Muddled thinking….

HMRC has recently announced a “name and shame” policy for the top 20 or so promoters of aggressive tax avoidance schemes. From what we can tell, HMRC believes that despite all the recent changes and clampdown on tax avoidance, some promoters are still selling schemes that effectively only work by limiting the information available or the disclosure of key elements of the planning.

I am sympathetic to the rationale behind this, but am unconvinced that such an approach is the right way to go. We now the general anti-abuse rule, and specific, targeted legislation aimed at countering the effect of specific schemes. Is it really beyond the wit of parliamentary draughtsmen to write legislation that blocks any planning device that is considered to be abusive? It’s a bit like putting sweets on display in a sweet shop and then criticising little Johnny for buying them. Why not just ban sweets completely if they are bad for us.

Now don’t get me wrong. I fully support the sentiment behind what HMRC is trying to do. As a firm we have never endorsed aggressive off-the-shelf tax avoidance, and very few of our clients have ever had any appetite for such schemes. But I really don’t think that naming and shaming is the right approach. We’ve also seen it with multi-nationals such as Amazon, Google and Starbucks, and very recently with Vodafone. What very little of the press coverage mentions is that everything these companies have done is perfectly legal, and indeed, if they had not done so would face criticism from their shareholders for not maximising shareholder value. Vodafone will pay limited tax on its disposal of shares in Verizon because of very similar legislation in the Netherlands (the participation exemption) to that introduced in the UK a number of years ago (the substantial shareholder exemption). So the government introduces legislation to help multi-nationals and the press then names and shames companies for structuring their affairs in the best way possible to create shareholder value.

Muddled thinking methinks. Block tax avoidance by all means, but let’s decide how we are going to do it and stick to it.