The Government is allowing the public to believe that the general anti-abuse rule (GAAR) will force multinationals to pay more tax, which is not the case, say peers.
A House of Lords committee has called on the Government to be more honest about one of its anti-tax avoidance measures, claiming it will not actually force large multinationals to pay more.
The general anti-abuse rule (GAAR), in the words of the Treasury, is “targeted at artificial and abusive tax avoidance schemes” and will “improve the UK’s ability to tackle tax avoidance”.
However, according to a sub-committee in the House of Lords, the Government has allowed the public to believe it will be able to force companies that have hit the headlines in recent months over their tax arrangements (the likes of Starbucks and Amazon) to pay more to the Exchequer, when that isn’t the case.
The report states that of the various experts it has spoken to about GAAR, “None... thought it would meet media and public expectations that international tax planning should be addressed and made to pay more tax in the UK.”
It continues: “We recommend that Ministers should make every effort to explain the aims of the GAAR and the reasons why it cannot apply in many of the ways public opinion would prefer, so that unrealistic expectations are managed."
What will the GAAR actually do?
So if it’s not going to force multinationals to pay more tax in the UK, what will the GAAR actually do?
At this point it seems clear that multinational profits are out of its remit, as are bank bonuses. Instead it will be in place to target attempts by individuals to use “artificial” schemes where the only benefit is a tax saving. An example would be the film investment schemes that many celebrities were exposed as being members of last year.
What happens now?
Personally I’m not holding my breath in anticipation of George Osborne making a public statement on this issue.
It’s in the Government’s interests (for now) to perpetuate this myth – it’s better to be seen by the public to be tough on tax avoidance, than to actually be tough and force these large firms to reconsider their UK operations altogether.
But it can only delay the issue for so long, particularly with a General Election just two years away now.
What do you think? Should the Government be working internationally to try to tackle multinational groups’ profits? Or is it right to prioritise tackling tax avoidance by individuals? Let us know your thoughts in the Comment box below.