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Tax Avoidance Notes

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This is an extract of our Tax Avoidance document, which we sell as part of our Tax Law Notes collection written by the top tier of Oxford students.

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Tax Avoidance
Introductory Points - Judicial Doctrines - Statutory (specific, TAARs,
GAARs) - Administrative Measures INTRODUCTORY POINTS
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Judicial reaction to the annual nature of income tax is called the source doctrine - Brown v
National Provident Institution (1921) HL. The doctrine means that if, say, a trader retires in one year, and receives income in the next, that income can be taxed in neither year. It was not received in the first year. There was no trade in the second year. There are statutory provisions designed to prevent tax avoidance this way, but the doctrine still remains.

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Broadly individuals are "here" if resident or ordinarily resident in the UK. Companies are taxable to corporation tax here if incorporated under UK law or if the central management and control of the company is here.

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Tax law could be imposed by the UK following the UK government policy (and in practice this has meant that for over a century whatever the Chancellor announces in the annual budget becomes law).
And all tax collection and administration was centralised into what is now the HMRC.

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The Revenue may raise alternative assessments under both taxes (income & CG), but can only collect tax under one of them - Bird v IRC (1989). But this mutual exclusive rule only applies to similar taxes.

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Bill of Rights 1689 provided that taxes cannot be imposed save by consent of parliament. Since 1894 there has been at least one omnibus Finance Act each year. For this reason delegated legislation it limited, detail must be set out in a section of the Act, not in delegated legislation. All provisions pass without comment in the HofL because (since the Parliament Acts) they are effectively debarred from interfering with tax laws. …
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HMRC publishes an updated version of current tax legislation for each tax year.

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Also:
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Publication of extra-statutory concessions

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Explanatory notes - these are now published with and for all Finance Bills and all delegated legislation produced by HMRC. There are also lengthy explanatory notes for all provisions of the
Tax Acts re-written as part of the Tax Law Re-write process.

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Statement of practice - these are published formal guidance about how the HMRC will deal with particular issues - often complex tax problems of limited national importance

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Parliamentary proceedings - Treasury Ministers use the HofC both to announce new tax matters
(included urgent measures that are subject to latter retrospective legislation) and to clarify official policy about current and pending legislation.

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Record of ministerial statements and speeches about the Finance Bill provisions. These may be relied on by the tribunals and courts in limited circumstances - Pepper v Hart.

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Instruction manuals - deal with tax laws and how to apply them in considerable detail. E.g. the
Employment Income Manual and the Employment Status Manual set out the official view on who are employees and how they are to be taxed … Impact of Devolution and EU
Membership
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Direct taxes are being affected by devolution. Under the Scotland Act 2012 stamp duty ceases to apply in Scotland from 2015. From 2016 Scotland will set its own main income tax rate in place of 10% of the UK rate. These Scottish taxes will be offset by reductions of UK subsidies.
Council tax is set separately for each of the four nations.

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Single form of VAT through EU together with legal prohibition against any MS adopting a second
VAT. Most of the key VAT laws are European laws, and much of the case law is that of the CJEU.
For both reasons, a tax expert also has to be a European law expert.

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Ferrazzini v Italy (2001) - Grand Chamber of the Court, by majority, ruled that tax payers do not have any civil rights in respect of tax law. In other words, most of the protections of the
ECHR do not apply to disputes about whether, or how much, tax is payable.

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A series of cases including King v UK (no.2) (2004) and King v UK (no.3) (2005) have ruled that the penalty provisions in tax laws are to be treated as criminal cases. This requires the full rigour of the right to a fair hearing under Art 6(3).

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Individuals have challenged British tax laws as discriminatory, with mixed results.- e.g. Burden Types of "Avoidance"
Tax Planning: doing what Parliament wanted you to do, e.g.
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give money away while alive (IHT)

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realise gains up to annual exempt amount (CGT)

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crystallise capital losses (CGT)

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avoid silly traps (e.g. retaining money for IHT)

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smoke less, drink less, drive efficient cars

Tax Mitigation: doing what Parliament intended you to be able to do, e.g.
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selling and repurchasing capital assets in order to make use of CGT annual exemption each year (bed and breakfasting)

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very close to tax planning?

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Lord Templeman found this a helpful category -
why?

Tax Avoidance: taking advantage of tax breaks in a way that Parliament cannot have intended.
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professional consequences

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bad reputation with HMRC and others

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higher 'risk rating' (part of (3) below)

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corporate governance and CSR

Tax Evasion: breaking laws
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suppressing or misrepresenting facts

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criminal offences

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end of career

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"The difference between tax avoidance and tax evasion is the thickness of a prison wall", Denis
Healey.
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A quotation beloved of tax inspectors but highly questionable and presumably intended with a degree of anger or sarcasm.
Wide-spread left-wing view that the difference between avoidance and evasion is that you can get away with it because you have Oxbridge graduate advisers. Why does it matter?
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The tax gap for 2012-3 was estimated to be £34bn, or 6.8% of overall tax liabilities (between what it should be brought in and what is - although the calculation is controversial).

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The political impact of this in a time of austerity has probably not been lost on you, but if in doubt, have a look at some of the reports of the Public Accounts
Committee under the chairmanship of Margaret Hodge.

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Starbucks, Google and Amazon have attracted particular attention, although they raise international considerations. There are also some radical campaigns,
e.g. Tax Research UK, the Tax Justice Network, and many articles in the
Guardian. Overview…
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There are three main categories of anti-avoidance law:
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judicial anti-avoidance doctrines (1)

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statutory anti-avoidance provisions (2)

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administrative mechanisms (3)

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