OneE Group “The Morality of Esoteric Tax Planning”

1. OneE Group “The Morality of Esoteric Tax Planning”

2. Overview: • Introduction • A quote from the past • Definition of the question before us • Parameters of the subject • When & where morality came into it • What the media have to say • What HMRC have to say • Definition of the “immoral” choices • General Anti Abuse Rule • Advisers duty to clients • Summary

3. Lord Clyde: "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue" Lord Clyde (1929)

4. Definitions:

5. The Morality of Esoteric Tax Planning Morality:- The right or wrong ness of reducing ones tax burden Legally Where is the moral line? Esoteric:- Reducing tax is understood by all. The way in which it can be done understood by a few. It only applies to a few. Lets look at the parameters

6. Subject Parameters: • Spectrum of tax reduction: • Evasion – Fraud • Complex convoluted arrangements • Avoidance using ‘loopholes’ (Subsale?) • Accepted Planning using statutory reliefs. • Government initiatives Mayes SHIPS2 Sub-sale SDLT E.R. B.P.R S.162 ISA Investment Bond Pension

7. Moral Compass:

8. What the Media says:- • Frankie Boyle:- E. Relief • The forensic accountant who examined Boyle’s company accounts said the structure of the arrangements seemed to be ‘aiming’ to benefit from entrepreneur’s relief, • If he meets the qualifying conditions ‘there is nothing illegal about what he may be doing, but he could save a very large amount of tax potentially,’ the accountant added • Sir Chris Hoy :- DLA • It is not clear from the company's accounts how much Hoy could have saved in tax, although a salary of £325,000 would have been liable for tax of about £147,000. • Having seen Hoy's disclosure, one tax expert who asked not to be named, said: "It is likely that such arrangements could come under attack under the 'disguised remuneration' rules recently introduced by the Treasury."

9. What HMRCsays:- • ‘’HMRC will challenge tax avoidance relentlessly and we will beat you’’ • ‘’We are building on the work we have already done to make life difficult for those who artificially and aggressively reduce their tax bill ‘’ • "Things are now running very much against tax avoidance schemes, both politically and in the courts."

10. How do we define Tax Avoidance? • HMRC – DOTAS? • Artificially and aggressively? • Contrived? • Graham Aaranson QC • GAAR legislation • Set the bar high?

11. G.A.A.R. • PART 5 • General anti-abuse rule • 206 General anti-abuse rule • (1)This Part has effect for the purpose of counteracting tax advantages arising from tax arrangements that are abusive.

12. Main Purpose: • 207 Meaning of “tax arrangements” and “abusive” • (1)Arrangements are “tax arrangements” if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements. • COMMERCIAL

13. Abusive: • (2)Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances. • GAAR Panel

14. Advisory Panel and Guidance • Independent from HMRC • Patrick Mears, former partner and head of tax at law firm Allen & Overy,, • • Michael Hardwick - consultant at Linklaters solicitors • • David Heaton - Partner at Baker Tilly accountants • • Brian Jackson - Vice-president for group tax at Burberry • • Sue Laing - Partner at Boodle Hatfield solicitors • • Gary Shiels - Business adviser to SMEs • • Bob Wheatcroft - Partner at Armstrong Watson accountants • Will review and approve HMRC’s guidance on the GAAR and will also deliver non-binding opinions in individual cases. • A redacted version of these opinions will be published which will become useful guidance on the sort of arrangements that are considered to be caught by the GAAR. • Interim Panel amended HMRC’s GAAR Guidance: http://www.hmrc.gov.uk/avoidance/gaar-part-abc.pdf • Significance of Guidance?

15. GAAR Panel:- • (2)In determining any issue in connection with the general anti-abuse rule, a court or tribunal must take into account— • (a)HMRC’s guidance about the general anti-abuse rule that was approved by the GAAR Advisory Panel at the time the tax arrangements were entered into, and • (b)any opinion of the GAAR Advisory Panel about the arrangements (see paragraph 11 of Schedule 43). • Must

16. Abusive: • (a)whether the substantive results of the arrangements are consistent with any principles on which those provisions are based (whether express or implied) and the policy objectives of those provisions, • (b)whether the means of achieving those results involves one or more contrived or abnormal steps, and • (c)whether the arrangements are intended to exploit any shortcomings in those provisions

17. G.A.A.R. Summary Two Things to Take Away • Pockets of Certainty: • EIS type arrangements • Arrangements specifically referred to in the Guidance • Arrangements specifically referred to in Government Consultations • The Rest, for the time being, is still uncertain!: • One has to decide whether an arrangement is within the intention of Parliament (per Lord Nolan in Willoughby) • Certain planning will sail close to the wind • Other arrangements, although not certain, will have a commercial purpose and / or be known to Parliament (e.g. Partnership Consultation, Partnership profit and loss allocations)

18. Do nothing?

19. Adviser’s duty to clients • HurlinghamEstates Ltd v Wilde [1997] STC 627 - • the adviser’s approach to a conveyancing transaction resulted in a tax liability arising which would not have arisen if the transaction had been structured differently. • MehjoovsHarben Barker • Montpellier scheme put forward by Harben Barker to client Mehjoo • HB to pay £763,658 in respect of CGT that Mehjoo had to pay, • Bearer Warrant planning scheme, which would have been more appropriate for a non-dom resident. • The accounting firm will also pay the outstanding balance of the cost of entry to the Montpelier scheme of £180,000, plus any interest charged by HMRC. • Total £1M cost to accountancy firm

20. Institute guidelines:- • ICAEW recently issued excellent guidance – HELPSHEET July 2012 • Due diligence • Understand wider interests of client • Public interest (legitimate interests of clients, government, financial institutions, employers, employees, investors, business community and others) • Reputation of accounting profession (legality) • Inform clients of: • Litigation risks • Costs • On-going uncertainty

21. Summary • Tax Planning is Esoteric, by cost, by applicability • The ’legality’ dependent on success • Specialist advice, case law, opinion. • Common well trodden paths “less out there” • Right or wrong must be taken from law, • Understand the debate. Consult experts and peers. • Do what is right for clients. • Let them decide the morals