Food for Thought: No Public Contracts for Tax- Avoiders…I’m sorry, what?

Link to podcast:

< http://www.mixcloud.com/antonipeychev/food-for-thought-no-public-contracts-for-tax-avoidersim-sorry-what/ >>

My, my, what do we have here…?

Could that be yet another attempt to ‘tackle’ the ‘immoral’ tax avoidance that had been going on forever but had only recently become the target of a massive- smear campaign?

I think it just might; but let us have a closer and completely devoid of bias look at this new proposal by the Government’s Treasury; a proposal which has recently been heralded as some sort of ‘knight in shining armour’.

Prior to looking into the issue in detail, I should like to note that the said proposal stands as solid proof that there is good reason for pronouncing ‘knight’ and ‘night’ in the same way; regardless of the shininess of the armour, if sufficiently dark, the night and the knight can become one.

(Very deep, I know.)

Now then, before anyone shuns me, let me reiterate that I am, by no means, a fervent supporter of tax avoidance; I am merely reiterating, for the 25^th time, that there is a major difference between tax avoidance and tax evasion in that the former is legal whilst the latter isn’t.

Back to the Treasury’s proposal, then; Mr Danny Alexander’s (treasure secretary) plan is to refuse public contracts worth over £ 2m to companies which have been involved in utilising ‘certain aggressive tax avoidance structures in the past 10 years’.

(See << http://www.guardian.co.uk/business/2013/feb/14/tax-avoicance-contracts >>)

Further to the above, contractors (both existing and new ones) will have to sign a clause which enables the department to terminate the agreement if it later finds out that the said contractors have used or are using such ‘aggressive structures’.

(See << http://www.bbc.co.uk/news/uk-politics-21456883 >>)

In February 2013 (when the proposal was first introduced), the Treasury noted that the changes would come into force in April 2013; thankfully, then, companies had all the time in the world to get ready for those.

As you might probably imagine, there are a couple of flaws with Mr Alexander’s otherwise immaculate proposal (else, I would not have bothered to discuss it in such a childishly sarcastic manner).

To begin with, what exactly constitutes ‘certain aggressive tax avoidance structures’? It has been suggested that that refers to the Halifax Abuse Principle.

 (See < http://www.accountingweb.co.uk/topic/business/btax-featureb-halifax-end-avoidance-rebecca-benneyworth >> on overview of principle).

In the simple terms, the European Court of Justice held that it was an ‘abuse of rights’ (a principle of French law) for Halifax to have set up a separate company to build its call- centres in order to pay less VAT (rather than paying construction workers, for instance). The court went on to say the VAT avoidance will constitute an ‘abuse of rights’ only if it is ‘extreme’.

Since there isn’t a lot of case law or commentary on the above, little is known about what is ‘extreme’ and what isn’t. Furthermore, it is not clear from the judgement if the above ‘rule’ is to be extended to Corporation tax or Capital Gains Tax or whether it solely applies to VAT.

A further issue arising out of the proposal is that it adopts a retrospective approach; as a lawyer, I’m not a big fan of that. Let us say that I enact a law, today, to come into effect tomorrow that everyone who has stepped on an ant in the past twenty years is to be imprisoned.

A bit unfair, is it not? After all, at no point during those twenty years had stepping on ants been illegal. How could have those who had done it possibly known?

Last but not least, under the proposal, a company can apply to the HMRC to ‘waive a ban’; what will be the criteria to be satisfied for such a waiver to be granted? Moreover, will all companies be treated equally in applying those criteria? And, finally, will those criteria be ones that can, at least theoretically, be satisfied by most companies?

Judging by the above, the Treasury’s proposal is quite nebulous. In this author’s view, the Government has, yet again, failed to appreciate that so long as such ‘aggressive practices’ are legal, it cannot (or rather should not) legally impose sanctions on companies for utilising those, albeit in an ‘improper and immoral manner’.

After all, in a capitalistic world where money is king, how does one define ‘morality’?

(Trick question.)