‘Enabling’ tax avoidance – legislation must draw distinction between promoting avoidance and advising on the law

Commenting on today’s government consultation paper on ‘Strengthening Tax Avoidance Sanctions and Deterrents’, John Cullinane, Tax Policy Director of the Chartered Institute of Taxation, said:

“This is the latest in a series of measures cracking down on those who profit from tax avoidance schemes. The Government need to be careful that in their efforts to wipe out avoidance schemes they don’t prevent taxpayers from getting access to honest, impartial advice on the law. Definitions will be crucial.”

The consultation paper states that the Government “propose developing a definition of enabler based on the broad criteria used for the offshore evasion measure [in Finance Bill 2016] but specifically tailored to the avoidance supply chain and ensuring that appropriate safeguards are included to exclude those who are unwittingly party to enabling the avoidance in question” (paragraph 2.14). The offshore evasion measure in Finance Bill 2016 defines an ‘enabler’ by stating that “P ‘has enabled’ Q to carry out offshore tax evasion or non-compliance if P has encouraged, assisted or otherwise facilitated conduct by Q that constitutes offshore tax evasion or non-compliance” (Part 1, Schedule 20, Finance Bill 2016)

John Cullinane commented:

“It is far from clear that a definition drafted for ‘enabling’ a criminal offence will be appropriate for defining an activity which, while undesirable in the eyes of most people, is legal, provided all appropriate disclosures are made to the tax authorities.

“As we said to the Government in the context of the offshore evasion legislation, 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.

“We are concerned about a scenario where a taxpayer goes to their tax adviser for advice on risks attached to participating in a scheme, receives appropriate advice setting out these risks and the likelihood of the scheme being defeated, but decides to join the scheme despite this. It would be extremely harsh to penalise a tax adviser in this scenario where all the tax adviser has done is advise the taxpayer on the law as it stands.

“It is important to be aware that court cases on tax matters are not only about avoidance. Often there are simply disagreements between HMRC and taxpayers about how the rules operate and the courts are asked to adjudicate. Losing a case of this kind in the courts should not be seen as tax avoidance by the taxpayer or as enabling avoidance by their advisers.”

John Cullinane concluded:

“The challenge for the Government is to frame legislation which will achieve their objective of preventing those who devise and market avoidance schemes from profiting from that activity, while maintaining the right of taxpayers to obtain full and expert advice on complicated and often unclear areas of law, enabling them to sensibly plan their tax affairs within the law and not lay themselves open to large, unintended tax bills.”