Enablers Of Ineffective Tax Avoidance To Be More Easily Prosecuted
Group focusing on anti-corruption is seeking to make small legislative changes so that lawyers who use ineffective tax avoidance schemes, that break the law, may be prosecuted.
A policy paper published by the All-Party Parliamentary Group (APPG) on Anti-Corruption and Responsible Tax has proposed a streamlined dishonesty test for criminal prosecutions of tax avoidance and lower threshold for civil penalties. The new measures are aimed at stopping “aggressive tax avoidance”.
The Chair of the group, Dame Margaret Hodge said:
“People should only be achieving tax savings where they are confident, on a ‘conservative ’view of the legislation, that parliament intended the saving
“Yet unscrupulous individuals have long made a pretty penny by enabling highly dubious tax avoidance schemes.
“Tax lawyers, accountants, banks, and advisers profit from this lucrative business but they are rarely held to account or penalised.
“Without documentary evidence to demonstrate their dishonesty, they can insist they believed their schemes would work and plead innocence.”
Dame Hodge, also a Labour MP, feels that it is “virtually impossible to prosecute “these enablers of failed tax avoidance schemes”.
It has been suggested that the current General Anti-Abuse Rules (GAAR) ‘double reasonableness’ test, used to prove dishonesty in civil law, would be more appropriate as a test in criminal prosecutions. This test creates a high hurdle:
“It is not just that the arrangements need to be unreasonable; they need to be so unreasonable that it would be unreasonable to think that they were reasonable.
“…the double reasonableness test imposes the need for a criminal standard of proof on the civil regime of enablers penalties. If the conditions of the double reasonableness test are met, that effectively means it is beyond reasonable doubt that no tax adviser could reasonably recommend the scheme.”
This would mean the “bar for criminal prosecution would remain high, but it would become practical and possible to pursue cases” as well as act as a “strong deterrent to those devising and marketing schemes that prove to be unlawful”.
The paper proposes that;
“in circumstances where the GAAR test is met, there should be no need for HMRC to separately prove the existence of dishonesty in order to make out the offence of cheating (or, as the case may be, conspiring to cheat) the public revenue.
“A supplementary proposal is therefore that the scope of the regime of civil penalties for enablers of defeated tax avoidance schemes be expanded. Rather than applying only where the GAAR test is satisfied, this regime should apply in any case of defeated tax avoidance where the scheme was, at implementation, more likely than not to fail.”
As well as using the double reasonableness test in criminal cases, the Group proposes to lower the threshold for advisers and toughen up the financial penalties.
“We propose lowering the threshold so that the civil penalties can be more easily applied and increasing the fines to more than just the fee earned in order to act as a further disincentive.”