On Thursday I obtained under the Back-Bench Business Committee procedure a 3-hour debate on the floor of the House on tax avoidance. It was good timing because the next day marked the end of the Goverment’s consultation on its proposal for a GAAR (General Anti-Abuse Rule), and the debate centred around the relative merits of the Government’s promotion of GAAR versus my promotion of GANTIP (General Anti-Tax Avoidance Principle) bill. The essence of GANTIP is that HMRC would be able to challenge and declare null and void any scheme the primary purpose of which was an artificial contrivance to avoid tax rather than any genuine economic transaction. The Government’s GAAR, though superficially similar, has a totally different objective, namely by tackling only the most egregious and extreme cases of tax abuse it paves the way for regarding everything that falls outside this very narrow focus as somehow ethically and technically acceptable as legitimate tax avoidance.
My bill, wich was drafted by one of Britain’ foremost tax accountants, Richard Murphy, a founding member of the Tax Justice Network, is the first time in UK parliamentary history that the GANTIP principle has been set explicitly in statutory form. Its historic significance is that it overturns the rule known as the Duke of Westminster case when in 1936 Lord Tomlin opined that: “Every man is entitled, if he can, to oder his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”. My bill would change that principle which has underpinned the tax avoidance activities of the accounting, legal and banking professions for three-quartersf a century.
The GAAR on the other hand is at the opposite end of the spectrum. It excludes national insurance and VAT, thus leaving these large parts of the tax system wide open to continuing abuse. It ignores, presumably deliberately, the complex nature of tax avoidance by limiting the focus to abuse within a particular tax. Thus if income is declared as capital (a common form of trying to secure a tax advantage), or if a transaction that should be liable to income tax is declared as subject to corporation tax, or income from employment is declared as income from an investment source, or income that is due for declaration in the UK is declared elsewhere, it would fall outside the purview of the GAAR. All these however would fall squarely within the scope of GANTIP and thus be subject to challenge by HMRC.