Government abandons double tax treaty plans

Out-Law News | 12 Sep 2011 | 3:04 pm | 1 min. read

Proposed legislation to combat tax avoidance involving double tax treaties has been abandoned, the Government has confirmed.

Responses to a consultation have made it clear that the intended scope and effect of the new laws would create "significant uncertainty" about its scope and effect David Gauke, Exchequer Secretary to the Treasury, said in a written statement (1-page, 32 KB PDF).

Double tax treaties are designed to protect against the risk of an individual or company being taxed twice where the same income is taxable in two countries.

The Government will instead "continue to challenge specific arrangements" that lead to tax evasion through the improper use of double tax treaties, Gauke said.

The UK currently has around 120 double tax treaties in place with other countries and territories, according to HMRC figures.

The proposed legislation, which would have been introduced in next year's Finance Bill, was intended to stop taxpayers from exploiting double tax treaties in order to avoid paying tax in the UK.

The Government abandoning the plans was unsurprising said Eloise Walker, a tax specialist with Pinsent Masons, the law firm behind Out-Law.com.

"It was odds on that this would have to be abandoned, given its many difficulties and the manner in which it was introduced. One can only be thankful that HMRC have seen sense rather than pushing on regardless," she said.

"If the Government concludes in the future that alternative approaches for legislating against treaty abuse are necessary, it will consult on these alternatives in line with the Tax Consultation Framework," Gauke said.