UK authorities can now withdraw funds directly in tax disputes
By Sheldon Gordon
IN AN UNPRECEDENTED move, UK tax authorities will be able to seize amounts in tax-avoidance disputes directly from bank accounts. British taxpayers at odds with Her Majesty's Revenue & Customs (HMRC) over their use of these schemes will now have to pay the amount up front. They will have their money returned, with interest, only if they win their appeals, Chancellor George Osborne announced recently in the UK's 2014 budget.
“The measure is aimed broadly at avoidance schemes marketed to high-net-worth individuals,” says James Ross at McDermott Will & Emery UK LLP. “It follows a general anti-abuse rule introduced last year, the first of its kind ever in the UK.”
Critics insist the measure violates a fundamental principle of taxation — effectively forcing tens of thousands of Britons to pay their taxes before they are determined. “This is causing quite considerable concerns,” says Ross. “I have little doubt there will be challenges based on human rights.”
“The Canadian government has followed a path similar to the UK's, albeit in a more restricted manner,” says Michael Friedman, tax partner at McMillan LLP. Historically, at the federal level, corporations have been required to pay up front one-half of the tax bill in dispute.
But Ottawa has recently targeted individuals, too. The 2013 federal budget required participants in donation tax shelters to pay one-half up front even before the appeal was resolved.
As of October 2012, the CRA had denied more than $5.5 billion in donation claims and reassessed over 167,000 taxpayers who participated in these tax shelter schemes. “They want to discourage people from getting involved in these types of schemes,” says Friedman, “and they were concerned about being able to collect the full amounts of the tax owing if disputes were resolved in the government's favour.”
The UK measure is limited to those owing more than £1,000 of tax; a minimum of £5,000 will be left in the tax avoiders' accounts. The measure is expected to yield £4 billion for the Treasury, speeding up the flow of money owed. The government is trying to prevent those it believes owe tax from pursuing lengthy appeals in order to try to hang on to the money for longer.
“These rules are intended to take away the cash-flow advantage of entering into these sorts of arrangements,” says Ross. If the amount is large enough, there can be significant interest earned from keeping it for longer, if the taxpayer keeps appealing.
Although such schemes are beyond the reach of the vast majority of taxpayers, there is currently a backlog of 65,000 disputed tax avoidance scheme cases before the UK courts.
By Sheldon Gordon
IN AN UNPRECEDENTED move, UK tax authorities will be able to seize amounts in tax-avoidance disputes directly from bank accounts. British taxpayers at odds with Her Majesty's Revenue & Customs (HMRC) over their use of these schemes will now have to pay the amount up front. They will have their money returned, with interest, only if they win their appeals, Chancellor George Osborne announced recently in the UK's 2014 budget.
“The measure is aimed broadly at avoidance schemes marketed to high-net-worth individuals,” says James Ross at McDermott Will & Emery UK LLP. “It follows a general anti-abuse rule introduced last year, the first of its kind ever in the UK.”
Critics insist the measure violates a fundamental principle of taxation — effectively forcing tens of thousands of Britons to pay their taxes before they are determined. “This is causing quite considerable concerns,” says Ross. “I have little doubt there will be challenges based on human rights.”
“The Canadian government has followed a path similar to the UK's, albeit in a more restricted manner,” says Michael Friedman, tax partner at McMillan LLP. Historically, at the federal level, corporations have been required to pay up front one-half of the tax bill in dispute.
But Ottawa has recently targeted individuals, too. The 2013 federal budget required participants in donation tax shelters to pay one-half up front even before the appeal was resolved.
As of October 2012, the CRA had denied more than $5.5 billion in donation claims and reassessed over 167,000 taxpayers who participated in these tax shelter schemes. “They want to discourage people from getting involved in these types of schemes,” says Friedman, “and they were concerned about being able to collect the full amounts of the tax owing if disputes were resolved in the government's favour.”
The UK measure is limited to those owing more than £1,000 of tax; a minimum of £5,000 will be left in the tax avoiders' accounts. The measure is expected to yield £4 billion for the Treasury, speeding up the flow of money owed. The government is trying to prevent those it believes owe tax from pursuing lengthy appeals in order to try to hang on to the money for longer.
“These rules are intended to take away the cash-flow advantage of entering into these sorts of arrangements,” says Ross. If the amount is large enough, there can be significant interest earned from keeping it for longer, if the taxpayer keeps appealing.
Although such schemes are beyond the reach of the vast majority of taxpayers, there is currently a backlog of 65,000 disputed tax avoidance scheme cases before the UK courts.
Lawyer(s)
Michael Friedman