As published on legalfutures.co.uk, Tuesday 11 August, 2020.
The lawyers and others who devise and market ineffective tax avoidance schemes are often breaking the law and a few legislative tweaks will make it easier to prosecute them, MPs have claimed.
The All-Party Parliamentary Group (APPG) on Anti-Corruption and Responsible Tax called for new measures to curtail “aggressive tax avoidance” facilitated by lawyers.
It has published a policy paper proposing a streamlined dishonesty test for criminal prosecutions of tax avoidance and a lower threshold for civil penalties.
Group chair 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.”
The Labour MP argued that the law currently made it virtually impossible to prosecute “these enablers of failed tax avoidance schemes”, even when a criminal offence has been committed.
She explained: “Without documentary evidence to demonstrate their dishonesty, they can insist they believed their schemes would work and plead innocence.”
Dame Margaret said that with “a few simple legislative changes” the law could be strengthened so enablers of “aggressive” tax avoidance schemes could “more easily be prosecuted”.
She said the new measures put forward by the APPG were aimed at the “very worst end” of the tax advice spectrum.
“We are not trying to start a witch hunt against honest advisers that make a mistake. We’re not simply pursuing all those that breach the codes of conduct for a professional regulatory body.”
In the policy paper, researched by the Policy Institute based at King’s College London, the APPG proposed that in criminal prosecutions, where the General Anti-Abuse Rule (GAAR) test was met, there should be no need for HMRC to separately prove the existence of dishonesty to establish the offence of cheating, or conspiring to cheat, the public revenue.
“A simple ‘one-liner’ legislative intervention into the common law offence of cheating the public revenue should be sufficient to achieve this improvement to the law in this area.”
The second proposed measure was that the scope of the regime of civil penalties for enablers of defeated tax avoidance schemes should be expanded.
Rather than being triggered only when the GAAR test was satisfied, it should apply in “any case of defeated tax avoidance where the scheme was, at implementation, more likely than not to fail”.
The paper said it would be up to HM Revenue & Customs to decide whether this threshold was met, subject in the ordinary way to appeal to the tax tribunal.
“This improvement to the law could be implemented by amending the relevant parts of the enablers’ regime.
“Furthermore, the financial penalties for the enablers of ineffective tax avoidance should be toughened up so that any fine is more than the fee earned.”
Dame Margaret added: “It is high time that the government acted to curtail aggressive tax avoidance facilitated by lawyers, banks, accountants and advisers.
“They must tackle the exploitative enablers that profit while the public purse dwindles.”