Where to start.  Given it is now just over a year to the referendum that seems a suitable place to start.

There is increasing discussion, mostly criticism, concerning the failure of the ‘NO’ campaign to come up with a credible proposal for substantial additional powers for the Scottish Parliament. That said, the likelihood of a joint proposal from the ‘NO’ side is extremely unlikely.  Some want powers removed from Scotland in the event of a ‘NO’ vote.  Some do not want any more powers devolved to Scotland and insist that in any case that is a decision for the whole of the UK.   Even those who argue for greater powers for the Scottish Parliament are only arguing for three or four relatively minor tax powers.  Two of my earlier bogs on this issue outline the proposals in more detail and also how these extremely modest proposals would not take effect for at least a decade.  These blogs: “Tax powers so far refused by Westminster” can be found here and “Likely timescale for additional Scottish tax and fiscal powers” can be found here. Substantial welfare powers are of course not even being considered by the Unionist parties.    

A good example of how few powers are being considered can be found in this interview of Michael Moore.  The article on this can be found here.  It is worth noting that this is the view of the Liberal Democrats supposedly the strongest advocate of increasing the powers of the Scottish Parliament.

Another factor of this debate that as yet is not being widely commented upon are the anomalies that can arise under devolution.  Take for example inheritance tax.  Inheritance tax is controlled by Westminster but succession law and social care are controlled by Holyrood. Does that make any sense?  Of course not.  With this in mind please see the following article from the Scotsman which can be found here.

Now to specifically Scottish tax matters.

A “Revenue Scotland and Tax Powers Bill” will establish a new authority for the collection of devolved taxes from 2015.  The First Minister described this as a “historic step”, but also just a “first-step” – since Scotland would still only collect 15% of all taxation revenue and the Parliament would remain a “spending chamber rather than a revenue raising chamber”.  More on this can be found here.  This is an important landmark in the creation of a Scottish tax system.

No-one I suspect was surprised at this announcement.  “Scottish and Welsh red meat levy bodies are unlikely to recoup levy money lost when animals are slaughtered in England, UK farm minister David Heath has said.”  More on this can be found here.  This type of argument, in short Westminster knows best, has of course been made many times before.  Some matters where this argument has been used include: fossil fuel levy, attendance allowance, VAT and the new Scottish police and fire services, energy transmission charges, mobile phone coverage, delivery charges and local income tax.  The UK Government’s attitude to relatively minor issues such as the so called “meat levy” simply adds to the doubt that the UK Government will act in a positive way to calls for further powers to be devolved in the event of a ‘NO’ vote.

The Scottish Parliament’s Finance Committee has welcomed proposed new legislation which will see Scotland take responsibility from the UK Government for landfill tax.  The Committee also welcomed proposals to impose landfill tax on unauthorised disposals to landfill following the identification of illegal sites and to increase the credit limit on contributions to the Landfill Communities Fund, which provides funding for community or environmental projects in areas affected by landfill sites.  More on this can be found here.

Now to the “bedroom tax” or to give it it’s Sunday name, “spare room subsidy”.

Social housing residents affected by the UK Government’s “bedroom tax” may be able to appeal depending on the size of their spare room, after a tribunal ruled the size of a room has to be taken into account when imposing the controversial policy.

The UK Government has played down the implications of the ruling.  A spokeswoman for the Department of Work and Pensions said: “It is simply not affordable to pay housing benefit for people to have spare rooms, and our reforms in the social sector mean families receive help for the number of bedrooms they need, and these are exactly the same rules as in the private sector.” Meanwhile, a United Nations special investigator has described the bedroom tax as a “shocking” policy which could constitute a violation of the human right to adequate housing.

More on this from the Scotsman can be found here and the Guardian here.  This policy, it is argued, shows the widening gap on welfare matters between Holyrood and Westminster.

Now to the tax avoidance debate. Let’s start with some irony.  An adviser to HMRC has had to resign as a result of an investigation by the BBC.  The irony is the BBC’s own attitude to severance payments and tax avoidance schemes involving its own staff.  More on this can be found here.

Further evidence as to how we are definitely not “all in this together”.  Top civil servants are having some tax paid using public money, a newspaper investigation has revealed.  More on this can be found here.

And finally on tax avoidance. “It is not possible to construe a director’s duty to promote the success of the company as constituting a positive duty to avoid tax.”  The legal advice quoted may well turn out to be one of most important contributions to the tax avoidance debate.  More on this can be found here.

Now to matters further afield.

In response to a question asked in the Spanish parliament, the Spanish Government was obliged to disclose the amount of unpaid tax owed by professional football clubs in the country’s top two divisions. The sum was a staggering €663,876,441 (about £575m).  More on this can be found here.

The number of Americans renouncing their US citizenship has jumped by a factor of six in 2013, according to official figures. The reason is generally accepted as the difficulties caused to expatriates by the soon-to-be-active “Foreign Account Tax Compliance Act”, in conjunction with the USA’s extra-territorial taxation system.  More on this can be found here.

The latest HMRC Trusts & Estates newsletter can be found here.

“HMRC has published updated forms and guidance notes:

• C1 – Confirmation Inventory
• C2 – Inventory continued
• C5(2006) – Return of estate information
• C5(OUK)(2006) – Return of estate information(Person domiciled abroad & their UK assets consisted of cash/and or quoted stocks & shares only, gross value less than £150,000)
• C5(SE)(2006) – Information about small estates
• C3(2006) – Notes to help you fill in form C1 Confirmation Inventory and form C5(2006) HM Revenue & Customs return
• Integrated Inventory – contains form C1 confirmation and form C2 continuation

Forms C5(OUK)(2006) and C5(SE)(2006) are now online only forms.”

More on this can be found here.

The Land and Buildings Transaction Tax (Scotland) Act was passed on 25 June and received royal assent on 1 August 2013. Some points of note:

• The new tax will to come into effect in April 2015 (when SDLT ceases to apply in Scotland);
• the Act is the first of three- a Landfill Tax Act and Tax Management Act will follow;
• the Scottish Ministers are the tax authority (s54) but the authority can be changed by order (a new body, Revenue Scotland has been established for that purpose);
• the tax authority can delegate administration and collection of the tax to Registers of Scotland (s55) (an idea first suggested by my colleague James Aitken);
• the tax will be progressive, i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT)(ss24-26)
• like SDLT, LBTT will be charged on VAT (para 2, Schedule 2)
• the Act contains a number of targeted anti-avoidance rules applying to specific exemptions and reliefs. The Scottish Government has consulted on the introduction of a general anti-avoidance rule (“GAAR”) and it is likely that a GAAR will be included in the Tax Management Act;
• LBTT on commercial leases will (like SDLT) be based on net present value of the rent payable (s52 and Schedule 19) but the Act also makes provision for a return to be made every three years (and for additional payments or refunds) throughout the whole term of the lease so that the tax will reflect the actual rent paid;
• residential leases are exempt (s16 and para 3, Schedule 1);
• licences to occupy are exempt (s16 and para 3, Schedule 1) but “prescribed non-residential licences” which are to be prescribed in future regulations will be taxed; and
• the Act replicates existing SDLT provisions on partnerships (s49 and Schedule 17) & trusts (s50 and Schedule 18). However, the Scottish Government may make changes to these provisions (in the interests of greater clarity) before LBTT comes into effect.
• The rates and bands can be seen here.

The full Act is available here.

There are signs that the quality of the Scottish independence debate is at last improving.  The ‘NO’ campaign’s relentless negativity is now being commented on and it is also being asked questions concerning what happens if Scotland votes ‘NO’.  The ‘YES’ campaign also seems to be finding its feet and the Scottish Government has published a number of detailed policy papers.  It is though it’s “White Paper” that is eagerly anticipated.    

Further evidence for this improvement comes from the Law Society of Scotland.  The Law Society published its paper titled: “Scotland’s Constitutional Future Views, opinions and questions” this week.  The paper can be found here.  This is an excellent contribution to the debate and asks questions of both sides.

In particular I liked its comments surrounding Scotland’s membership of the European Union.  It is quite obvious to anyone but the most one-eyed commentator that it is going to be very difficult to get more clarity on this issue without the cooperation of the UK Government.  It seems, and for purely political reasons, that the UK Government does not want clarity on this issue.

The following quote from the paper is also telling: “Scotland, as part of the United Kingdom, complies with the European Union treaties and the EU acquis ((all the EU laws, treaties, declarations and resolutions, international agreements and the decisions of the European Court of Justice, i.e. Europe as it is). Whether by way of accession or amendment to the treaties following negotiation, Scotland should be able to qualify, in legal terms, for EU membership in its own right.”  I was also pleased to see that Sir David Edward’s (a former judge of the European Court of Justice and one of the foremost European lawyers in Scotland) common sense analysis of this issue being quoted.

As someone who spent a great deal of time researching and writing about the options for the devolving of substantial tax and fiscal powers to the Scottish Parliament, I was also very pleased to see the ‘NO’ campaign being asked some basic questions such as “which powers” and “when” if Scotland votes ‘NO’.

Now to Wales.  It seems that the UK Government is going to consult again on whether control of SDLT is to be devolved to the Welsh Parliament.  The following story on this from the BBC website shows the increasing frustration at the UK Government’s continued delaying tactics.  The reality is that Westminster only devolves power as a matter of last resort.  All the usual tactics are being used here and in particular the need for yet another consultation.  The latest consultation can be found here and the report from the BBC news website can be found here.

Let’s now take a minute and compare and contrast the next few stories.

An independent Scotland would offer tax incentives to film and TV productions according to Scotland’s Culture Secretary Fiona Hyslop.  More on this can be found here.

The Scottish Government has condemned a High Court decision that ruled applying a cap on housing benefits for disabled people lawful.  Firstly it would be helpful if the news reports explained or clearly stated that this was the “High Court” of England & Wales.  That said, Scottish Housing Minister Margaret Burgess has demanded, and it seems has had some success, that Scotland gets a fair share of the £35m funding pot set aside for those hardest hit. 

Interestingly she also said:  “The bedroom tax will hit the poorest hardest and it is wrong that it applies to people in crisis such as those in temporary accommodation and some supported accommodation.”  “Scotland is disproportionately disadvantaged because much of Scotland’s temporary accommodation is affected by the bedroom tax, unlike in England. The majority of our temporary accommodation is local authority owned, which is not the case in England.”  That begs the question:  Would a Scottish court have come to a different decision?  More on this can be found here.

The UK Government has outlined plans to give tax breaks to companies involved in the UK’s nascent shale gas industry.  It has proposed cutting the tax on some of the income generated from producing shale gas – found in underground shale rock formations – from 62% to just 30%.  This proposal has been criticised by environmentalists, with Friends of the Earth calling them a “disgrace”.  Just how generous are these tax breaks? Gas production is typically taxed at 62% although in some parts of the North Sea long standing operations are taxed at up to 81%.  More on this from the BBC news website can be found here.

Sometimes you have to wonder if Scotland exists.  Will the so-called “Mansion Tax” apply to Scotland?  No.  Do almost all the news stories refer to “Britain”?  Of course they do.  See for example this one from the Independent which can be found here.

11 of the 22 high-value settlements reached by HMRC last year were considered inadequate by the Tax Assurance Commissioner’s office, according to its first annual report. The office was created in February 2012 in response to criticisms of HMRC’s handling of big-money tax disputes.  More on this from Pinsent Masons can be found here.

Now to matters slightly further afield. 

Jersey fights back?  A report commissioned by Jersey Finance has found that Jersey helps the UK generate £2.3bn in tax revenues each year and supports 180,000 UK jobs by channelling foreign investment into the UK. It estimates that losses to the UK Treasury through legal tax avoidance via Jersey are well under £480m a year, while annual evasion costs are less than £150m.  More on this can be found here.

The French Government is to extend the capital gains tax exemption for second homes to properties owned for 22 years, rather than the current 30 year requirement. The 30-year rule was introduced by the previous Sarkozy government in February 2012 to replace the previous qualifying ownership period of only 15 years, but it accelerated the slump in France’s residential property market.  More on this from the Telegraph can be found here.  A good example of the schizophrenic relationship that exists between certain parts of the UK and France.

Early data collected by Swiss banks from their UK clients under the UK-Swiss tax regularisation agreement suggest that it may reveal far less untaxed income than the UK Government has claimed.  More on this from STEP can be found here.

An Irish parliamentary committee has voted down calls for multinational companies to be grilled in Dublin about their tax affairs, in the wake of a string of controversies at firms such as Google and Apple which use the Irish tax regime. Some of Apple’s largest Irish subsidiaries were found not to be tax resident anywhere, prompting Carl Levin, chair of the US Senate subcommittee on investigations, to call Ireland a tax haven.  More on this from the Guardian can be found here.

The Australian Tax Office will next year conduct 680 reviews and 115 audits of people suspected of using ‘secrecy jurisdictions’ to avoid paying tax.  This is in addition to 1,500 income tax reviews and audits of wealthy individual taxpayers.  More on this can be found here.

The US Internal Revenue Service has begun a drive against multinational companies whose permanent establishment strategies result in some profits not being taxed in any country, so-called “stateless income”.  More on this from Reuters can be found here.

The Spanish government is threatening to open tax investigations into the 6,000 Gibraltar residents who own property in Spain.  This is seemingly in retaliation for the Gibraltar Government’s attempts to exclude Spanish fishing vessels from its waters.  Spain is also considering imposing a €50 tax on vehicles entering or leaving Gibraltar; restricting the use of Spanish airspace to planes bound for Gibraltar; and taxing the many Gibraltar-based Internet gambling companies.  More on this from the BBC website can be found here.

I was asked this week to comment on some of the initial tax related issues that the Scottish Parliament might have to consider if Scotland votes ‘YES’.

The first comment I made was that the Scottish Parliament should pretty much enact the UK tax system on independence.  The Scottish Parliament should then take its time in deciding what to keep and what to change.  That said, there are a number of matters it might have to look at early on.

Let’s start with VAT.  Only if Scotland becomes independent will it have control, or at least as much control as is possible, of VAT.  The Scottish Parliament could reduce the VAT rate on home repairs and renovations to 5%.  Something our building industry has long been arguing for.  The Scottish Parliament could also ensure that Police and Fire & Rescue Scotland can recover their VAT costs.  This is something the UK Treasury has so far resisted.

The Scottish Parliament could look again at what constitutes a charity in Scotland and with that which entities should receive the associated tax and other benefits.  “Private” or “independent” schools for example.  This is an issue that should not just be left to OSCR, the body that regulates charities in Scotland.

Then there is the debate surrounding a European Union “financial transaction tax”.  An independent Scotland will have to consider its position on this.  If a number of European countries decide to go ahead with this then the Scottish Parliament will have to decide if it wants to join them.  One option could be to agree to a FTT and at the same time abolish stamp duty on shares.

Now to environmental taxes.  The Scottish Parliament might want to consider introducing a carbon tax.  The debate in Australia shows how difficult this might be.   Independence does though mean tough decisions.

Then there is local taxation.  I am sure “Land Value Tax” supporters will be pressing their case even more strongly if Scotland votes ‘YES’.

Now to administration.  Lots of opportunities here for simplifying things. There is no need for Scotland to have a separate Companies House, Stamp Office and Registers of Scotland.  “One stop shops” for the services provided by these bodies is a minimum of what we could do.  We could even create “tax and benefits” centres throughout the country that are based in our local authority buildings.

Then there is “tax avoidance” and “tax evasion”.  The Scottish Parliament could consider publishing at least a summary of each tax return or legislate for published beneficial ownership registers.

Just a few thoughts.

I was interested to see that OSCR, Scotland’s charity watchdog, has authorised Scotland’s 23,500 charities and voluntary organisations to take an active role in the independence debate if they wish.

One issue that is important to the charity sector is tax.  Charities for the most part do not pay tax.  Another important issue for the charity sector is administration and in particular when applying to become a charity.

It will be a surprise to many that just because a charity is registered with OSCR it is not automatically entitled to the various applicable tax reliefs.  A charity has to make a separate application to HMRC.

This causes two complications.  Charity law in Scotland differs from that of the rest of the UK.   For example Scotland’s list of “charitable purposes” is different. That is the first complication.

The second complication is that HMRC apply English and Welsh charity law principles.  This means that there is potentially less work for let’s say an English registered charity, as its original application to its Charity Commission was based on English and Welsh legal principles. A Scottish charity has to also ensure its application to HMRC meets English and Welsh charity law.

It this a huge issue? No.  Is it an issue that can cause problems?  Yes.  Was there a simple solution?  Of course there was.

The simple solution was if a charity is recognised by OSCR it should automatically be recognised by HMRC.  This was a matter I and others argued for before the Calman Commission.  Tax simplification is often talked about but rarely achieved.  This was an obvious opportunity.

How did I get on I hear you ask?  Not only did Calman not agree to this relatively simple measure but recommended that that some parts of Scottish charity law should be re-reserved.

The Scotland Act 2012 did not in fact re-reserve this area of responsibility in whole or even part.  I suspect that the main reason for this was how this would have looked at this particularly politically sensitive time.   The Scotland Act did in fact do nothing on this particular matter.

Possibly something for charities in Scotland to reflect on.

I  have been asked a number of times recently to comment on a likely timescale for additional tax and fiscal powers if Scotland votes ‘NO’ in September 2014.

Estimating a likely timescale is not that difficult a task.  It may though be a pointless task if as is likely this issue is for all intents and purposes ignored by Westminster.

Recent delays to the devolving of additional fiscal powers to both Northern Ireland and Wales give an indication of the sense of priority these matters even now are given at Westminster. Add to this the background of the 2015 UK General Election and the debate surrounding the UK’s membership of the European Union.  This means that the likelihood of Westminster devoting anything more than a token amount of time and effort to yet another debate on which tax and fiscal powers to, or more realistically not to, devolve to the Scottish Parliament cannot be high.

The debate for additional powers is also not going to be all one way.  Those arguing for additional powers after a ‘NO’ vote will also have to counter those calling for powers to be removed from the Scottish Parliament or even that the Scottish Parliament be abolished.

That said, one recent example does gives us some idea of how long these things take.

• SNP win May 2007 Scottish General Election
• Calman Commission set up December 2007
• Interim report published December 2008
• Main report published June 2009
• 2010 UK General Election and change of government resulted in a review of the matter
• Scotland Act May 2012
• Powers to be devolved in April 2015 and 2016

So 8 or 9 years and that is where very few powers were being devolved and there was a large amount of consensus between the main UK parties.

8 or 9 years may though be unduly optimistic.  Calman was set up within six months of the SNP’s victory. Would something similar be set up so quickly in the event of a ‘NO’ vote given how close the next UK General Election was?  I suspect not.  That means any additional powers are not likely to be in the control of the Scottish Parliament for at least a decade.

Also worth remembering that three of the six tax powers recommended by Calman were omitted from the Scotland Act 2012.

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