Spring2012
representatives of the Revenue Law Committee met with HMRC at the end of January to discuss the Study Group’s recommendation. We raised the following points at the meeting:
• We do not support egregious tax schemes so do not object, and therefore support in principle, a GAAR which is aimed to stop such schemes.
• As stated in the Report, we regard it as key to protect the so called centre ground of responsible tax planning. Also very important, is not to erode the competitiveness of the UK tax regime.
• We said it would also be highly beneficial (to reduce complexity and increase competitiveness) to be able to reduce the number of specific anti-avoidance rules (in particular, the many existing TAARs) which should not in theory be needed if such a GAAR is enacted.
• Our main concern over the rule recommended by the Aaronson Study Group is will the proposals only catch the egregious schemes? Will they cause more uncertainty, complexity and costs?
• We also expressed various more detailed technical concerns over “workability” of the proposals:
• Do the concepts of “abnormal arrangement”, “abusive tax result”, “reasonable exercise of choices” successfully protect the centre ground and deliver sufficient certainty for a clearance-free GAAR? HMRC seemed to be happy with the idea of protecting the centre ground but it was clear that they are likely to have different views on defining the centre ground
• Role of the Advisory Panel – an unusual beast! Are the proposals workable? Who should be the members? How to prevent conflicts of interest?
• Issues arising from the proposed lack of a full clearance system – uncertainty/fairness between taxpayers. HMRC recognised this as a valid concern.
• Role of the proposed “Guidance Notes”
• Practical need for more detailed HMRC guidance.
• Issues with Double Tax Treaties • Role of the Courts
• Mission creep concerns (how to safeguard against future changes which change the nature of the GAAR into something else). We stressed that it is important to recognise that the Aaronson Study Group supported his proposed GAAR, not any other GAAR.
HMRC were otherwise essentially in listening mode and did not indicate whether they do support the GAAR or are against (HMRC did indicate that the proposal raises costs and resources issues for them). HMRC will be making a recommendation to the Minister and an announcement is expected in the Budget as to whether or not a GAAR is to be introduced.
policy. Since we commented, a further version of the draft legislation has been published and the Committee will be reviewing this in due course.
In addition to further commenting on the CFC draft clauses, we expect the Budget in March will give rise to further changes in tax law and consultations for us to review and comment on.
Bradley Phillips, Chair, Herbert Smith LLP
Regulatory Law Committee
The Regulatory Law Committee (the “Committee”) meets monthly and has, since October, responded to several EU and Government consultations. The key responses included:
1. FSA’S GUIDANCE CONSULTATION ON SIMPLIFIED ADVICE (GC11/22)
In February 2012, the Committee made detailed comments on the latest draft controlled foreign companies (“CFC”) rules proposals as set out in the draft Finance Bill 2012 published in December.
As previously reported, the Revenue Law Committee agrees with the aim of introducing a modernised CFC regime which targets only artificially diverted UK profits and does not tax profits arising from genuine economic activities undertaken offshore. The comments made were largely technical in nature rather than on matters of
The Committee’s response focused on the guidance relating to what were referred to as “facilitators” or firm employees who support clients through their firm’s simplified advice process, but who are not intended to make personal recommendations. The Committee was concerned that one of the suggested approaches in the draft guidance would effectively require the relevant facilitator to perform the controlled function of giving regulated advice for which approval (and appropriate qualification) would be required. The Committee did not believe that it would be appropriate or proportionate to seek to make such facilitator personally responsible for an outcome delivered by a firm’s process. This is particularly so as such process is designed by a qualified adviser who will, along with the firm, take personal responsibility for any unsuitable outcomes delivered by the process itself.
Particular thanks to Karen Anderson (Herbert Smith LLP) for her work on this submission.
2. EUROPEAN PARLIAMENT RAPPORTEUR CONSULTATION ON MIFID II
The Committee’s comments primarily focused on seeking greater clarity or legal certainty in certain material respects in order to achieve a robust framework and harmonised implementation of MiFID across member states.
City Solicitor • Issue 77 • 5
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