UK government proposes special measures for persistent aggressive tax planners

The action will be taken against companies that either conduct aggressive tax planning or "refuse to engage with HMRC in an open and collaborative manner", the consultation said.

The proposal is part of a package of measures which include a legislative requirement for all large businesses to publish their tax strategy and the introduction of a voluntary code of practice on taxation for large businesses.

Under the proposal large businesses which demonstrate a lack of transparency and cooperation with HMRC or  engage in persistent and aggressive tax planning could be put on notice that they are at risk of being put into 'special measures' if they are seen as presenting "a significant risk to the Exchequer". The government says the "vast majority" of large businesses will not be affected.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-law.com, said "This is a stick affecting the minority, which most will consider reasonable. But the carrot of faster working for the majority who are compliant - both large and small businesses - also needs to be available."

Factors influencing whether the business is seen as presenting a significant risk could include the number of times the business has used tax avoidance schemes and the nature of those schemes or the extent to which the business has failed to co operate with HMRC enquiries without formal powers having to be invoked, according to the consultation document.

Following a 12 month 'initial notice period' businesses which do not demonstrate "a significant improvement in behaviours" would receive a final warning that any further instances of non-collaborative behaviour would lead to special measures. The measures proposed could be increased reporting and disclosure requirements between HMRC and the business, HMRC withdrawing or limiting the extent to which non-statutory clearances will be given as well as businesses being named publicly by HMRC as being subject to special measures.

The government intends the package of measures should apply only to businesses administered by HMRC’s Large Business Directorate with a turnover of more than £200 million and/or a relevant balance sheet total of more than £2 billion for the preceding financial year.

Such businesses would also be required by law to publish their UK tax strategy setting out their attitude to tax risk, their appetite for tax planning and their approach to their relationship with HMRC. The strategy would have to be formalised, articulated and owned by a named executive board member. Businesses which fail to publish a strategy could face a penalty.

HMRC said that its research has found that “businesses with a greater appetite for risk tend[ed] not to have written (or published) tax strategies, while those with lower risk-appetite tended to have more formalised strategies.”

Heather Self described HMRC's recent research into large corporate behaviour as "rather thin - qualitative research, based on only 35 interviews".  She said that although the research showed that businesses which published their tax strategy tended to be low risk," the converse cannot be assumed" as "correlation is not the same as causality".

"Will it really make a difference to behaviours if businesses need to publish their strategy?  Or is it just another compliance requirement for the compliant majority?" Self said.

In a further measure, HMRC intends to introduce a voluntary code of practice on taxation for large business. The government intends this to be a "common set of principles to encourage all businesses to adopt the most positive tax compliance behaviours, and which businesses themselves can use to promote exemplary behaviours across their organisation".

It will also offer large businesses a means to demonstrate their commitment to these standards and have that recognised.

Heather Self said "Most businesses are transparent and an increasing number are publishing their tax strategy - around 50 of the FTSE 100 in most recent survey".  She said that the proposed code of conduct is very similar to the principles published by the Confederation of British Industry (CBI) two years ago.

"A voluntary code of conduct is sensible, but how long will it remain voluntary?" said Self.

Signatories to the code would sign up to being  "fully open and transparent with regards to decision making, governance and tax planning in their business, keeping HMRC informed of who has responsibility, how decisions are reached, how the business is structured and where the different parts of the business are located" They would also agree to "Provide HMRC with evidence of ‘governance in action’ – that the most senior decision makers within the business have seen, and agreed, strategies, actions and transactions which have a significant tax impact."

Businesses signing up to the code would be expected to "avoid structuring transactions in a way which will have tax results that are inconsistent with the underlying economic consequences unless there exists specific legislation designed to give that result" according to the proposals. The document says "In all cases, the business should reasonably believe that transactions are structured in a way that gives a tax result which is not contrary to the intentions of Parliament".

Signing and complying with the code would be seen by HMRC as an indicator of "lower-risk" behaviour. Non-signature or breaches of the code would indicate "higher-risk" behaviour.

The new code is not intended to be an extension of the ‘Code of Practice on Taxation for Banks’ which was introduced in 2009.  Unlike the Banking Code, there is no intention for HMRC to publicly identify which businesses are or are not signatories to the new code.

Heather Self questioned whether the new measures proposed are really needed. "HMRC already has significant powers; arguably it could be more efficient in using existing powers to ensure prompt disclosure of information," she said. "In my view, its decision-making processes are far too slow - for both compliant and non-compliant businesses: the goal of reaching a 'decision point' within 18 months of starting an enquiry is unambitious but often not achieved.  Real-time working was a goal some years ago but seems to have fallen behind in practice."

The consultation ends on 14 October and the government said that a response document will be published later this year.