The news that HM Revenue & Customs is planning to publish a set of
‘avoidance hallmarks’ is to be welcomed. All those involved with taxation would
agree that the acceptable/unacceptable avoidance debate is one of those
continuums. At one end of the spectrum, the action is acceptable; at the other
end it’s unacceptable.
The big challenge is to decide where the dividing line comes and, inevitably,
there is considerable debate about where the line can be drawn – and whether
it’s one that can be drawn at all, not least because many would argue the only
line is between legal and illegal.
Being realistic, we are in elephant territory. While most of us who are
presented with something big and grey might recognise it as an elephant, it’s
still difficult to define one precisely, not least to make sure that rhinos,
hippos and mammoths fall on the correct side of whatever definitional line we
have. Unacceptable avoidance is like the elephant – recognisable but difficult
to define precisely and even more so to corral.
Whatever the rights and wrongs of the avoidance debate, one of the big issues
is the uncertainty that is caused. For taxpayers, particularly business ones,
uncertainty can stifle business activities and so any moves to reduce areas of
uncertainty are to be welcomed.
Consequently, if the ‘avoidance hallmarks’ are aimed at reducing that
uncertainty, indicating where HMRC will ask questions, then that is progress. If
they are being laid down as an ‘all avoidance is bad/unacceptable’ indicator,
then they will be less welcome. Hopefully, they will be pitched as guidance,
part of a continuing debate and one to which we can all discuss and contribute
to as part of the general evolution of our tax laws.
These putative hallmarks should be part of the process of creating more
clarity on where boundaries are to be drawn. Clearer legislation also has a part
to play – the product of consultation and perhaps with more occasions when we
get proper statements of the aims/targets of the legislation. More clearances
would help, partly to improve dialogue over tax issues but primarily to
contribute to reducing uncertainty. Meanwhile, it is to be hoped that HMRC is
also working on some evasion hallmarks.
At the end of the day, we are never going to have precise definitions of an
acceptable/unacceptable dividing line. No doubt that is one reason for trying
hallmarks rather than absolute definitions, which would just become another
source of debate.
This is an area for dialogue and evolution. We need to try and recognise the
elephant and if and when it is doing something unacceptable.
John Whiting is a tax partner at PricewaterhouseCoopers
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