To modify an old Scouse saying, tax avoidance has become the fish and chips of our times: “never out of the papers”.
Celebrity participation in what might neutrally be called tax mitigation arrangements that turn out, courtesy of courts and tribunals, not to have done what participants and promoters alike thought they said on the tin, guarantees eye-catching media coverage and boundless opportunities for political grandstanding.
Gary Barlow and Chris Moyles, to name but two, have, through their assiduously cultivated celebrity, been the proverbial manna from heaven for HM Revenue & Customs (and newspaper proprietors) when the arrangements or tax “schemes” in which they participated have failed when challenged and then litigated.
On the other hand, have you heard of the recent Court of Appeal decisions involving the tax affairs of the financial behemoths UBS and Deutsche Bank (DB Group Services (UK) Limited v HMRC and HMRC v UBS AG )? I thought not, unless, of course, you were involved in the case or otherwise make your living in the febrile world of tax.
Most of the participants in those arrangements were probably content to be household names merely in their own households. Notwithstanding that these cases concerned the contemporary twin axes of financial evil — bankers’ bonuses and tax avoidance — both banks successfully argued that arrangements which make use of now-amended legislation dealing with employment-related shares were able to result in bonuses not being liable to income tax because of the way in which these were structured.
Why is it that the “celeb” schemes, which all had their generic marketing names — “Icebreaker” (Barlow) and “Working Wheels” (Moyles) — failed when put to the litigation test, when others, admittedly, very much in the minority, find that their fiscal alchemy is effective?
The UK has an extraordinarily complex and extensive corpus of tax law. It is complex and extensive not only because it needs to deal with a mature and enormously varied commercial and financial environment (and address everything from tax sale of property to dealing in secondhand insurance policies) but also because much modern tax legislation now anticipates attempts to circumvent it.
Underlying the UK’s tax legislation is still the principle, stated and restated in case law, that “a subject is only to be taxed on clear words… of an Act”. While it might be called the law of unintended consequences, a literal reading of highly prescriptive legislation dealing with a specialised area can give rise to taxing results that may astonish the casual observer.
What courts and tribunals have done when faced with “schemes” is to look at the legislation and, broadly, ask the question: “whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically”. While it may be possible to take jurisprudential issue with this formulation, it does appear to reflect the way courts and tribunals now approach “avoidance”.
In the case of Chris Moyles, secondhand car dealer, it was a case of “pull the other one”. Likewise, the basis on which Gary Barlow and others were unsuccessful would not have astonished those familiar with arrangements which, over the years, have similarly failed because the level of economic activity in, for example, film-making and distribution or exploitation of a particular scientific process, just didn’t stack up to justify the availability of allowances and deductions that taxpayers hoped would be available to them.
In contrast, arrangements that have “real” and enduring economic consequences, even if they should deliver a beneficial tax treatment, are more likely successfully to achieve their desired ends (see the structuring arrangements for Starbucks, Amazon et al). Dealing with the tax advantages in such circumstances is then a question of tax policy and legislative change — rather than saying that existing legislation is being flouted.