Friday, June 29, 2007



Ed Balls “Clause 27 will apply only when one of the main purposes of arrangements is to secure a tax advantage. It will not apply to genuine transactions or when a taxpayer simply makes use of statutory relief. If the purpose behind the amendment is to ensure that such simple actions are outside the scope of the rule it is unnecessary, because that is made explicit in the guidance.”

Mr Justice Walton once commented (in 1979) that “one should be taxed by law, and not untaxed by concession” – to which Lord Wilberforce, in agreeing with the sentiment, added, “when Parliament imposes a tax, it is the duty of the Commissioners to assess and levy it upon and from those who are liable by law”. The same might be thought to apply to HMRC guidance: one should be taxed by law not untaxed by guidance. It is a bad tax that is drawn so widely as to catch many innocent transactions with the government then expecting HMRC to draw up guidance setting out the circumstance in which they do not intend to apply the law that the government asked Parliament to enact.


John Healey: “The onus on us is great, to get the legislation right in a way that gives effect to the principles of the ECJ judgement but protects properly the UK tax base by preventing the artificial location of profits”.

Actually the onus is on the UK to give effect to European Law. The ECJ has consistently held that protecting the UK tax base is not a justification for a measure that amounts to a fetter on the EU fundamental concept of freedom of establishment. A measure that seeks to give effect to an ECJ judgment only to the extent that its doing so will protect the UK tax base is accordingly a contempt of the European Court.


John Healey “It was ably summed up by Paul Aplin, chairman of the Tax Faculty of the Institute of Chartered Accountants, when he acknowledged that HMRC was abiding by what he called the Carter principle, which is that “nothing is launched until its been tested and proved fit for purpose”. I would like to make clear also to the Committee that we are not introducing compulsory online filing for any income tax self-assessment returns…The introduction of differential filing dates, however, will encourage the further growth of online filing by capable and competent individuals confident about using it …It will do so by offering the incentive of a longer period in which to file an online return…HMRC already provide free software for nine out of 10 individuals and the Government will introduce supplementary pages and improvement to that situation so that by the time of the reforms the free software will be available to 19 out of every 20 individuals who might be involved in self-assessment.”

Many of us think the “fit for purpose” means that the software will meet the needs of 20 out of 20 people that the law requires to file tax returns. Something that cannot be used by 450,000 people (out of roughly 9 million who are required to file returns) hardly seems fit for purpose to me. For a government which so often talks about fairness in tax, the morality of providing an incentive and denying its use to 450,000 people can also hardly be described as fair.


Ed Balls “My argument is that it would be premature to legislate today to return to where we were before last year’s Finance Bill when we are still consulting on detailed guidance to ensure that the intentions of the 2006 Act are properly implemented…My point is that STEP and the practitioners have a choice. They can either engage positively and constructively to get the guidance right, or they can walk way from the whole process and call for the legislation to be repealed. The former option is the better approach. The latter, at this stage, would be premature…The question is do we go back to where we were before 2006 or do we make the consultation process work? All I was saying was that it was better to consult to provide decent guidance to avoid the concerns of the Hon. Member. That seems to be a more constructive approach to making tax policy.”

Or, to put it another way, who cares if we got the law wrong last year? The law doesn’t matter. We can correct mistakes in the law by means of HMRC guidance – presumably on the circumstances where HMRC think taxpayers should ignore the law – as what matters is our “intentions” last year not the legislation that we asked parliament to enact. Worrying about the law is an outmoded approach to tax policy. The New Labour approach is to state our intentions to parliament, ask parliament to pass some wording that doesn’t really matter, and then for HMRC to issue guidance on how we intended the policy to work. That is the constructive way to make tax policy.

For the record neither STEP nor anyone else, as far as I am aware, has asked for the 2006 legislation to be repealed. It believes that a tiny provision in the previous legislation which avoided an overseas trust management company being treated at UK resident merely because it met UK clients at the offices of a UK associated company was accidentally repealed last year and that it’s repeal will seriously damage the contribution of such companies to the UK economy. In that context the Balls policy of waiting for the damage to occur and then trying to entice business back to the UK seems ridiculous.

Robert W Maas


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