Weekly Tax Update - Monday 18 June 2012

1. General news

   1.1. UK/Lichtenstein double tax agreement

   A first-time comprehensive Double Taxation Convention between the UK and the Principality of Liechtenstein was signed in London on 11 June 2012 by David Gauke MP, Exchequer Secretary to the Treasury and Dr Klaus Tschütsche,the Prime Minister of Liechtenstein.

   The Convention marks a further enhancement in cooperation between the UK and Liechtenstein in the field of taxation. The Convention generally follows the Organisation for Economic Co-operation and Development (OECD) Model Double Taxation Convention.

   Important features include zero withholding rates for dividends (with 15 per cent for RIETS), zero withholding rates on interest and royalties and the latest OECD Model provision on exchange of information.

   The third joint declaration on the Liechtenstein Disclosure Facility was also signed.

   www.hmrc.gov.uk/taxtreaties/news/liechtenstein.htm

   1.2. GAAR consultation

   The consultation on introducing a general anti-abuse rule (GAAR) was issued on 12 June, and is open for comments until 14 September.

   The proposals follow very closely the suggestions put forward in the Graham Aaronson report published on 11 November 2011. The GAAR aims to counteract tax advantages arising from abusive tax avoidance arrangements. The consultation clarifies that this is required because these are often complex and/or novel arrangements that could not have been contemplated directly when formulating the tax legislation. The consultation paper comments that the GAAR should not affect what is described as "the centre ground of tax planning", though whether this is a realistic goal with the proposed draft legislation may only become apparent when it has been in operation for some time and HMRC, taxpayers, their advisers and the Courts have an agreed understanding of its interpretation.

   Tax arrangements for the purpose of the GAAR are those for which, 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.

   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, having regard to all the circumstances including:

   (a) the relevant tax provisions;

   (b) the substantive results of the arrangements; and

   (c) any other arrangements of which the arrangements form part.

   The reference to the relevant tax provisions includes:

   (a) any principles on which they are based (whether express or implied);

   (b) their policy objectives; and

   (c) any shortcomings in them that the arrangements are intended to exploit.

   Included in the draft legislation is the following list of indicators which might be regarded as abusive:

   the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes, the arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes, the arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid, the arrangements involve a transaction or agreement the consideration for which is an amount or value significantly different from market value or which otherwise contains non-commercial terms. The GAAR will apply to the following taxes:

   (a) income tax;

   (b) corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax;

   (c) capital gains tax;

   (d) petroleum revenue tax;

   (e) inheritance tax;

   (f) stamp duty land tax; and

   (g) the new tax on ownership of high-value residential properties or dwellings to be created by FA 2013.

   Where the GAAR applies, counteraction will be applied to the tax advantage on a just and reasonable basis.

   The consultation sets out in more detail how the Government envisages the GAAR being applied in practice, as follows:

   The GAAR would be part of the self assessment process where it applies, and within the administration rules of those taxes not within self assessment (such as SDLT, PRT, NIC and IHT); There will be no clearance process; As recommended in the Graham Aaronson report, it is proposed there will be an advisory panel and the process for applying the GAAR will operate as follows: Stage one: Written notification to a taxpayer that a designated HMRC officer considers that the GAAR may apply (with reasons and proposed counteraction), and inviting a written response. Stage two: Written response from the taxpayer. Stage three: If the taxpayer provides a written response, the designated HMRC officer must consider the response. If the officer is still of the view that the GAAR may apply, he or she must refer the matter to the Advisory Panel. Stage four: The Advisory Panel will give its opinion to HMRC and to the taxpayer. A "designated officer" would be an officer of HMRC who has been designated by the HMRC Commissioners for the purposes of the GAAR (this is aimed at ensuring consistency in the way the GAAR is used by HMRC). If the advisory panel needs more information to make a decision it can refer the matter back to HMRC, though the panel will have no formal information powers. The advisory panel will be drawn from experts in the relevant area, who will be under a duty of confidentiality. Guidance on applying the GAAR will initially be drawn up by HMRC, but will be supplemented (on an anonymised basis) by reported decisions of the panel. Should the matter reach the Tribunals or Courts, it is for HMRC to demonstrate how the tax arrangements are abusive. The Tribunals and Courts must take into account HMRC's guidance and any opinion of the advisory panel. While the opinion of the advisory panel (being acknowledged experts in the area concerned) may help guide both parties as to how the GAAR should be applied to a particular situation, it is difficult to see what extra this might add to a dispute between taxpayer and HMRC that would not be offered by each party's advisers and the use of an alternative dispute resolution process. Beyond that, the place for final resolution of any dispute concerning application of legislation must be the Tribunals and Courts.

   http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel= pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032113

   1.3. HMRC's double tax relief programme for the period to March 2013

   HMRC plan to begin negotiations on double tax agreements (DTAs) and Protocols with Japan, Portugal and Russia among others. They also plan to take forward work on DTAs and Protocols with Austria, Canada, Germany, Iceland, Kosovo, Panama and Turkmenistan. The plan is also to take forward work on TIEAs (tax information and exchange agreements) with Andorra, Macau, Monaco and Seychelles.

   www.hmrc.gov.uk/taxtreaties/news/programme-2012-2013.htm

   1.4. Scottish Land and Buildings Transaction Ta

   The Scottish Parliament will have new financial powers from 2015 over taxes on land and property transactions and on disposal to landfill.

   A consultation dealing with these devolved tax powers (the first of three) has been issued and is open for comment until 30 August 2012. The Scottish Government will consider its proposals for a Land and Buildings Transaction Tax for Scotland in the light of responses to the consultation paper, and then, in the autumn, introduce a Bill for the Scottish Parliaments consideration.

   Later this year, the Scottish Government intends to consult on a tax on disposals to landfill, and also on tax management arrangements, covering issues that apply to all future devolved taxes like tax collection, the use of information, penalties for late payment or for tax evasion, and appeals.

   The proposed structure of SDLT in Scotland from April 2015 and how it might be administered is set out in the document. In 2010/11 SDLT raised £330m in Scotland, split roughly equally between residential and non residential transactions. This level of collection and split between categories has fluctuated over the years 2007/08 to 2010/11 from £565m to £250m in total.

   Two options for the rate structure are discussed for residential property and one for commercial property. All options are for a progressive system (so that the rate only applies to the consideration in the relevant band) in contrast to the existing 'slab' system of rates (where the rate in the band applies to the whole consideration). Indicative proposals of how the rates might work (although the consultation does not propose the...