Opinion split over impact of Tenon's tax de-risking

THERE ARE MANY things in the tax world capable of splitting a room. Chief among these is the general anti-abuse rule (GAAR).

The implications arising from Graham Aaronson’s proposals are generally welcomed, although as we await consultation, we still are unsure which elements will remain and which will be altered.

The lack of certainty in what constitutes an egregious tax scheme and what can legitimately be done to mitigate liability is still bothersome to some, but that appears to be the way the Revenue likes it, affording it the leeway it wants to create a chilling effect on the practice.

Indeed, as one analyst told Accountancy Age: “You could get a hundred people in a room and you would get 200 definitions of where the line is.”

That, seemingly, has made some nervous. As if to illustrate that, RSM Tenon has taken the step of withdrawing some of its riskier tax services in order to avoid unwanted, costly and regular run-ins with the taxman in the future, although existing customers will continue to receive their products.

It could be argued Tenon was premature in its decision to de-risk, given these grey areas, and for some observers it could be seen as more to do with its own situation than indicative of a wider trend.

While Tenon’s decision to de-risk came as a surprise, for some advisors such moves will become more commonplace in the future, and it hs been described as a “harbinger” of things to come.

That said, Smith & Williamson’s tax head Richard Mannion believes the only way the GAAR could affect his own firm is in warning potential clients of its existence.

“We would always say there’s a real a real health warning with this”, he says.

“We will always tell clients: ‘the Revenue will undoubtedly fight you. They have deeper pockets than you. Do you really want to be involved in a court case for the next ten years?’ Most people then say ‘no’.”

Not everyone shares that view, though.

Stephen Herring, senior tax partner at BDO, says he would be “gobsmacked” if GAAR causes most large firms to cease any particular service.

GAAR, says Herring, is designed to tackle only “highly artificial” arrangements and will have the effect of curtailing such activities. This, he says, will ensure firms demonstrate the commerciality of their actions, whether they are abusive or not, acknowledging and adapting to an increasingly resistant taxman.

The view from the institutes is similar to Herring. ICAS, for example, is more inclined to treat Tenon’s move as an “individual decision” than draw further conclusions from it.

For Tenon, says ICAS tax director Derek Allen, the stakes involved in tax disputes are such that Tenon, which has cashflow pressures and is restructuring, can’t afford the reputational damage and will be “quite sensitive to that”. Therefore, says Allen, wider trends will not necessarily result from their decision.

Indeed, Allen expects most firms to wait for the consultation document to be released and the legislation to take a more definite shape before reacting.

In de-risking, though, Tenon can do itself no harm and will bring it much-needed stability in disassociating itself from the activities GAAR is targeting.

In many ways, it is a shrewd move, but it appears to say more about Tenon than anyone else.