The consultation document, titled ‘Strengthening the Tax Avoidance Disclosure Regimes’ continues the aggressive approach to tax avoidance displayed by HMRC.
The proposals include the removal of the grandfathering rule, removing the requirement to disclose certain established tax planning; the introduction of a new financial product ‘hallmark’; as well as aligning the VAT Avoidance Disclosure Regulations (VADR) more closely with the direct tax regime.
The proposals in this consultation send a strong message that we are committed to retaining and strengthening the disclosure regimes as key tools in tackling avoidance, said David Gauke, Exchequer Secretary to the Treasury. “We are clear – we will not stand for a minority of taxpayers continuing to seek out unacceptable ways to reduce the amount of tax they pay, and we will ensure HMRC has the tools to robustly tackle such activity.”
The Finance Bill 2014 was responsible for granting HMRC the power to issue accelerated payment notices (APNs), which permit the Revenue to force users of DOTAS notified schemes to pay the disputed amount in question upfront pending the outcome of the taxpayer appeal.
Once an APN is issued and the tax paid, the taxpayer therefore has an incentive to get the dispute settled so it can get the tax back if the scheme works, rather than wanting to drag proceedings out, explains Ian Hyde of Pinsent Masons.
“Many of the proposed DOTAS changes need to be seen in this light – they are designed to bring more schemes within the scope of DOTAS so that HMRC can issue APNs in respect of them,” said Hyde. “For example, the abolition of the grandfathering rule whereby schemes that existed before August 2006 did not need to be disclosed, shows a shift away from the DOTAS regime being used as a way for HMRC to find out about new schemes and introduce legislation to block them, to DOTAS being used in conjunction with APNs as a cash flow generator.”
“Taxpayers who buy tax avoidance schemes will need to check whether the new proposals apply to their tax planning. More generally, they will need to weigh up the possible downsides of entering into a tax avoidance scheme even more carefully as a result of these changes,” added Hyde.
The key area of focus for corporates will be the proposal to establish a new financial products ‘hallmark’, which will cover many of the schemes that have been entered into in the past by multinationals that rely on loans, derivatives and other financial products to generate a tax advantage.
In the consultation document, HMRC noted that it has seen a reduction in the number of new disclosures under the VADR, but that it is “unclear whether this reflects a genuine reduction in the incidence of VAT avoidance, a lack of compliance as a result of obligations being placed onto the user, not a promoter, or whether the targeting of the regime has not kept pace with developments in the VAT avoidance landscape”.
HMRC has asked interested parties for their view on whether to align the VADR more closely with that of DOTAS by requiring disclosure by the scheme promoter, a move that Rupert Shiers of Hogan Lovells thinks could be beneficial for the taxpayer.
“No one can complain about HMRC having information in relation to inappropriate tax avoidance, but as the DOTAS regime is a filter for the new accelerated payment regime and also for potentially disqualifying corporates from bidding for public sector contracts, corporates will need to monitor carefully the application of this test to proposed planning,” said Shiers.
“Public and judicial attitudes to tax avoidance are bound to change in the coming years, and avoidance is bound to become more acceptable again.”
“Measures such as DOTAS, which aim to limit avoidance by making it uneconomic to develop tax avoidance schemes, will become increasingly important as the pendulum starts to swing the other way,” added Shiers.
Interested parties have until October 23 to provide comments on the consultation document.
