THE VARYING USE of the term “tax avoidance” has caused confusion around the ongoing public debate.
In three reports prepared by the Oxford University Centre for Business Taxation at Saïd Business School, on behalf of the National Audit Office (NAO), the centre finds distinguishing characteristics different types of tax avoidance.
It also looked at the effectiveness of HMRC’s tax avoidance disclosure regime (DOTAS), and how it all inter-relates to how HMRC defines the “tax gap” (the difference between tax collected and the tax that should be collected).
The reports are part of evidence gathering for the Public Accounts Committee’s investigation into tackling marketed avoidance schemes.
The three categories of avoidance, all of which are legal, are:
- Ineffective avoidance: Scheme combatted under current legislation that can be dealt with if discovered;
- Effective avoidance: A reduced tax bill from a “defect” in legislation or “failure in the way it is written that cannot be corrected by the courts”. This would probably require better law drafting, specific anti-avoidance rules or even the general anti-avoidance/abuse provision; and
- Taking advantage of legislation and the tax system: Using transactions that reduce tax due to opportunities offered through legislation, or relying on the structure of the international tax system. This can only be dealt with through “radical reform” of the system.
On DOTAS, the centre found that, while the regime has some “limited evidence” of success, it also has its flaws.
The tax gap broadly relates to the previously described “effective avoidance”, which are compliant with the law but against the will of parliament as far as HMRC is concerned. “It is deeply misleading to suggest that this represents non‐compliance or a failure to pay tax which is due,” said the centre.
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