Retrospective Tax: New Approach Just Like the Old One
The coalition government's first Budget in 2010 was delivered alongside the new Cameron-Clegg mantra of making the tax system 'simpler' and 'more stable'.
Exchequer Secretary David Gauke followed with his document Tax Policy Making: A New Approach, expressing the Party's sentiments that 'a more considered approach to designing taxes' was required.
And to that end the business community uttered a collective 'whoo-aaah'; that now infamous utterance of surprised acknowledgement from Al Pacino in the film Scent of a Woman.
So far so good, until recent revelations that the Treasury is looking to make retrospective changes to block aggressive tax avoidance schemes - thus Barclays' recent celebrity as a stalwart of the scheme deemed to have left HMRC out of £500m.
'Whoo-aaah', so much for stability and consistency of approach.
To clarify, tax avoidance is not illegal (tax evasion is the big 'no-no'). In fact avoidance schemes usually arise out of overly complicated tax systems to legally reduce payments to HMRC.
Rather like the one we have now.
Thus the new tax approach is looking a lot like the old approach, from whence the current loopholes were born.
Should retrospective changes and/or the highly anticipated General Anti-Avoidance Rule or (GAAR) - deigned to explain the types of avoidance schemes considered abusive and outwith the 'spirit of the law' - come into force, expect more complex loopholes and further tax-related course corrections in future.
There are two main tax avoidance schemes of note.
The first was set up to exploit corporation tax rules that apply to releases of debt - where a debtor company is taxed on the profit that arises when the liability is released for less than the amount borrowed.
The second seeks to claim tax credits through the Authorised Investment Fund when tax has never been paid.
But if HMRC seeks retrospective changes to tax law it essentially negates the earlier promise of a new 'simpler' and 'more stable' approach.
It also raises the spectre of a spate of backdated changes to law, a potential fiscal landslide from the corporate community into the cash-strapped coffers of the Treasury.
GAAR should in theory make disputes quicker to resolve and streamline the decision process should an issue go to court.
But with complexity comes further complexity and the current tax system is nothing if not that.
Thus it's probably the right time to take a bit of guidance and counsel on the impending GAAR and retrospective rules before the new, becomes the old, becomes the new again.
Ed Emerson is Editor and Managing Director of HNW Magazine