No avoiding the conflict

There are two certainties in the tax world for 1997. The Customs & Excise campaign against VAT avoidance will grow stronger, matched only by the tax planning industry’s opposition to it.

The European Commission will also open discussions on the future of VAT. Commissioners want the tax to return to its ‘pure’ form by banishing a mass of exemptions.

Customs, bolstered by a raft of anti-avoidance measures announced in November’s Budget, will look to close even more loopholes this year.

Neither Customs nor tax experts will even hint at their plans for fear of giving the other a head start in planning an outflanking manoeuvre.

But the department’s attempts could backfire, opening up new tax planning opportunities instead.

A major hurdle for the ten avoidance-busting measures will be the passage of the Finance Bill, with an early General Election threatening to scupper progress. However, an incoming Labour administration would probably rush the Chancellor’s package through wholesale. The party is keeping its tax policies largely hidden, but the promised revenue savings are too valuable for any government to ignore.

There’s talk of a general anti-avoidance provision but, when you look at the number of areas Customs attacked in the Budget, it’s clearly set on dealing with specifics. A general provision would be easier to deal with for the profession, whereas some of the new measures, such as the insurance premium tax legislation, are almost avoidance-proof.

Customs’ commitment to stamping out VAT avoidance is clear. A spokesman says it will be continually vigilant and is looking closely on a sectoral basis at trade and business.

Customs will continue to treat anti-avoidance as one of its key tax-saving opportunities, but there will always be opportunities for tax planning based on specific pieces of legislation. 1997 will also see major developments in transfer pricing controls for multinationals. The Inland Revenue wants a level playing field for all companies involved in the process, which lessens a company’s tax burdens. Proposed legislation to ensure tax liabilities are worked out by companies on an arm’s length basis will be published later this year.