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  • TAX PLANNING IN 2014

     

    Two Half-Day or one full day Seminar at the Law Society’s Hall, Chancery Lane, London

    April2014 

    Speakers

    Robert Venables Q.C., Chairman - Amanda Hardy - Patrick Canon -

    Harriet Brown - Oliver Marre

    See Conference Section of Website for further details

  • RESPONSE OF ROBERT VENABLES Q.C. TO HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

    1. Background to this Response

    On 24th January 2014, HMRC published:

    Promoters of Tax Avoidance Schemes and DOTAS

    Raising the stakes on tax avoidance: Summary of Responses and Draft Legislation

    Tackling marketed tax avoidance.

    I shall refer to these collectively as “the Publications”.

    2. The proposals contained in the Publications fall into three main categories

    Proposals to make life more difficult for promoters of tax avoidance schemes

    who, in HMRC’s view, “ misbehave”.

    Proposals to introduce a financial penalty on taxpayers in dispute with HMRC

    who insist on exercising their right to have the dispute adjudicated by

    independent tribunals with rights of appeal, subject to requisite consents, all the

    way to the Supreme Court.

    Proposals for a principle of “Guilty until Found Innocent” whereby taxpayers in

    dispute with HMRC will, if HMRC so require, be compelled to pay tax demanded

    by HMRC without any right of appeal to the Courts

    3. This is my response to those publications.

    My Response

    General

    4. In essence, the proposals stand triply condemned as fundamentally flawed, root and

    branch, in that:

    they ignore the Rule of Law, and in particular the doctrine of separation of

    powers and the vital role of an independent judiciary which, at the request of any

    citizen, is entitled to rule on the legality of acts of the Administration;

    RESPONSE OF ROBERT VENABLES Q.C. TO

    HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

    1 None would agree more than I. For some reason, my name appears to carry some

    weight with the public. The result is that I am sometimes misrepresented,

    particularly on internet sites, as having endorsed a tax product on which I have

    not advised at all. Cleverer promoters have stated that my advice had been taken

    in relation to a product, which is literally true, but have omitted to mention that

    I had not in fact advised that it was fit for purpose.

    COPYRIGHT ROBERT VENABLES Q.C. FEBRUARY 2014 2

    they ignore one of the two elements of the rules of natural justice: no one should

    be judge in his own cause; and

    they ignore the presumption of innocence until proved guilty or, in civil matters,

    of non-liability until found liable.

    5. Had we never had the Glorious Revolution of 1688 which firmly established that the

    Administration is not a law onto itself but that its actions can always be called into

    account in the Courts, had we not defeated the absolutist Napoleon Bonaparte, had Hitler

    won the Second World War and we were now a fascist society and if we did not have a

    Human Rights Act, HMRC’s proposals would, perhaps, make some sense. As it is, they

    are utterly repugnant to the values of the people of the United Kingdom society in 2014.

    That these proposals could now even be mooted, shows that there is something very

    rotten in the state of HMRC.

    6. Modern politicians are often condemned for being useless at governing the country and

    possessing only the skills of getting themselves elected and keeping themselves elected.

    In fairness to David Gauke M.P., Exchequer Secretary to the Treasury, that is not a

    criticism which can be levelled at him as respects these proposals. They are calculated

    to alienate natural core supporters of his party, namely the economically productive

    members of society, and, if implemented, to help ensure that the Conservative party loses

    the next general election.

    7. Further, by creating potential significant cash-flow problems for small and medium-sized

    businesses at a time when, despite all the Government’s efforts, banks are still reining in

    lending to them, they threaten to undermine the still fragile recovery from the painful

    recession which was the major achievement of the last Labour Government.

    Promoters of Tax Avoidance Schemes

    8. The proposals to heighten pressure on misbehaving promoters of tax avoidance schemes

    are well-motivated. And all of us honest tax-advisers will heartily agree that consumers

    need protection against the “cowboys ”.1 Yet, as so often happens, the current HMRC

    proposals involve giving to HMRC a power so dangerously wide as to threaten our

    RESPONSE OF ROBERT VENABLES Q.C. TO

    HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

    2 which could have judges who were not full-time professionals, who might know

    very little indeed about tax and would not include a judge of High Court status,

    no matter how difficult the case or how great the sums involved.

    3 And that could be for a variety of reasons. HMRC might have chosen to take first

    a case against some impecunious taxpayer who would not afford proper

    representation or to appeal further. Or HMRC could have entered into a

    confidential settlement agreement with the taxpayer whereby the decision was not

    appealed but the taxpayer was given virtually everything he wanted, as an

    inducement not to appeal.

    COPYRIGHT ROBERT VENABLES Q.C. FEBRUARY 2014 3

    historic rights and liberties. In a free society such as ours, it is fundamental that all

    should have access to legal advice, all the more so when they are in dispute, or possible

    dispute, with a powerful organ of the state, such as HMRC. Yet these proposals would

    enable HMRC to prevent, say, a barrister, expressing his candid opinion to a client if he

    had committed some venial infraction, which had nothing to do with this honesty,

    integrity of fitness to advise., such as failing to comply with at technical requirement to

    undertake so many hours per year of “continuing professional development”.

    9. Moreover, to a large extent, the present proposals would enable HMRC to be prosecutor,

    judge and jury, which offends one of the two core principles of natural justice as

    recognised in English law for hundreds of years, the rule against bias..

    10. My counter-proposal is that

    (a) HMRC should be empowered to impose restrictions on persons only for the

    protection of the consumer

    (b) the restrictions must be no more than a proportionate response to relevant

    misconduct on the part of the person restricted and

    (b) the person proposed to be restricted should at all stages have, in the normal

    way, full rights of appeal to the Courts against HMRC’s determinations.

    Financial Penalties For Exercising Rights of Appeal

    11. The second proposal is that provided HMRC had won some case before the lowly First

    Tier Tribunal,2 and the decision had for some reason not been appealed.,3 then HMRC

    would be able to decide whether this decision was conclusive of the appeal of some other

    taxpayer (T) (to which they would be the respondent) and require him to cave in to their

    demands without exercising his rights to have his case properly adjudicated on its merits.

    RESPONSE OF ROBERT VENABLES Q.C. TO

    HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

    4 More than once in my career, I have lost before the Court of Appeal for reasons

    which did not bear scrutiny. Fortunately, the House of Lords put matters right on

    appeal. Yet for most litigants, the Court of Appeal is the final court of appeal,

    where there is no guarantee that justice will be done.

    5 I am reminded of the ancient Greek city state, the citizens of which were sceptical

    about new laws. While anyone was free to propose one, if his proposal failed, he

    was hanged.

    COPYRIGHT ROBERT VENABLES Q.C. FEBRUARY 2014 4

    If T failed to agree, litigated and ultimately lost, he would be subjected to a financial

    penalty for exercising his rights of appeal.

    12. This proposal strikes at the heart of our constitution. The Rule of Law requires that

    everyone should have access to the Courts without let, hindrance or intimidation,

    particularly in the case of a dispute with the Administration. Every lawyer knows that

    the outcome of litigation is rarely certain.4 And T may ultimately lose for some reason

    quite independent of the decision in the earlier case. To impose a financial penalty for

    exercising one’s rights to resort to the Courts is a clear restriction on those rights.5 It

    would be legalised blackmail.

    13. Motivating this proposal is a fear that some taxpayers may spin-out litigation simply to

    secure a cash-flow advantage, even though, if they lose, they will ultimately have to pay

    interest on unpaid tax. As the third proposal is motivated by the same consideration, I

    set out my counter-proposal in that context.

    “Guilty until Found Innocent”

    14. It is a fundamental principle of the Rule of Law that he who asserts must prove and until

    he has proved the defendant is presumed innocent. That is as much a principle of civil

    law as it is of criminal law. In particular, there is no presumption that the assertion of the

    Administration is right.

    15. The proposal that in certain cases, including ones where HMRC have invoked the second

    proposal but the taxpayer has called their bluff, HMRC should be able to collect tax in

    dispute, runs completely against this principle. And it is scarcely mitigation that if and

    when HMRC eventually gets round to litigating - which, of course, they would have little

    incentive to do - and years down the line the Courts hold that the taxpayer was right, that

    he will be entitled to repayment with a derisory repayment supplement. In the meantime,

    the taxpayer may have been put out of business or bankrupted or died.

    16. Motivating this proposal is even more obviously a fear that some taxpayers may spin-out

    RESPONSE OF ROBERT VENABLES Q.C. TO

    HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

    COPYRIGHT ROBERT VENABLES Q.C. FEBRUARY 2014 5

    litigation simply to secure a cash-flow advantage.

    17. My counter-proposal is that exactly the same principles should apply to tax appeals as to

    civil litigation in general. Where a claimant alleges that there is no arguable defence to

    his claim he can, after launching proceedings, apply for judgment against the defendant

    on that ground. The matter is determined by a regular court - not by the claimant himself!

    - and, if the claim is upheld, the defendant has his right of appeal, in the usual way. Of

    course, the claimant has to show that his case is strong and that the defendant is simply

    playing for time.

    18. The court hearing the application does not have to decide entirely to prevent the

    defendant from defending the claim. If it considers that the defence is very weak, but not

    totally unrealistic, it can give conditional leave to defend. The condition is usually that

    the defendant pays into court the sum in dispute or some lesser sum which the court

    thinks will almost certainly be held to be due.

    19. If HMRC assert that a taxpayer is prolonging a tax appeal which has no realistic chance

    of success, then they indeed ought to be able to apply to a court for an order that the

    taxpayer pays now an amount which he has no realistic chance of being held liable not

    to pay once the matter if fully litigated. Given the special status of HMRC as an organ

    of the Crown. I see no reason why the money should simply be paid into court but could

    be ordered to be paid to HMRC, who will, of course, be good for repayment, if necessary.

    20. What is crucial is that the matter should be determined not by HMRC, one of the parties

    to the litigation, but an independent court, and that the taxpayer should have full rights

    of appeal in the normal way. There is no reason why the “court” of first instance on the

    application should be the First Tier Tribunal, provided the taxpayer has the same appeal

    rights as in the case of the final determination of his appeal.

    21. If this were adopted, then I apprehend that taxpayers who had no arguable case and who

    were simply playing for time were required to pay the tax on account, they would have

    no further interest in pursuing their appeals.

    22. Oddly enough, this situation is in my view already covered by Taxes Management Act

    1970 section 55, as substituted in 1975! The prima facie position is that tax assessed by

    an assessment which is the subject of appeal is due but that the taxpayer can apply to

    postpone payment of tax if there are reasonable grounds for believing that the tax in

    dispute should not have been charged: section 55(6). In the first instance, the taxpayer

    makes an application to HMRC to postpone payment. If HMRC disagrees, then there is

    RESPONSE OF ROBERT VENABLES Q.C. TO

    HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

    6 In my experience of thirty-four years in practice, twenty-four as a Silk, I have

    never once known HMRC fail to agree postponement requested.

    COPYRIGHT ROBERT VENABLES Q.C. FEBRUARY 2014

  • Early New Volume and Article for ECTJ Vol.15

    Volume 15 of the EC Tax Journal has been opened early this year with an article : 'The UK's accounting and tax treatment of deposits and prepayments'  -  Julien Darras @26.2.14.

    Subscribers to Volume 14 of the ECTJ will of course continue to have complete access until the end of the volume period in June 2014.

     

  • A new Article Volume 16 CLPR @10.2.14

    A new Article  has been added to Volume 16 of The Charity Law and Practice Review and can be viewed in the reviews section of the Key Haven website

    CLPR Vol.16.10  A State of Flux in Public Benefit across the UK, Ireland and Europe  -  Dr Mary Synge

  • New Articles Volume 14 of the ECTJ @ 10.2.14

    Four New Articles and an Editorial have been added to the EC Tax Journal Volume 14 and can be viewed on the Review section of the Key Haven website:

    ECTJ Vol.14.9      Corporate Mobility and Exit Taxation in the EU Internal Market: Implications from an   Italian Perspective  -   Rubina Fagioli

    ECTJ Vol.14.10    Exit Taxes in the EU/EEA - Where are we now?  -  Anne Dalheim Jacobsen

    ECTJ Vol.14.11     Reparation for Loss - Infringements by national tax provisions  -  Grahamw HJ Turner

     ECTJ Vol.14.12    The Relationship between the EU's State Aid Law and National Taxation Systems: Conflicting, Concurrent or Complementary?  -  Mariella Rapa

Books.

Key Haven Publications Ltd publishes books on taxation, trusts, charities, company law, European law, Channel Island law, comparative law and constitutional law.

Reviews.

Key Haven Publications Ltd publishes reviews on taxation, trusts, charities, company law, European law, Channel Island law, comparative law and constitutional law.

Conferences.
Taxation of Charities and Non-Profit Organisations.
Taxation of Non-Residents and Foreign Domiciliaries.
'GAAR A Practical Approach' .
The Jersey Law of Trusts 4th Edition.
Jersey Insolvency and Asset Tracking 4th Edition.
The Law & Taxation of Remuneration Trusts.
The Interaction of EU Treaty Freedoms and the UK Tax Code.
TAXATION IN GUERNSEY.