved, and to then compare that economic reality with the way in which the transaction has been reported for tax, or has not been reported if someone has tried to shift it right out of the UK tax net.”