CIOT

CIOT: Institute warns of ‘dangerous precedent’ over tax code for banks

CIOT: Institute warns of ‘dangerous precedent’ over tax code for banks

Government proposals for a strengthened Code of Practice on Taxation for Banks1 will set a “dangerous precedent” by giving HMRC power to determine and publicly announce non-compliance with the Code without any right of appeal, the Chartered Institute of Taxation has warned.

The Institute makes its comments2 in response to an HMRC consultation on strengthening the Code, which was originally launched in 2009.3 The Institute argues that the proposals lack safeguards and balance, and that they suffer from inadequate judicial oversight. The Institute has questioned the need for such a code at all given the recent enactment of a General Anti-Abuse Rule (GAAR), which is designed to catch abusive behaviour such as that targeted by the Code.

Stephen Coleclough, President of the Chartered Institute for Taxation, said:

“Banks have been subject to plenty of criticism for their actions over recent years. But that does not mean they should be denied the right to fair legal process.

“Our principal objection to these proposals is that they place HMRC in a quasi judicial capacity without statutory oversight or taxpayer protection. It is proposed that there should be no right of appeal against HMRC’s view of compliance with the Code. Instead the only remedy available to the taxpayer is judicial review after the fact. This requires the taxpayer to show not simply that HMRC have reached the wrong judgement but that they have done so in an unreasonable way – an excessively high hurdle.

“Judicial review alone is an inappropriate and inadequate remedy. It is unprecedented that HMRC can make a decision about a taxpayer, make it public and yet deny access to the normal appeals process. A proper hearing on the merits, by an independent tribunal, before any action is taken, is what normal principles of fairness and justice require.

“We would also reflect that leaving the burden of decision making on HMRC’s Tax Assurance Commissioner runs the risk of destabilising that important new role.  The decisions could leave HMRC open to criticism from all sides of the current public debate on tax.  HMRC will attract criticism for their action or inaction.  Putting HMRC in this position is in no-one’s interest.

“We support the principle of transparency and there are some aspects of the Code we agree with. However, we do not think this part of the proposals is necessary or sensible.

“The consultation acknowledges that generally the Code is operating well and that HMRC has seen a positive response by banks in relation to their tax planning and transparency.  In addition the GAAR, which came into force in Finance Act 2013, is designed to change behaviours as well as deal with cases after they have happened.  Unlike the changes proposed in respect of the Code, the GAAR brings more balanced proposals: through the ‘double reasonableness’ test, approved guidance and the important role of an independent Advisory Panel.

“Granting HMRC a power to determine and publicly announce non-compliance with a Code without any right of appeal for taxpayers sets a dangerous precedent.  If enacted, these proposals would undermine the certainty and reliability of the operation of UK law.  There is a risk companies in other industries will look at them and think: today the banks, tomorrow us? This could deter investment in the UK.”

Notes for editors

1.       HMRC’s Consultation document, Strengthening the code of practice on Taxation for Banks, can be found here.

2.       The response, in full, of the Chartered Institute of Taxation, can be found here.

3.       The Code of Practice on Taxation for Banks was launched by the Government in 2009. It states that:

1. The Government expects that banking groups, their subsidiaries, and their branches operating in the UK, will comply with the spirit, as well as the letter, of tax law, discerning and following the intentions of Parliament.

1.1 This means that banks should:
• adopt adequate governance to control the types of transactions they enter into
• not undertake tax planning that aims to achieve a tax result that is contrary to the intentions of Parliament
• comply fully with all their tax obligations
• maintain a transparent relationship with HM Revenue & Customs (HMRC).

The full Code can be read in HMRC’s consultation document (linked to from point one above), starting at page 29.

In Budget 2013 the Government announced that, following consultation, they would introduce legislation in Finance Bill 2014 requiring HMRC to publish an annual report, beginning in 2015, on the operation of the Code. The legislation would also provide that such a report may include the naming of any bank that HMRC considers has not complied with their Code commitments as well as a full list of all banks that have, or have not, adopted the Code. This is what is currently being consulted on.

While the Code is described by the Government as voluntary, given that the purpose of the Code revisions is to introduce detriments for banks not adopting the Code, it is presumed that the intention is that most, if not all, banks will feel compelled to adopt the Code.

4.       The Chartered Institute of Taxation

The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries.  The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 16,800 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

George Crozier
External Relations Manager

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The Chartered Institute of Taxation
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www.tax.org.uk

The Association of Taxation Technicians
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www.att.org.uk

Low Incomes Tax Reform Group – an initiative of the Chartered Institute of Taxation
www.litrg.org.uk

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