Proposed Scottish tax collection framework sets out tough new anti-avoidance powers, says expert

Karen Davidson, a tax expert from Pinsent Masons, the law firm behind Out-Law.com, said that the Scottish Government had chosen not to adopt the UK's approach to a general anti-abuse rule (GAAR) in its new Revenue Scotland and Tax Powers Bill. Instead, the draft legislation adopts "a wider anti-avoidance provision attacking 'artificial' transactions rather than focusing on the 'abusive'," she said.

"Perhaps this is not surprising, given that a sizeable chunk of Revenue Scotland's remit will be Land and Buildings Transaction Tax (LBTT): the new Scottish equivalent of SDLT, which has been an area ripe for avoidance in the UK – although much of that activity has centred on SDLT sub-sale provisions which the new LBTT in its current format does not contain," she said. "However, the 'Scottish GAAR' will lay the foundations of a system which will apply to future devolved taxes - and could, in theory, set the tone for any tax system adopted in the event of a 'yes' vote in the independence referendum in 2014."

"Few would argue that Revenue Scotland should not have the power to counteract those transactions which cross the line of acceptability, but judging where that line sits is no easy task. I would expect there to be pressure to include in the Bill more protection for taxpayers, perhaps in the form of a UK-style independent panel," she said.

Under the Scotland Act 2012, the Scottish Parliament will be able to introduce and manage taxes on the disposal of waste to landfill, and on the purchase or leasing of land and buildings, from April 2015. The existing UK landfill tax and stamp duty land tax (SDLT) will be 'switched off' in Scotland in April 2015, together with a corresponding reduction in the 'block grant' Scotland receives from Westminster.

The new bill provides a legal framework for the collection of the two taxes that will be devolved from April 2015, and gives this responsibility to a new tax authority, Revenue Scotland. It also sets out the powers and duties of this new authority, including its ability to delegate some functions to Registers of Scotland and the Scottish Environmental Protection Agency (SEPA). Revenue Scotland will not be responsible for the collection of existing locally-collected taxes, including council tax and non-domestic rates; and will not collect the Scottish Rate of Income Tax, which will be collected by HM Revenue and Customs (HMRC) from April 2016.

The bill also contains a "tough" new anti avoidance rule, intended to counteract artificial arrangements designed to gain a tax advantage. By contrast, the GAAR that took effect in the UK this year is designed to prevent taxpayers from receiving tax advantages as a result of tax arrangements that are 'abusive', defined as arrangements that HMRC can show "cannot be reasonably regarded as a reasonable course of action". The GAAR is overseen by an independent GAAR Advisory Panel, which oversees HMRC guidance on the application of the rule and provides non-binding opinions on cases where HMRC considers that it may apply.

Scottish Finance Minister John Swinney said that the new bill set out a "distinctly Scottish approach to taxation, including a vigorous approach to combating tax avoidance".

"The Bill and the establishment of Revenue Scotland are important steps in taking greater responsibility for setting and collecting taxes in Scotland," he said.

"I want to build a firm foundation for taxation in Scotland. In Revenue Scotland we will build a tax authority and a 21st century tax system that meets the needs of our businesses and citizens. That system will also provide a foundation for future arrangements where we expect Scotland to collect a much wider range of taxes," he said.