In the ongoing wrangle over defining tax avoidance, I’ve come across an interesting document. It is a letter DAO/(GEN)08/03 dated 23rd May, 2003 from the Treasury to anyone in government who needs it. DOA = Dear Accounting Officer. This one is entitled Tax Planning and Tax Avoidance. It kicks off:
The purpose of this letter is to advise departments:
- against using tax advisers to reduce departments’ tax liabilities, other than in very restricted circumstances as described below;
- to base procurement decisions on the need to secure value for money, independent of any tax advantages that may arise from a particular bid; and
- to apply restrictions on the use of offshore jurisdictions by successful bidders to procurement contracts, where such restrictions are justified in terms of the objectives of the project and consistent with international obligations and stated objectives on tax transparency and openness.
in the guidance notes under tax planning, it says:
In making their assessment of cost effectiveness in activities where tax considerations might be important, departments should bear in mind that savings arising from tax mitigation arise at the expense of other taxpayers, or other parts of the public sector. Departments therefore need to pay particular attention to avoid distorting their assessment of value for money for the taxpayer.
Under procurement and tax avoidance, it says:
Consistent with the need to ensure fair and transparent procurement processes in line with legal obligations, departments should base such decisions on the need to secure value for money – independent of the tax advantages for individual departments that may arise from a successful bid from an offshore company, or from complex or artificial tax arrangements which have no underpinning economic basis.
There is discretion, but:
In considering applying restrictions of this nature, Accounting Officers should seek legal advice
Under harmful tax competition:
Particular care should be taken with transactions involving bodies with tax residence in offshore financial centres, or which involve tax arrangements that the UK government regards as harmful tax competition. It is standard guidance that, when considering a range of bids for Government contracts, departments must be confident that those bids are sustainable and robust over the long term. Where those bids are derived in part from the use of tax regimes that are the subject of UK or international pressure for reform, there may be higher levels of tax risk involved which departments should consider when satisfying themselves that such bids are sustainable in this way. In these circumstances, departments should discuss the issue with the Inland Revenue.
[My highlights]
At one level, this is a very simple letter with a very simple message. Use of tax havens and offshore entities is pretty much a no-no. If in doubt, consult. But to any barrack room lawyer (like me), this is fraught with problems:
- the letter is advisory and not mandatory
- the application of restrictions is discretionary
- avoid distortions (what are they?)
- too many ‘maybes’
Civil servants making decisions around these types of transaction are likely to be seasoned professionals with some years’ experience in doing deals. They may not be tax experts but they will have colleagues who can provide opinions. They will likely have an innate sense of what ‘harmful’ means. But this document is way too loose. What is so hard about defining avoidance? How might this be better communicated not only within government but out to professionals?
Why, since its release, has there been no update?
Technorati Tags: HMRC, tax avoidance, tax evasion, tax justice
