Transcript Dispute Resolution in anti

Dispute Resolution in anti-avoidance cases
Presented by
James Bullock
Partner, McGrigors LLP
12 May 2010
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What is Tax Avoidance?
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“Minimising the tax burden though legal means”
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BUT – Must be seen in the context of
The Tax Gap
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What is The Tax Gap
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The gap between what taxpayers might be expected to pay in tax and
what they actually pay
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HMRC’s Pre-Budget Report - 15% of the tax gap attributable to
“avoidance”
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HMRC focus on “closing the tax gap”
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Where are the lines drawn (1)?
Burton & others –v- HMRC [2009] UKFTT 203 (TC)
– CGT. Offshore settlements – “flip-flop” scheme
– Section 86 and section 87 TCGA 1992 – Attribution of gains to
beneficiaries
– “Interest in a settlement” – extended definition? Does not apply
– “Benefit” and meaning of “payment” – split Tribunal, but Presiding Judge
(Wallace) found value of benefit was “nil”
– Win for Taxpayers. HMRC appealed to Upper Tribunal, but case has
been settled in the meantime.
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Where are the lines drawn (2)?
Mayes –v- HMRC [2009] EWHC 2443 (Ch)
Proudman J
“To say that there is no premium and no particular surrender, that those
steps should be ignored, is in my judgment simply to sidestep the question
of construction altogether. The pre-arranged and self-cancelling nature of
the question was no different and no more extreme than that in MacNiven”
– HMRC’s appeal to the Court of Appeal is due to be heard 28-30 July, 2010
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Where are the lines drawn (3)?
Mayes –v- HMRC [2009] EWHC 2443 (Ch)
– Availability of “Corresponding Deficiency Relief” (on second-hand insurance policies)
– Transaction was structured with tax planning in mind
– Taxpayer lost (on substantive issue) before Special Commissioners but appealed to
High Court
Proudman J
“I sympathise with the instinctive reaction that such an obvious scheme ought not to
succeed. However, I cannot extract from the legislation any underlying or overriding
purpose enabling me to conclude that parts of the scheme can be ignored. To do so
would conflate the definition of a chargeable event with the concept of an actual
charge to tax and would … revert to an acceptance of the type of submission that
was soundly rejected in MacNiven”
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Litigation and Settlement Strategy
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Published Summer 2007
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Underpins HMRC’s policy on reaching settlement – or on
litigating appeals
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Key to strategy for taxpayers to be informed as regarding HMRC
procedure
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What is a dispute?
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“all types of dispute about liability to pay taxes or duties, or entitlement
to tax credits”
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Broadly covers whole situation from an appeal being lodged until final
resolution
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Focus for all parties must be settlement without recourse to
Tribunal or the Courts
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Settlement
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HMRC do not enter into “package deals” (i.e. range of issues settled
for single payment not subdivided amongst individual disputes)
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Disputes with “all-or-nothing character” (including single point of law to
be decided one way or another with no middle ground) should be
settled on “all or nothing” basis.
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Effect
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Significant impediment to settlement
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Technical points (interpretation of law) – HMRC will not contemplate a
settlement under which the financial difference between the parties is
“split”
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N.B. ability to “cut a deal” not popular with HMRC
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Putative effect – reduction of the tax rate through advancing a dispute
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Will HMRC “drop the case”?
N.B. Advice to inspectors
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“If, following initial investigations, you do not find good evidence of
material understatement of tax, drop the case. Do not pursue minor or
questionable points in order to avoid a nil settlement”
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“Similarly, in a legal dispute, if HMRC’s arguments are not strong
and/or the point at issue is not an important one, drop the case”
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Avoidance Issues
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“War on avoidance” continues – see Pre-Budget Report 2009 and
reference to “tax gap”. Unlikely to change under the new “regime”
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where legal advice “strong” – do not accept settlements for less than
100% of tax and interest
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where legal arguments are poor – “drop the case”!
BUT “all factors” – including preserving the integrity of the tax system – should
be taken into account.
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Avoidance cases – in practice
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Will HMRC, in practice, back down?
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Chances of success are the dominant factor
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HMRC adopt a “no compromise” stance in negotiations
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Litigating when prospects of success less than 50% “justified by
particular circumstances”
e.g. large amount of tax at stake or fundamental point of principle
at issue
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Priority given to litigating against taxpayers who have set out to
undermine the purpose of the tax legislation
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So … what is the taxpayer’s strategy?
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“Persuade” HMRC to take legal advice
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and do so at earliest opportunity
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how does HMRC do this?
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who gives HMRC the advice?
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Taxpayer Groups
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Multiple taxpayers (e.g. purchase of a marketed “scheme”)
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Role of “Promoter”
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Fighting fund
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Steering Committee
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Role of taxpayer vis-à-vis Group
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Settlement/dissolution of Group
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HMRC Review
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Is it appropriate for avoidance cases?
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Who conducts the review?
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Means of teasing out a settlement?
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Registration of an appeal
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Who has conduct at HMRC?
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Role of Solicitor and General Counsel
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Case categorisation
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Effect?
Upper Tribunal Transfer
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“Pressure Points” for settlement
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Need to establish specific Directions
Three Stages
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Pleadings phase (usually settled by Leading Counsel)
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Evidential phase
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Agreed Statement of Facts and Issues
(see Burton and Others v HMRC)
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Witness Statements
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N.B. FTT is Tribunal of Fact
Trial Preparation
(N.B. “door of the tribunal” settlements)
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Alternative Dispute Resolution
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Tribunal’s duty to consider in every case
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HMRC will now entertain it
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But does it impact on LSS?
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Approach in Avoidance Cases?
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Mediation or Arbitration?
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Striking Out, Penalties and Costs
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Regulation 8 Tribunal Rules. Appellant can be “struck out” for noncompliance where direction given with that sanction
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HMRC barred from taking further role in proceedings
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Costs regime for “unreasonable behaviour”
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