UK Blocks Tax Avoidance Scheme
The UK has taken steps to close what it calls two highly abusive tax avoidance schemes, disclosed to HM Revenue and Customs (HRMC) by a bank.
The Treasury says that the aggressive schemes are designed to work around legislation that has been introduced in the past to block similar attempts at tax avoidance. It stresses that by acting immediately, it can ensure the payment of over GBP500m (USD792m) in tax, protect further billions of tax from being lost and maintain fairness in the tax system.
The Treasury has provided details of the two schemes, the first of which it says seeks to ensure that the commercial profit arising to a bank from a buyback of its own debt is not subject to corporation tax. The government will now introduce legislation to prevent the scheme’s use in the future. The legislation will also act retrospectively to block its recent use by banks.
The second scheme involves Authorized Investment Funds (AIFs) and aims to convert non-taxable income into an amount carrying a repayable tax credit in an attempt to secure ‘repayment’ from the Exchequer of tax that has not been paid. The government is also introducing legislation to block any future use of this second scheme.
The Treasury says that the bank in question has adopted the Banking Code of Practice on Taxation which contains a commitment not to engage in tax avoidance. The government is clear that these are not transactions that a bank that has adopted the Code should be undertaking.
David Gauke, Exchequer Secretary to the Treasury, said: "The government wants to ensure that the tax system is fair for all and we will not allow those who seek to benefit from this aggressive avoidance to get an unfair advantage. We do not take today’s action lightly, but the potential tax loss from this scheme and the history of previous abuse in this area mean that this is a circumstance where the decision to change the law with full retrospective effect is justified. The government is committed to creating a competitive tax system and we have brought in a range of corporate tax reforms, but we are absolutely clear that business must pay the tax they owe when they owe it."