Tag Archives: General Anti Avoidance Rules

General Anti Avoidance Rules
These General Anti Avoidance Rules are aimed at tax havens. The UK Government want their citizens to pay more tax insteading of avoiding UK tax by sending income offshore.

Contractors can retain 85% to 90% of their income by using offshore umbrella companies.

Although they are tax avoidance, which is legal, they are no tax evasion which is illegal.

[caption id="attachment_475" align="alignnone" width="259"] General Anti Avoidance Rules affecting UK contractors[/caption]

Offshore Tax Avoidance – Why the Government doesn’t Stop it

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Offshore Tax Avoidance

Offshore Tax Avoidance

Many people, including contractors are bemused by the fact that the Government doesn’t just stop Offshore Tax Avoidance schemes completely.

“Why don’t they just shut them all down?” they ask. Why don’t they just get in touch with the people and say “You owe us a whole load of tax?”

The answer is that they can’t.

Don’t Break UK Tax Law

Top Umbrella Companies offshore and onshore

Top Umbrella Companies for returns

They don’t break UK laws. Indeed the offshore umbrella company schemes are designed to fit in with UK law. It may not be in a way that the Government intended, or wanted,  but they do comply with UK tax law.

That’s why it is legal tax avoidance rather than tax evasion.

According to HMRC’s Commissioner and Director General for Enforcement and Compliance, Jennie Granger, “There is nothing illegal about an international structure, especially in a globally integrated economy and these arrangements may be particularly legitimate”.

Legal Tax Avoidance

International tax law expert, barrister Jonathan Schwartz said “All laws influence and tax laws are no different. The tax behaviour of companies is largely driven by the tax systems they engage with.

“Tax administrators must apply the law as it exists rather than what they, or anyone else, might think it ought to be”.

That’s exactly correct. Those who run offshore tax avoidance schemes design their solutions to fit in with current UK law.

Change Tax Laws Back

Of course, the Government could change the laws back to where they were before – but they don’t want to do that.

They make those laws for a purpose. They may want to bring more film companies to Britain or to support the burgeoning UK music industry. They give tax incentives for film makers or music producers to operate from the UK.

Offshore Schemes for UK contractors to save tax

Offshore Schemes for UK contractors to save tax

It does do that – but it also opens the door to those who want to use this for tax avoidance.

Offshore Umbrella Company Loans

Then there is the fact that, in many offshore tax avoidance schemes like offshore umbrella companies, the money is sent offshore untaxed and stays there.

The offshore company gives the contractor a loan in lieu of the money.

That loan money is never paid back so the offshore company keeps the money sent offshore in lieu of it.

So, what should the Government do about it? Make loans taxable?

Think what would happen to the banking system then or to the City of London and all the commerce that goes on there.

Upholding the UK Tax Laws

As tax expert Jonathan Schwartz said “Tax administrators must apply the law as it exists rather than what they, or anyone else, might think it ought to be”.

The courts must do that also. It’s Government that makes the laws. It’s the duty of the courts to apply those laws.

The Government may fulminate against offshore tax avoidance but it is they who create the laws that allow it.

Money Leaving UK Untaxed

One of the first things that Mrs Thatcher did when she came to power was to bring in a law that allowed money to leave the UK untaxed.

Many Tory grandees have taken advantage of this to send their money offshore untaxed. This includes David Cameron’s father Ian, his father-in-law Lord Astor and the Tory party’s main funder, Lord Ashcroft.

Paying UK Tax

Paying UK Tax

It also includes Chancellor, George Osborne, who has a £4.5 trust offshore. He says he will pay the appropriate tax when it comes back onshore. However, it never will. It was sent offshore in the first place to avoid UK tax.

Margaret Hodge and Stemcor Tax Avoider

The hammer of the offshore companies, and big companies who avoid UK tax, is Margaret Hodge, a Labour party MP who is in charge of the Public Accounts Committee in Westminster.

However, it was revealed that she owns part of an offshore company called Stemcor, which her brother runs, and that her stake  is worth a million and saved her 50 grand in tax annually.

Of course, the Government could reverse Margaret Thatcher’s tax law and make money that leaves the UK taxable.

What would that do for British business and the City of London, and the Tory grandees, income streams?

Offshore Tax Avoidance Schemes to Continue

So, the Government may fulminate against offshore tax avoidance schemes every time they are ‘exposed’ in the press. They have to do that.

What they are not going to do is make money that goes offshore taxable again or to make loans subject to tax.

So, offshore tax avoidance will continue as long as the laws of the land allow it – and courts will continue to rule that loans are not taxable.

For a list of hose companies who operate offshore (and onshore) tax avoidance schemes click on Offshore Umbrella Companies List

General Anti Avoidance Rules (GAAR) will not catch multinationals

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General Anti Avoidance Rules offshore

General Anti Avoidance Rules (GAAR)

There is a common misperception that the new General Anti Avoidance Rules (GAAR) will force companies like Google, Facebook and Starbucks to pay more UK tax. It will do no such thing and it is not even aimed at them.

Playing Field

The problem that the UK Government has in this area is that it doesn’t control the playing field. Other countries can use whatever rate of Corporation tax that they like and the UK cannot do anything about it. They can’t tell Ireland, Luxembourg and Switzerland what Corporation Tax to set.

Maybe the EU could but remember that the EU has a common VAT rate – but Britain has a different one. This would certainly be brought up if Britain tried to introduce a standard rate of corporation tax across the EU.

Switzerland is not even in the EU anyway and neither are the Bahamas, Bermuda etc.

Loading Up Costs

In terms of General Anti Avoidance Rules (GAAR), it’s also up to companies in which countries they load up costs and in which countries they have low costs and high profits.

General Anti Avoidance Rules

General Anti Avoidance Rules affecting UK contractors

Those countries with low corporation tax rates lose out as the companies incur fewer costs there like opening factories or hiring people.

Those with higher rates of tax will ge the benefit of the companies loading up costs by running their operations there. Those countries will earn income tax and have fewer people claiming unemployment benefit.

Dice Loaded

It’s swings and roundabouts. Cameron is trying to load the dice so that the UK can get both jobs and the corporation tax. However, he can’t bring in many measures to do so. He would have to get international cooperation and that will prove very difficult to do with low tax countries like Ireland saying that their corporation tax rate of 12.5% was not negotiable even when they were being forced into a bailout.

Any multinational agreement on all of this is a long way off, if it happens at all. Why should countries not compete on tax rates as well as on everything else. Surely that’s the free market. Surely a Conservative would understand that. Why do they want or need General Anti Avoidance rules (GAAR)?