MOVES by the UK Treasury to introduce a general anti-avoidance tax rule could impact negatively on the Isle of Man.
That’s the view of KPMG director Greg Jones who was responding to the announcement by Deputy Prime Minister Nick Clegg that he hoped there would be progress on an anti-avoidance tax rule in the Budget.
Prime Minister David Cameron, too, said a ‘tougher approach’ was needed towards large firms with ‘fancy corporate lawyers’.
He said: ‘One of the things that we are going to be looking at this year is whether there should be a general anti-avoidance power that HMRC can use, particularly with very wealthy individuals and with the bigger companies, to make sure they pay their fair share.’
In a BBC interview, Lib Dem leader Nick Clegg said people were ‘rightly angered’ by a ‘wealthy elite’ who paid ‘an army of accountants’ to avoid taxes.
He said he wanted to see a ‘general anti-avoidance rule’ to stop people ‘abusing’ the system and said an expert’s report to the Treasury had suggested an anti-abuse rule was feasible.
He said: ‘I very much hope, and I’m not going to write [Chancellor] George Osborne’s budget, we can make progress on that in the budget because we have got to make sure the tax system is fair and is seen to be fair.’
KPMG island director Greg Jones said it was by no means a foregone conclusion that we would get a general tax anti-avoidance rule (GAAR) in the near future.
But he added: ‘If we did, however, there’s no doubt that it would impact negatively on places like the Isle of Man.
‘Even if the GAAR were targeted as narrowly as the working party report recommends, in my view it would strike out a number of (what has to be admitted are) fairly contrived tax planning arrangements I am aware are promoted from the island.
‘There may be some work for tax practitioners in advising whether a particular planning idea falls within the GAAR’s scope, but on the whole I think we’d lose a certain amount of the business currently being undertaken by some niche service providers.’
Mr Jones said the UK Treasury had talked about introducing a general tax anti-avoidance rule for some time now and many other countries – including Canada, Australia, Ireland – already have one.
He explained: ‘The idea is that they avoid the need for detailed and specific anti-avoidance rules which are themselves easy for wily advisers to circumvent.
‘The problem has been that HMRC have shied away from the thought of having to commit resources to giving the rulings which such a system would invariably entail.’
Last year a working party under Graham Aaronson QC was established to look at the scope for introducing such a rule and what form it should take. The working party was comprised mostly of judges and tax academics.
The report produced by the group last November concluded that a GAAR would be a good idea but it should be targeted at situations in which people undertake what are obviously highly artificial arrangements with no real purpose other than to avoid tax – and not at situations in which a taxpayer simply exercises a choice to do something in a more tax-efficient manner.