Another few weeks in “tax land”

Where to start with so much happening in “tax land” just now.

Let’s start with the increasing interest by the UK and other governments in offshore tax havens and in particular the creation of “beneficial ownership registers”.  The issue here is that it is often very difficult to find out who the actual owner of an asset is.  The “legal owner”, the name stated on a land register or a share register, may be different to the so-called beneficial owner, the person who actually benefits from the asset in question.  This distinction can also be of use when trying to avoid tax and in particular hiding ownership and/or benefit from a particular tax authority.

This issue was on the agenda at the recent G8 summit in Northern Ireland.  Partial agreement was reached but it is not clear if trusts as well as companies will be included, which countries will actually set up these registers, who will have access to these registers and how long this is going to take.  More on the “Loch Erne Declaration” from the BBC news website can be found here.

There is no shortage of ideas surrounding tax these days. For example, Justin King, the chief executive of Sainsbury’s, has called on the UK Government to follow the US by introducing a “marketplace fairness tax” for online retailers and predicted that the need to revamp the corporate tax system will be a battleground at the next election.  More on this from the Telegraph can be found here.

Google only seems to be in the news these days when its tax affairs are being discussed.  The House of Common’s Public Accounts Committee has called on HMRC to fully investigate Google’s tax arrangements in a report critical of the company’s corporation tax avoidance. More on this from the Scotsman can be found here.

Ed Miliband and George Osborne have traded charges of hypocrisy over party funding as it emerged that Labour had received a donation of shares from TV shopping channel magnate John Mills. Mr Mills admitted he had given the party shares rather than cash because it was “tax efficient”. Labour suggested the Chancellor’s involvement in the matter was hypocritical, given the Tories’ own efforts to seek donations that avoided tax. More on this from the Guardian can be found here.

Now to the ever increasing range of Scottish taxes, charges and duties.  Scotland is to follow the Republic of Ireland, Wales and and Northern Ireland in introducing a charge on plastic bags.  The charge is to be 5p and the funds are to go to good causes.  Regulations will be introduced in the Scottish Parliament in time for businesses to start charging by October 2014. The information released so far seems sensible and well thought out and in particular the effort to reduce any burden on small businesses is to be welcomed.  More on this can be found here.                                                                                 

More than half-a-million Scots are in danger of being worse off when the Scottish Parliament gains new powers over income tax because the current system would not allow them to claim tax relief on their private ­pensions.  More on this from the Scotsman can be found here.  This simply confirms how ill thought out the Scotland Act’s income tax proposal is.  Dividing control of a tax between two legislatures is rarely sensible or workable.

Now to the Scottish Conservatives and their never ending debate on further powers for the Scottish Parliament.  Coverage of their recent conference was dominated by the differences of opinion on this issue within the Scottish Conservative party.  More on this can be found from the Scotsman here and the Telegraph here.

The Scottish Green party is urging the Scottish Government to be bolder on land reform and to look at measures including land value tax.  I agree that this is something that needs to be looked at.  More on this can be found here.

When I read stories such as this I know that tax simplification is never going to happen.  David Cameron has said that married couples are to be given a tax break in the near future.  The tax break will be worth up to £150.  The income tax legislation is already complicated enough and, given the state of HMRC just now, I can guess its  private reaction to ideas such as this.  More on this from the Telegraph can be found here.

I wonder what the rest of Scotland thinks of this suggestion.  If Edinburgh’s £776m tram system is to have any chance of making even a small profit over the next fifteen years a tax concession will be required.  It is claimed that a large part of somehthing called the “sinking-fund” might be tax deductible but the City of Edinburgh Council has confirmed that it has not yet made approaches to HMRC to confirm that this is indeed the case.  More on this can be found in the Times of 27 June.

Now to matters slightly further afield.  The European Commission has published its plans to require EU member states to automatically exchange information about all forms of taxpayers’ income including dividends and capital gains, as well as the bank balances of all EU residents.  This is further evidence of the increasing role the EU is playing, and intends to play, in tax and financial matters.  More on this can be found here.

In addition, Italy, Belgium, Greece, Poland and Finland’s Aland Islands have failed to implement the European administrative co-operation directive, which requires member states to automatically exchange information on their residents’ taxable income. The implementation deadline expired six months ago, and the European Commission says it will take the countries to the European Court of Justice if they persist in ignoring the directive, which is soon to be extended to cover other types of income.   More on this from Reuters can be found here.

Taxpayers have brought litigation against the Canada Revenue Agency’s use of its general anti-avoidance rule (GAAR) on 52 occasions since it was introduced, and won exactly half of them, according to new CRA figures. Three-quarters of the litigated cases turned on whether there was misuse or abuse of the GAAR or another statute.  More on this can be found here.  This is of particular interest given that we will soon have a UK GAAR.

Now to the USA and back to the “beneficial ownership” issue.  The US President’s office has promised to introduce comprehensive legislation requiring the disclosure of beneficial ownership information, which currently does not exist in the US either at state or federal level. The promise is part of an action plan issued after last week’s G8 summit.   More on this from STEP can be found here.

The US Supreme Court has held that the surviving spouse of a same-sex marriage must be granted the spousal estate tax exemption, despite provisions of the Federal “Defense of Marriage Act” restricting federal benefits to traditional mixed-sex couples.  More on this from STEP can be found here.

Lastly to Cyprus.  An expert commission appointed by Cyprus’s central bank has concluded that its financial centre can only survive if it is reformed to be less dependent on tax breaks for clients in particular countries, with strictly and visibly enforced anti-money laundering controls, and able to offer an international standard of wealth management services.  More on this from STEP can be found here.

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Tax powers so far refused by Westminster (updated)

I have updated this blog as we now have updated “GERS” figures and the Scottish Labour party has published its interim “Devolution Commission” report.  Its findings are similar to the Liberal Democrat proposal.

Although the Scottish Conservatives now appear to be moving towards arguing for the devolving of further tax powers there is as as yet no firm proposal from them.

Listed below are the taxes, duties and charges that Westminster has so far refused to pass control to the Scottish Parliament.

In bold are the additional powers the Liberal Democrats are putting forward for devolving.  This information is from its “Home Rule Commission” published in October 2012.

In red are the additional powers the Scottish Labour party might argue for devolving.  I say “might” as its report is an “interim” report only.

The figures are mostly from the “Government Expenditure & Revenue Scotland 2011-12” (GERS).  The figures are included to give an idea as to the level of revenue produced by a particular tax and are a number of millions of pounds.

  1. Full control over income tax including the underlying law dealing with reliefs etc (some additional powers but not complete control)  (similar proposal from Labour) 10,790
  2. National insurance contributions  8,393
  3. Corporation tax (assignation of revenue only)  2,976
  4. North Sea revenue  10,573
  5. Fuel duties  2,296
  6. Capital gains tax (partial control only) (similar proposal from Labour) 246
  7. Inheritance tax (to be devolved)  (possibly)  164
  8. Other stamp duties – stamp duty and SDRT on shares (estimated)  276
  9. Tobacco duties  1,129
  10. Alcohol duties  (includes spirit, wine, beer and cider duties)  981
  11. Betting and gaming duties  115
  12. Air passenger duty (even though included in Calman) (not clear if to be completely devolved)  (similar proposal from Labour)  213
  13. Insurance premium tax  251
  14. Climate change levy  64
  15. Aggregates levy (even though included in Calman) (not clear if to be completely devolved) (similar proposal from Labour)  52
  16. Vehicle excise duty  (possibly)  475
  17. Bank levy (estimate as no separate Scottish figure)  180
  18. Licence fee receipts  325
  19. Crown Estate revenue  (not clear if to be completely devolved) (if Scottish Parliament accepts UK Government terms)  10
  20. VAT cannot be devolved but VAT revenue could be assigned  9,554


Taxes already devolved to be devolved under Scotland Act 2012

  1. Income tax (still only partial control over tax bands and will cost Scottish Parliament millions of pounds a year to administer even if not used)  (estimated partial control over)  5,395
  2. Council tax  1,987
  3. Business rates  1,933
  4. Stamp duty land tax (Scottish Parliament control by April 2015)  330
  5. Landfill tax (Scottish Parliament control by April 2015)  97


The Scotland Act 2012 also does not resolve the imbalance between the amount the Scottish Parliament is responsible for spending and which it raises.  The Scotland Act 2012 only takes us to about a third.

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A feeling of déjà vu in “tax land”

Just as the weather in Scotland likes to tease us, so do the Tories over tax powers for the Scottish Parliament.  You can sense the nervousness growing in those opposing substantial tax and fiscal powers for the Scottish Parliament.  They feel that need to be saying something substantial but they just don’t know what to say.  They think that a hint of something substantial will be enough.

Look how the Liberal Democrats talked up their recent ‘Home Rule Commission’ report and the amount of power being devolved under Scotland Act 2012.  The reality as usual being very different.  My earlier blog on this can be found here.

So what have the Tories been saying, or rather hinting at?  Ruth Davidson has announced that yet another group will examine the existing devolution settlement in order to set out a clear alternative to independence in next year’s referendum.  A “clear alternative to independence”, I think not more a clear case of déjà vu.  More on this from the Scotsman can be found here.

The UK Government’s nervousness on the devolving of tax powers is not confined to Scotland.  The negative reaction it has received to one particular announcement shows how difficult a position it is now in.  The recent move to put off the decision to devolve corporation tax to Northern Ireland has not gone down well.  Peter Robinson, Northern Ireland’s First Minister said he had told the Prime Minister: “What, effectively, you are saying to the people of Scotland is that if you want more fiscal autonomy than you have at the present time, the only way to have it is through independence.”  More on this from the Herald can be found here.

Now to HMRC.  So much is happening with them just now it is difficult to keep up.

HMRC has announced that it is postponing payroll reforms for small businesses that require businesses to send real time information to HMRC amid fears that small businesses are unprepared for the changes.  More on this from the Financial Times can be found here.

The House of Commons Public Accounts Committee has also criticised HMRC target of answering 80% of tax enquiry calls within 5 minutes as “unambitious and woefully inadequate”.  It also found that Britons waste £136m a year attempting to get through to HMRC, with about 20 million of the 79 million calls received by HMRC going unanswered each year, despite spending £900m on improving customer service.  HMRC’s premium rate phone lines are also to be replaced.  Phone company Cable and Wireless is making a profit of about £1m a year from callers to HMRC’s 0845 enquiry numbers, according to a report by the House of Commons Public Accounts Committee.  The lines are to be replaced with cheaper 03 numbers. More on this from the BBC news website can be found here.

HMRC is also to close all of its 281 Enquiry Centres, which gave face-to-face help to 2.5 million people with tax queries last year.  The closures in 2014 by HMRC, which aim to save £13m a year, are expected to add 2 million extra calls to phone lines while also putting 1,300 jobs at risk, though the authority aims to deploy these staff elsewhere.  HMRC aim is to replace the Enquiry Centres with interviews in a range of convenient locations.  This might include a person’s own home or business.  We shall see.  More on this from the BBC news website can be found here.  The matter of how we deal with tax enquiries is an issue that we in Scotland also need to look at as we create a Scottish tax system.

Now to attempts by the UK Government to reduce tax avoidance.

A tax loophole that allows firms to escape £100m a year in National Insurance will be closed under a new scheme targeting offshore payroll services.  From April 2014 the UK government will prevent employers avoiding National Insurance Contributions by paying their staff through an offshore intermediary.  It estimates that at least 100,000 workers are now being employed through an offshore agency, often without their knowledge, losing tax contributions of £100m a year.  More on this from the BBC News website can be found here.  The question is: why has it taken so long to try and put a stop to this.

The number of UK-resident non-domiciles has fallen by almost a fifth since the “remittance basis charge” was introduced in 2008.  Non-doms can elect to pay tax on UK income alone and keep their overseas income out of the UK tax net.  But if they elect to use this system long-term, they must pay the annual remittance basis charge after seven years of residence. The charge starts at £30,000 and increases to £50,000 after 12 years of residence.  More on this from the STEP journal can be found here.

HMRC is to launch a campaign aimed at people who have failed to declare capital gains on the sale of a second home, possibly going back many years.  This is yet another long overdue measure.  More on this from the STEP journal can be here.

The Charity Commission for England & Wales has been criticised by the House of Commons Public Accounts Committee for failing to provide more substantial oversight of the sector after 50 organisations were found to be using charity rules to avoid tax.  More on this from the Telegraph can be found here.

Now to matters slightly further afield.

Let’s start with Cyprus and yet another banking disaster.  After much wrangling, Bank of Cyprus depositors with more than €100,000 could now lose up to 60% of their savings.  The original proposal was a one-off levy of up to 10% to be imposed on all bank accounts held on the island.  More on this from the BBC news website can be found here.

The UK should withhold extra aid to Pakistan unless the country does more to gather taxes from its wealthier citizens and tackle corruption, the House of Commons International Development Select Committee has suggested.  The UK Government is planning to increase the amount of aid to Pakistan to £446m by 2015 and the Chairman of the Committee, has said that it is a question of “how justified it is to increase [aid] at a time when [the] wealthiest people in Pakistan are paying little or no tax”.  More on this from the BBC news website can be found here.

Now to France.  President Hollande has announced that French companies will be taxed at 75% on any salaries they pay over €1m.  His original plan for a 75% top rate of income tax on individuals was struck out by the constitutional court earlier this year.  More on this from the Guardian can be found here.

Let’s end with a story from China.  According to reports, China’s property market has been thrown into turmoil by the announcement that capital gains tax on residential property is to be raised to 20%.  At the moment, the seller of a residential property pays between 1 and 2% of the total sale price. Officially, gains from selling second homes have been taxable for several years, but the tax has not been strictly enforced.  The measure is one of several just issued by the People’s Republic State Council in an effort to cool off the booming housing market.  More on this from the STEP journal can be found here.

One last thing.  Congratulations to Ryan Mania.  An absolute fantastic achievement today on winning the Grand National.  Another reminder of just how great it is to be from the Scottish Borders.


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