Another few weeks in “tax land”

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.

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Scottish tax powers and a Scottish tax system

The debate over further fiscal powers, and in particular tax powers, for the Scottish Parliament is going to be a major issue as Scotland moves towards 18 September 2014.

Not many people know that there are over 25 taxes and duties.  The Scottish Parliament only controls two of these outright.  The other power over income tax has never been used and cannot now be used.

Even under Scotland Act 2012 the Scottish Parliament will only have control of four miscellaneous taxes and partial control of income tax.

If you would like to know more about the issues surrounding the tax powers debate and the creation of a Scottish tax system, whether under further devolution or independence, please contact James Aitken.

 james@legalknowledgescotland.com

 

 

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Scottish Government consultation on tax management

The above consultation closes on 12 April 2013.

“This is a consultation document seeking views on the structure and powers for Revenue Scotland, ensuring tax compliance, tackling tax avoidance, resolving tax disputes, treatment of taxpayer information and accelerated tax changes.

The Scottish Government has indicated that it intends to use the new competence of the Scottish Parliament to introduce taxes to replace the UK Stamp Duty Land Tax and Landfill Tax from 1 April 2015. This consultation complements the separate consultations on the Land and Buildings Transaction Tax (concluded August 2012; draft Bill introduced to the Scottish Parliament on 29 November) and a Scottish Landfill Tax (consultation closes 15 January 2013).

It seeks views on the underpinning arrangements required to support a Scottish tax system, encompassing chapters on structure and powers for Revenue Scotland, ensuring tax compliance, tackling tax avoidance, resolving tax disputes, treatment of taxpayer information and accelerated tax changes.”

More on this can be found here.

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Another week in “tax land”

Where to start?  I think I will start with the Scottish Futures Trust.  I remember well the negative reaction to the SFT when it was first proposed.  The coverage the SFT has received this week shows how much things have changed.  The fact that the long term costs of PFI are now widely known also shows how good an idea the SFT was.  A report on this from the BBC news website can be found here.

This raises another issue.  Notwithstanding the fiscal powers debate it is clear Scotland is increasingly doing things its own way.  On areas such as health or education the differences are well documented.  Now Scotland is to have its own food standards agency and a new governing body for the Scottish canals.  This is not because of Calman or the Scotland Act but because of the actions of the UK Government.  Add to this the Revenue Scotland announcement and you see the direction in which things are moving.

Now to a subject I have written about before, the Crown Estate.  It is now difficult to find someone against devolving control over the Crown Estate in Scotland to the Scottish Parliament other than the present UK Government.  If the UK Government is not even willing to cede control over this body to the Scottish Parliament then it is easy to accuse them of not seriously engaging in the fiscal powers debate.  A report on the latest ploy by the UK Government to not devolve control of the Crown Estate to the Scottish Parliament can be found here.

Now to the UK Government’s so called “Heritage tax”.  “The Heritage Alliance is disappointed that the UK Government has refused – despite widespread opposition and strong challenges to the rigour of its evidence base – to reconsider its Budget proposal to remove zero rating of VAT on approved alterations to listed buildings.”  No sign yet of a u-turn on this proposal.  More on this can be found here.

The Sunday Times recently reported that Scottish Government advisor Dr Andrew Cameron has advised that a tax break, which would allow wealthy landowners and investors to plant trees in exchange for tax offsets, would help Scotland meet its forest coverage goals. That would of course require further tax powers to be devolved if this was to be just a Scottish tax relief.  Let’s also not forget that the last attempt at something like this was a complete shambles.  Hopefully if this idea is revisited lessons will have been learned.  A story on this issue from 2002 can be found here.

Now to the “shared services” debate.  The House of Commons Public Accounts Committee has found that a Whitehall scheme to share resources across departments has cost hundreds of millions of pounds more than it saved.  The scheme ran £500 million over budget, costing £1.4 billion, and of the five departments that took part, only one broke even.  A report on this from the Telegraph can be found here.  Sadly I am not surprised with this report.

Aggregates Levy is one of two other miscellaneous taxes recommended for devolving to the Scottish Parliament under the Calman Commission.  The other being Air Passenger Duty.  The UK Government has so far resisted devolving Aggregates Levy due to a European Court action by the British Aggregates Association.  An update on this from HMRC can be found here.  The UK Government are fast running out of excuses for not devolving Aggregates Levy.

I was not surprised to read that many elderly farmers are working long past retirement age because they fear losing agricultural property relief (APR).  APR is likely to reduce their liability to inheritance tax.  Their worries have been prompted by HMRC’s tactics of challenging APR on farmhouses at every opportunity.  A report on this from the STEP journal can be found here.

Now to matters slightly further afield.

The European Commission’s Brussels IV proposal to simplify the settlement of international successions has received the final backing of the European Union’s Council of Justice Ministers.  The regulation will come into force in 2015 and will apply directly in all member states, other than Denmark and the opting-out members UK and Ireland.  Hopefully this is something that the UK and Ireland will consider again in the near future.  A report on this from the European Commission can be found here.

Now to France.  As expected, France’s new Socialist government has announced a series of increases in personal and business taxation.  They include new wealth taxes and a tax on foreign owners of holiday homes.  A similar idea was floated last year by the Sarkozy administration but it was dropped when the French Government was advised that such a tax would not survive a challenge under European Union anti-discrimination legislation. Hollande may believe he can avoid this by calling the levy a “social charge” rather than a tax.  A report on this from the STEP journal can be found here.

The New York Times has published an article describing just how easy it is to set up a Delaware shell company without disclosing its beneficial ownership.  This is something that the US Government has regularly pilloried many other countries for.  Apparently Delaware has more corporate entities than people.  The article from the New York Times can be found here.

A Berkshire man has been convicted of evading £430,000 inheritance tax on a Swiss bank account he held jointly with his mother.  HMRC obtained Michael Shanly’s account details from the French authorities, who had bought them from a former employee of HSBC Geneva, who had stolen them from the bank.  This is a good example of the increasing co-operation between European countries and the increasing effectiveness of HMRC.  A report on this from the BBC news website can be found here.

Australia has introduced its highly controversial carbon tax, after years of bitter political wrangling.  The law forces about 300 of the worst-polluting firms to pay a A$23 (£15; $24) levy for every tonne of greenhouse gases they produce.  The Australian Government says the tax is needed to meet climate-change obligations of Australia – the highest emitter per-head in the developed world.  A report on this from the BBC news website can be found here.  The environmental taxation debate in the UK, in contrast, has slipped down the political agenda over the last few years.

I think I will end with Cyprus.  The Cyprus government will not agree to cut its 10% corporation tax rate in order to secure a European rescue of its banking sector and public finances.  Cyprus may though have to agree to a further VAT increase as part of these negotiations.  Cyprus is taking a similar stance to the one taken by Ireland over the last couple of years.  A report on this can be found here.

Have a good weekend.

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Another week in “tax land”

Time for another “tax land”.

Where to start?  Jersey seems as good a place as any.  Jersey is also considering its constitutional options.  This is not new news.  I was in Jersey a couple of years ago and independence was also being discussed amongst the lawyers I was meeting.  Jersey is in a different position to Scotland as it is for all intents and purposes already fiscally autonomous and is a British Crown dependency.  An article on this from the Guardian can be found here.  This is from the Guardian article:

“A barrage of regulatory clampdowns and political attacks on the Channel Islands’ controversial financial industry has prompted one of Jersey’s most senior politicians to call for preparations to be made to break the “thrall of Whitehall” and declare independence from the UK.  Sir Philip Bailhache, the island’s assistant chief minister, said: “I feel that we get a raw deal. I feel it’s not fair.  I think that the duty of Jersey politicians now is to try to explain what the island is doing and not to take things lying down.  The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey’s interest to do so.”

It seems that the constitutional genie is well and truly out: Scotland, Falkland Islands, Jersey and now it seems on UK membership of the European Union.

Now to the announcement by the Scottish Government of its intention to create its own tax administration and collection agency, to be called Revenue Scotland.  Its main job initially will be to administer the two new Scottish taxes devolved under the Scotland Act.  The fact that it is to work closely with Registers of Scotland and the Scottish Environment Protection Agency, also makes sense.  These new taxes, a Scottish Stamp Duty Land Tax and a Landfill Tax, will be directly linked to the work done by these organisations.  A press release from the Scottish Government on this can be found here.

As regular readers of this blog will know I have been writing about this issue for many years now.  Whilst I welcome this announcement I still think we need to be more radical.  We need to review all government tax, law and registration services.

I was not surprised to see some negative comments about the Revenue Scotland announcement. However, if Scotland has its own tax system it needs its own tax administration and collection agency.  That applies just as much under the Scotland Act as independence.  That though is not the only reason.

Let’s not forget the fact that UK tax law is based on English legal principles, or how HMRC and HM Treasury dealt with the introduction of Stamp Duty Land Tax in Scotland, or the inheritance tax changes to trusts, or the proposed planning-gain supplement, or the Scottish Government’s local income tax proposal or VAT and the new Scottish police and fire services.  All good reasons for welcoming Revenue Scotland.

The Scottish Government is in no doubt that Revenue Scotland will be able to administer the new Scottish taxes at a lower cost than HMRC.  I agree with that.  I have also noticed that no-one seems to remember one of the more ridiculous claims made when the Calman Commission proposals were being debated.  The Scotland Office claimed that the cost of administering a separate Scottish tax system would be the same as the present UK system.   Complete and utter nonsense.  The Scotland Office paper can be found here.

One last point on Revenue Scotland.  I met with a number of Scottish Government officials just before the 2011 Scottish election on this issue.  It was quite clear that they wanted nothing to do with this idea and only met with me at the insistence of a Scottish Minister.  Thank you Jim Mather.  I wonder if their attitude has changed in any way?  Let’s hope so as this is just the start.

The Scottish Government has also published its consultation on a Land and Buildings Transaction Tax.  This will replace Stamp Duty Land Tax.  The consultation for Scotland’s replacement to Landfill tax will follow later this year.  I use the word “summer” advisedly.  The consultation can be found here.

And there’s more.  The Scottish Government has finally published its consultation in a “plastic bag tax”.  The consultation can be found here and a press release from the Scottish Government here.

Even the UK Government is playing its part.  The UK Government is consulting on whether to allow the Scottish Government the power to issue its own bonds.  The move would potentially allow Scottish Ministers to raise hundreds of millions of pounds.  A provision in the Scotland Act 2012 has already enabled the UK government to amend the way in which Scottish Ministers can borrow from 2015-16.  An article on this from the BBC news website can be found here.  The consultation can be found here.

One last point on fiscal powers.  The UK government is reportedly considering proposals to devolve complete control of income tax if Scotland votes ‘no’ in the independence referendum.  This sums up nicely what is wrong with the UK Government’s approach to this debate.  If the UK Government has a serious proposal to make, make it.  If not be quiet.

Now to tax and morality.  David Cameron branded comedian Jimmy Carr “morally wrong” for seeking to avoid paying his fair share of tax.  Mr Carr is understood to use an aggressive, though legal, tax avoidance scheme which enables members to pay income tax as low as 1%.  This is dangerous territory for David Cameron.  Already the press have published the names of many others who are involved in similar schemes.  If David Cameron seriously wants to tackle this issue he must act against all those who seek to evade tax.  Has he considered the public disclosure of all tax returns or a minimum percentage of tax that must be paid?  I suspect not.

This is not just a UK Government issue.  The Herald discovered that Transport Initiatives Edinburgh used tax loopholes to allow directors to avoid paying income tax rates on £1 million in fees and bonuses. The company, which closed last year due to its handling of the trams project, paid directors and consultants through their firms.  As a result, they were subject to 20% corporation tax rather than 40% income tax.  The article from the Herald can be found here.

The evidence that the “rules” do not apply to everyone is growing.  Whether it is the 3,000 UK civil servants being paid through a company, or the payments made to those who were partially responsible for the trams fiasco in Edinburgh or the celebrities avoiding tax.  I am resisting the urge to say it was ever thus but in times such as this it does seem even more reprehensible.

One last point.  I often am quite critical of HMRC.  I would argue for good reason.  That said, is it really time to cut 10,000 jobs?  An article on this and the proposed strike by HMRC staff can be found on the BBC news website here.

Have a good week.

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Taking Forward a Scottish Land and Buildings Transaction Tax

Great to see progress at last on a Scottish tax system.

One of the first steps is the Scottish Government’s consultation: Taking Forward a Scottish Land and Buildings Transaction Tax.   The consultation document can be found here

The consultation runs to 30 August 2012.

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