The UK has implemented a robust framework of anti-tax avoidance measures aimed at preventing tax evasion and aggressive tax avoidance. These measures are designed to protect the integrity of the tax system, ensuring that individuals and corporations pay their fair share of taxes. Below are some of the key anti-tax avoidance measures in place in the UK:
1. General Anti-Abuse Rule (GAAR)
Introduced in 2013, the GAAR is designed to counteract tax advantages arising from abusive tax arrangements that cannot be reasonably regarded as a reasonable course of action. The rule targets artificial and abusive tax schemes that are intended to exploit the tax system beyond what is intended by Parliament.
2. Disclosure of Tax Avoidance Schemes (DOTAS)
The DOTAS regime requires the disclosure of certain tax avoidance schemes to HM Revenue and Customs (HMRC). This disclosure enables HMRC to gather intelligence on avoidance schemes and take action more quickly to close loopholes. It applies to both promoters and users of tax avoidance schemes.
3. Loan Charge
The loan charge was introduced to address disguised remuneration schemes, where individuals received income in the form of loans that were not expected to be repaid, effectively avoiding Income Tax and National Insurance contributions. The loan charge applies to all outstanding loans made through such schemes since 6th April 1999.
4. Corporate Criminal Offence (CCO)
Implemented under the Criminal Finances Act 2017, the CCO makes it a criminal offence for corporations to fail to prevent their employees or agents from facilitating tax evasion. This measure places the onus on companies to have reasonable prevention procedures in place.
5. Transfer Pricing Regulations
Transfer pricing rules ensure that transactions between connected companies, across international borders, are conducted at arm's length, preventing companies from shifting profits to low-tax jurisdictions to reduce their tax liabilities. HMRC can adjust taxable profits of UK entities that do not comply with these rules.
6. Controlled Foreign Company (CFC) Rules
The CFC rules are aimed at preventing UK companies from shifting profits to subsidiary companies in low-tax jurisdictions. Profits artificially diverted from the UK to CFCs can be reallocated back to the UK parent company and subjected to UK Corporation Tax.
7. Tax Avoidance Sanctions and Deterrents
HMRC has the authority to apply sanctions against individuals and businesses that engage in, enable, or promote tax avoidance. These can include financial penalties, naming and shaming, and litigation.
8. International Cooperation
The UK actively participates in international efforts to combat tax avoidance and evasion, working with organisations like the Organisation for Economic Co-operation and Development (OECD) and the EU. The UK has committed to implementing the Base Erosion and Profit Shifting (BEPS) project recommendations, which aim to prevent multinational enterprises from exploiting gaps and mismatches in tax rules.
9. Public Country-by-Country Reporting
Large multinational enterprises are required to report income, taxes paid, and other indicators of economic activity on a country-by-country basis, enhancing transparency and aiding in the detection of profit shifting.
These measures reflect the UK's commitment to tackling tax avoidance and ensuring fairness in the tax system. By addressing both domestic and international tax avoidance strategies, the UK aims to safeguard tax revenues and maintain public trust in the taxation system.
