BUSI3049 Business Planning: Taxation Lecture 13:

Ethics

Professor Jane Frecknall-Hughes

jane.frecknall-hughes@nottingham.ac.uk

1
Overview of the lecture
 Topics covered:

 Meaning of ethics
 Professional obligations
 Contractual obligations
 Legal obligations
 Anti-money laundering
 Tax planning, tax avoidance and tax evasion – background and
countering avoidance.

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Objectives
 By the end of this session, you should be able to:

 Give advice which is appropriate, technically correct, within the law

and complies with (various) codes of ethics.
 Recognise and explain the relevance, importance and consequences
of ethical and legal issues.
 Design and evaluate appropriate ethical safeguards.
 Identify and communicate ethical and professional issues in giving
tax planning advice.
 Recommend and justify appropriate actions where ethical dilemmas
arise in a given scenario.
 Recognise and advise when a tax avoidance scheme is notifiable to
HMRC and distinguish between planning, avoidance and evasion and
explain their consequences.
 Recognise the implications of recent legislation and of the OECD BEPS
Project.

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 The meaning of ethics

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Meaning of ethics
 ‘Ethic’, from the Greek ‘ethos’, meaning simply a
‘custom’ or ‘habit’.
 ‘Moral’, from the Latin ‘mores’, meaning ‘customs’.
 ‘Ethics’ and ‘morality’ derived therefrom have come to
mean much the same in terms of considering human
behaviour/conduct and/or character, especially whether
they are ‘good’ or ‘bad’.
 Moral philosophy does draw some distinctions and
categorises ethics into:
 Deontology
 Consequentialism
 Virtue ethics
 Distributive justice

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Work/duties of a tax practitioner
 Different kinds of work – compliance and advisory.

 Advisory can involve:

 advising on a planning arrangement;
 introducing another adviser’s planning arrangement;
 providing a second opinion on a 3rd party’s planning arrangement(s); and
 compliance services in relation to a return which includes a planning arrangement.

 In all instances, the accountant needs to be aware of the regulations in respect of

Disclosure of Tax Avoidance Schemes (DOTAS) and Promoters of Tax Avoidance
Schemes (POTAS) (see later).

 Duties of tax practitioners are to:

 their clients;
 the government – thus acting as advocates for their clients at the same time as serving as
intermediaries in the tax system (a role with multiple facets creates greater ethical
complexity);
 their profession;
 their firm; and
 the wider public.

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 Professional obligations

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Codes of conduct
 International Ethical Standards Board for Accountants (IESBA)
(under International Federation of Accountants – IFAC).
 ICAEW and ICAS are IFAC members, so IESBA directly
influences the institutes’ individual codes of ethics – and the
ICAEW code can be found at:
https://www.icaew.com/en/technical/trust-and-ethics/ethics/icae
w-code-of-ethics/icaew-code-of-ethics
 However, in addition, there is the Professional Conduct in
Relation to Taxation document (available at:
https://www.icaew.com/technical/tax/pcrt), to which all the tax
bodies have signed up – AAT, ACCA, ATT, CIOT, ICAEW, ICAS
and STEP. Applicable from 1 March 2017, but originally
developed in 1995.
N.B. Fragmented profession – and note the link given in the
Workbook to the PCRT does not work, but the one on this slide
does.
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Fundamental principles
 Integrity
 To be straightforward and honest in all professional and business relationships.
 Objectivity
 Not to allow bias, conflict of interest or undue influence of others to override
professional or business judgements.
 Professional competence and due care
 To maintain professional knowledge and skill at the level required to ensure that a client
or employer receives competent professional service based on current developments in
practice, legislation and techniques and act diligently and in accordance with applicable
technical and professional standards.
 Confidentiality
 To respect the confidentiality of information acquired as a result of professional and
business relationships and, therefore, not disclose any such information to third parties
without proper and specific authority, unless there is a legal or professional right or
duty to disclose, nor use the information for the personal advantage of the member or
third parties.
 Professional behaviour
 To comply with relevant laws and regulations and avoid any action that discredits the
profession.

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Threats to compliance with fundamental
principles

 Self-interest
 Self-review
 Advocacy
 Familiarity
 Intimidation

 Need to identify and evaluate any threats asap.

 Ensure appropriate safeguards are in place.

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Safeguards
 Two broad categories:
 Created by the profession, legislation or regulation
(e.g., education, professional development
requirements, professional monitoring and
disciplinary procedures).
 In the work environment (e.g., complaints’ systems,
risk-assessment manuals).

 Will depend on circumstances.

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PCRT: Standards for tax planning
 Five standards to tax planning, in addition to the
five fundamental principles:
 Client specific – also make aware of wider issues.
 Lawful and with integrity. Beware material
uncertainty in the law.
 Disclosure and transparency: to HMRC, must contain
all possible relevant facts.
 Tax planning arrangements: beware Parliament’s
intention and highly artificial arrangements which
exploit loopholes.
 Professional judgement and appropriate
documentation: timely and setting out the rationale.

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Conflicts of interest and resolution
 Avoid, identify and resolve – actual and
perceived.
 Instances: client’s interest v firm’s; financial
involvements between client and firm; acting for
H + W in divorce settlement; acting for directors
personally; acting for competing businesses;
secondment to HMRC.
May need to withdraw
 Consider: or resign.
 Relevant parties
Document everything.
 Ethical issues involved
 Possible course of action
 Formal or informal?
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Disclosure and confidentiality
 Can only disclose confidential client information
in certain cases:
 Where permitted by law and authorised by
client/employer;
 Where required by law, e.g., legal proceedings,
infringement of anti-money laundering regulations;
 Where is professional duty/right to disclose, when
not prohibited by law, e.g., quality
review/inquiry/investigation by member body or
regulatory body, protecting professional interests of
a professional accountant in legal proceedings, to
comply with technical standards and ethics
requirements.
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Disclosure and confidentiality (cont.)
 Need to consider:
 Interests of all parties – possible harm.
 Extent of known/substantiated information – judgement?
 Type of communication expected and to whom.
 Privileged information?
 Legal and regulatory obligations, and possible
implications.
 Confirming and recording facts.

What about a client who has a source of income he/she has

not told you about, but which you overhear him/her talking
about in a pub? What does the client engagement letter
say?
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Errors (including irregularities)

From
PCTR
Helpsheet
C1

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 Contractual obligations

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Client acceptance and regulatory
requirements
 Acceptance and engagement letter
 Before taking on new client, must check on threats to
fundamental principles.

 Appropriate engagement letter is required, for every

contractual relationship.
 N.B. Mehjoo v Harben Barker in 2014.
 Authority to disclose (see earlier).

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 Client acceptance and regulatory requirements
(cont.)

Responsibility
for tax returns

From PCRT
Helpsheet A.

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 Client acceptance and regulatory requirements
(cont.)

Responsibility for
tax returns (cont.)

From PCRT
Helpsheet A.

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 Client acceptance and regulatory requirements
(cont.)

Responsibility for
tax returns (cont.)

From PCRT
Helpsheet A.

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Client acceptance and regulatory
requirements (cont.)

 Professional indemnity insurance (PII) required if

in public practice –

 If gross fee income < £600k, minimum indemnity = 2.5

x gross fee income, minimum of £100,000.
 £1.5m otherwise (but different cover if an insurance
distribution firm or accredited probate firm).
 To be in place for at least two years after leaving
practice (six recommended).
 Employees covered by employer’s insurance policy.

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Client acceptance and regulatory
requirements (cont.)
 Data protection

 Need to comply, if handle personal information, with

the General Data Protection Regulation (GDPR).

 Public body data protection officers/anyone

processing personal data must register with the
Information Commissioner’s Office (ICO) (failure =
criminal offence).

 Protect client information, and not retain longer than

is necessary.

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Client acceptance and regulatory
requirements (cont.)
 Senior Accounting Officers (SAOs)

 Required role, within qualifying companies (turnover >

£200m, BST > £2bn), which must notify HMRC of the SAO’s
name.
 Must take reasonable steps to establish and monitor
accounting systems that are adequate for the purposes of
accurate tax reporting, and must certify this annually to
HMRC or state what the inadequacies are.
 Penalties (£5,000) may apply for failure to:
 establish appropriate tax accounting procedures (SAO pays);
 provide annual certificate (SAO pays); and
 notify HMRC of SAO’s name (company pays).

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 Legal obligations (1): money
laundering

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Anti-money laundering
 ‘Money laundering’ covers a number of offences
involving the proceeds of crime, or terrorist funds AND
possessing, dealing with or concealing the proceeds of
any crime.
 If an accountant suspects a client of involvement, needs
to report this to his Money Laundering Reporting Officer
(MLRO) by internal report or directly to the National
Crime Agency (NCA) by a suspicious activity report
(SAR).
 Penalties are unlimited fine and/or:
 Up to 14 years’ imprisonment for the main ML offences;
 Up to 5 years’ imprisonment for failure to report;
 Up to 2 years’ imprisonment for ‘tipping off’ or contravention
of the systems’ requirements of the Regulations.
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Anti-money laundering (cont.)
 Defences
 Didn’t know/suspect, or not trained (= offence by
employer).

 ‘Privileged reporting exemption’ applies.

 Reasonable excuse for not making a report (info is

known, reporter under duress).

 ML occurred outside the UK and not illegal under

criminal law of country where occurred.

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Anti-money laundering (cont.)
 Procedures

 For ‘relevant’ businesses:

 Register with appropriate supervisory authority.

 Appoint MLRO + implement internal reporting procedures.
 Prepare and maintain a whole firm written risk assessment.
 Train staff.
 Establish appropriate internal procedures re risk assessment,
and make staff aware.
 Due diligence for new clients; monitor existing clients.
 Verify id of any new clients, maintain id and records of
transactions.
 Report suspicions of ML to NCA via SAR.
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Anti-money laundering (cont.)
 Reporting

 Requires disclosure of confidential information without client consent – so

must have very good reason.

 Accountant can use ‘authorised disclosure’ consent from NCA.

 All businesses must be supervised by an appropriate anti-money laundering

supervisory authority – ICAEW is one for the accountancy sector, and conducts
monitoring visits, typically about every eight years for small firms or annually
for large/high risk firms.

 Anti-money laundering issues are not covered in detail in PCRT, which refers
members to the Treasury approved CCAB Anti-Money Laundering Guidance
and Counter Terrorist Financing for the Tax and Accountancy Sector (which
includes an Appendix for the Tax Practitioner).

 Reporting ML incidences (esp. bribery and corruption) enhances governance

and assists in achieving sustainability goals.
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 Legal obligations (2): tax planning/
avoidance/evasion – background

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 N.B. Still legal
Definitions
 “Tax evasion is illegal activity, where registered individuals or businesses deliberately omit,
conceal or misrepresent information in order to reduce their tax liabilities.”
 “[Tax] Avoidance is exploiting the tax rules to gain a tax advantage that Parliament never
intended. It often involves contrived, artificial transactions that serve little or no commercial
purpose other than to produce a tax advantage. It involves operating within the letter but not
the spirit of the law.
Some forms of base erosion and profit shifting (BEPS) are included in the tax gap where they
represent tax loss that we can address under UK law.
As new measures introduced in accordance with recommendations made in the BEPS project
by the G20 group of world-leading economic nations and the Organisation for Economic Co-
operation and Development (OECD) take effect, our ability to address BEPS under our
domestic law will be greatly strengthened.
The tax gap does not include BEPS arrangements that cannot be addressed under UK law and
that will be tackled multilaterally through the OECD. The OECD defines BEPS as ‘tax planning
strategies that exploit gaps and mismatches in tax rules to make profits disappear for tax
purposes or to shift profits to locations where there is little or no real activity but the taxes are
low resulting in little or no overall corporate tax being paid’.
Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the
purpose for which they were intended. For example, claiming tax relief on capital investment,
saving in a tax-exempt ISA or saving for retirement by making contributions to a pension
scheme are all forms of tax planning.”

The above definitions are from HMRC’s Measuring Tax Gaps 2020 Edition.
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 Pause for thought.
Harding v Tax avoidance is
Headington (1873– nothing new ...
Road
74) LR 9 QB 157

Toll gate

Field
Road

32
Instances of tax avoidance
 Activities to ‘get round’ taxes have a long history.

 Viewed from different perspectives:

 Acceptable (or legitimate) avoidance (‘flight’, exemptions,

encouraged ‘avoidance’ (e.g., ISAs), not buying a taxed
good/service (assuming that’s possible), revolt(?)).
 Reverse ‘engineering’ (e.g., ‘badges of trade’ cases, Rutledge
v CIR (1929) 14 TC 490, Martin v Lowry (HMIT) (1927) 11 TC
297).
 Proactive, physical means (e.g., window/hearth taxes).
 Proactive use of the law – ‘schemes’, ‘financial engineering’,
involving a “trick and a pretence” Matrix Securities v IRC
[1994] STC 272 (HL), at 282, e.g., Duke of Westminster,
Ramsay, but N.B. Magistrates and Town Council of the City
of Glasgow v Messrs. Murdoch, Warren & Co in 1783!
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Countering avoidance – general concepts

(i) The ‘spectrum’ or ‘line’ approach

(ii) The ‘smell’ test

(iii)What revenue authorities want

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 (i) ‘Spectrum’ or ‘line’ approach

Tax Tax Tax Tax ? Tax Tax

morale compliance planning avoidance ‘avoision’
evasion
Lymer, A. and Oats, L. (2012). Taxation Policy and Practice, 13th edn, Birmingham, UK: Fiscal Publications,
p. 391 (adapted).

35
(i) ‘Spectrum’ or ‘line’ approach (cont.)
 The way words develop, are defined and are used is a dynamic
process. True in recent times too, though sometimes the
process can be helped along, e.g.,

“Customs & Excise appears now to use the term ‘legitimate

avoidance’ to distinguish between what they clearly believe to
be ‘illegitimate’ avoidance and ‘the legitimate desire to organise
affairs in a tax efficient way’. These deliberate attempts to
confer an aura of illegality to a legitimate activity are dangerous,
and should not be allowed to continue unchallenged.”
Wyman, 1997: 3

 As a result, we now often see ‘avoidance’ described as

‘acceptable’, ‘legitimate’, ‘unacceptable’, ‘illegitimate’, ‘illegal’,
‘abusive’, ‘aggressive’, etc.

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(ii) ‘Smell’ test

 A version of ‘substance over form’?

 Ramsay case is commonly regarded as the first instance of the success of

‘substance over form’ (‘Ramsay doctrine’) in tax cases – BUT – there is a very much
earlier one.

 Ferrier (1981: 303–304) reports on a 1783 scheme to ‘get round’ the payment of a
two pence Scot duty payable in Glasgow on each pint of ale or beer brewed,
brought in or sold in the city and suburbs, in Magistrates and Town Council of the
City of Glasgow v Messrs. Murdoch, Warren & Co.

 The brewers, based at Anderston, then far enough away to be considered as not in
the city or suburbs, announced that they would cease to supply the city, and made
a contract with a Mr. Munro, who bought the beer and supplied it to customers from
the Anderston premises.

 The case was taken to the House of Lords. Lord Mansfield was the foremost judge,
and had no qualms about judging this a scheme which should not be allowed, and
ignoring the “device of the intermediate contract with Munro” (Ferrier, 1981: 306).

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(iii) What the Revenue authorities might want

 HMRC seem now to eschew ‘spectrum’/‘smell’ test

approach in favour of the ‘desired effect’, e.g., in the 2007
online version of the International Tax Handbook it stated
(section now removed):

“…[T]he expression ‘tax planning’ … embraces a wide

range of options from those which are merely ‘mitigatory’
to those which we would regard as ‘avoidance’ … [F]ine
distinctions between ‘tax planning’ and ‘tax avoidance’ are
seen as being of less consequence than the overall effect
on the yield to the Exchequer. This is particularly so
where the apparent result is not in accordance with
Parliament’s intentions or which would not have been had
Parliament addressed itself to the particular issue”.
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 Legal obligations (3): countering
avoidance

39
Specific means of countering avoidance

(i) Legislative enactments of various

kinds to prohibit specific schemes, types
of transaction or activity, often referred to
as Targeted Anti-Avoidance Rules
(TAARs). However, these, combined with
an increasingly number of reliefs or
exemptions for allowable transactions,
increase the volume of tax law and thus
made it more complex.

40
Specific means of countering avoidance (cont.)

Recent examples:
 Since 2013, requirement for cos bidding for large govt
contracts to disclose their tax history, so that conduct re tax
evasion/avoidance can be considered as part of the bidding
process.
 Since Royal Assent to FA 2016, requirement for ‘large’ UK
cos (turnover > £200m; and/or BST > £2bn) to publish online
their tax strategies re UK taxation. Penalty for not doing so =
£7,500, with additional penalties for continued non-
compliance. Also a ‘special measures’ process to tackle
persistent large offenders.
 Penalties for enablers of offshore evasion (IT, CGT and IHT):
HMRC can publish info about the enabler if potential lost
revenue = £25,000 or at least five penalties in a five year
period. Penalty = higher of 100% potential lost revenue and
£3,000.
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Specific means of countering avoidance (cont.)

Recent examples (cont.):

Criminal Finances Act 2017 – failure to
prevent facilitation of tax evasion,
applicable to companies/partnerships
(‘relevant bodies’) – need to put in place
procedures to prevent this.
 Company directors (Finance Act 2020) –
made jointly and severally liable for tax
abuse of insolvency procedures (see p.
24 of the Workbook).

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Specific means of countering avoidance
(cont.)
(ii) Resorting to the Courts, which is time
consuming and expensive, hence there was
a disincentive to do so. The UK Courts for a
long time supported the ‘form over
substance’ argument, in so far as they
looked at the legal effect of the transaction
into which the parties entered and did not
take account of any artificiality. This
changed as a result of the leading Ramsay
case (W.T. Ramsay Ltd v IRC [1981] STC 174
(HL)).
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Specific means of countering avoidance
(cont.)
 In Ramsay, the taxpayer had a tax avoidance
scheme consisting of a series of pre-planned
transactions, designed to create two debts due to
the taxpayer. The scheme ensured that one debt
produced a tax exempt gain and the other an
equivalent, but tax deductible loss. If successful,
the taxpayer could have offset the loss against
other ‘real’ gains.
 Many cases followed Ramsay, with some won by
HMRC, and some (fewer) by the taxpayer. A major
issue was whether transactions had commercial
purpose, though not all cases hinged on this.
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Specific means of countering avoidance
(cont.)
(iii) DOTAS/DASVOIT
 As a result of the uncertain outcomes, time and cost
associated with Court cases, Disclosure of Tax Avoidance
Schemes (DOTAS) was introduced in 2004. Applies to all direct
taxes; separate rules for SDLT.
 This requires promoters of schemes (POTAS – typically
accountants, tax advisers, solicitors and barristers) to provide
details of certain prescribed arrangements to HMRC within a
specified time limit.
 HMRC’s view is that this counters schemes undertaken purely
for a tax advantage and is aimed at making the tax system
more transparent and more equitable. It does so at minimal
cost to HMRC, as it is tax advisers who do most of the work.
 DASVOIT (Disclosure of Avoidance Schemes for VAT and
Indirect Taxes) was introduced from 1 January 2018, replacing
previous VAT disclosure rules.
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Specific means of countering avoidance
(cont.)
 More about DOTAS/DASVOIT
 Designed to give HMRC early warning of schemes
involving aggressive tax avoidance, details of how
they work and information about who has used them.
 DOTAS covers all direct taxes, and SDLT; DASVOIT
covers VAT and some other indirect taxes.
 A scheme needs to be notified to HMRC where:
 It will or might be expected to enable any person/company
to obtain a ‘tax advantage’,
 which is, or might be expected to be, the main benefit or
one of the main benefits of the arrangement, and
 the scheme falls within at least one of the specified
descriptions or ‘hallmarks’.

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Specific means of countering avoidance
(cont.)
 DOTAS/DASVOIT (cont.)
Re ‘hallmarks’ generally:
HMRC’s guidance on tax avoidance highlights signposts that should warn taxpayers
away from abusive or aggressive tax avoidance schemes, including the following:
• If it sounds too good to be true, it probably is.
• Payment is in the form of loans – relating to schemes for contractors where the loan
will not be paid back.
• Huge benefits arise that are out of proportion to the money generated.
• Artificial or contrived arrangements, or circular money flows exist.
• The arrangement has a scheme registration number (SRN) assigned under DOTAS.
• HMRC has provided examples of schemes of concern.

The signposts were clear in the case of Next Brand Ltd v HMRC (2015), which was
successfully challenged by HMRC at the First-Tier Tribunal. The case involved a ‘rate-
booster’ scheme, where Next Brand Ltd used artificial steps (cf Ramsay) to inflate tax
relief when repatriating profits from Hong Kong. Moneys were artificially moved
around the group. HMRC said that it expects businesses to steer clear of such
schemes.
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Specific means of countering avoidance
(cont.)
 DOTAS/DASVOIT (cont.)
 Hallmarks
 Confidentiality by promoter/user.
 Premium fee.
 Standardised products, which need little modification.
 DOTAS:
 Certain loss schemes, which generate trading losses for wealthy individuals that can
then be offset against IT and CGT liabilities or generate a repayment.
 Leasing arrangements – applies to leases with a cost of at least £10m for a period of
at least two years.
 DASVOIT
 Splitting retail supplies.
 Offshore insurance and financial service supply ‘routing’ arrangements, etc.
 Disapplication of option to tax.

 Additional rules
 There are rules about disclosure, promoters, administration, etc., so please
read Sections 10.4–10.13 of the Workbook for the specific details.

48
Specific means of countering avoidance (cont.)
(iv) The specific development of the
‘moral card’ presaged by Lord
Denning’s remarks in Re
Weston’s Settlements:
“The avoidance of tax may be
lawful, but it is not yet a virtue.”
[1969] 1 Ch 223 at 245.

The UK Chancellor of the

Exchequer in the 2012 Budget
speech specifically referred to
aggressive tax avoidance as
being “morally repugnant”
(Krouse and Baker, 2012,
Financial News, 29 December).
Note the investigations by the
Public Accounts Committee into
companies like Google, Amazon
and Starbucks.

49
Specific means of countering avoidance
(cont.)
(v)The introduction of a general anti-abuse rule (also referred to by its
acronym of GAAR). This came into force on 13 July 2013, applying to
arrangements entered into on/after 17 July 2013, and is designed to
provide a legal lens through which to view and judge activity without the
need to put in place additional anti-avoidance measures. It relates to IT,
CT, CGT, IHT, SDLT and ATED. NICs are covered as well, but under
different provisions.

The GAAR applies to arrangements if:

 It is reasonable to conclude that obtaining a tax advantage was a main
purpose; and
 The arrangements are ‘abusive’ (not reasonable, against the ‘spirit of the
law’, contrived/abnormal, intended to exploit loopholes in tax legislation).
 Requires an advisory panel, whose opinion any court must seek (if GAAR
under consideration). Court must also consider HMRC guidance.
 Please read the specific details in the Workbook, Sections 9.1 and 9.2.

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Specific means of countering avoidance
(cont.)
 Per the GAAR, a penalty of 60% of the counteracted tax
applies where:
 A return/claim was submitted to HMRC;
 On the basis of a tax advantage arising from the arrangements;
 Where all or part of the tax advantage is counteracted by
GAAR; and
 The arrangements were entered into on/after Royal Assent to
FA 2016.

 Note that in HMRC’s guidance on the GAAR (HMRC, 2013)

Section B2.1 rejects earlier Court decisions “in a number of
old cases”. While these “old cases” are not identified, this
seems to be an instance of something that is not law over-
ruling something that is law in the form of case law.

51
Specific means of countering avoidance
(cont.)
(vi) Base erosion and profit shifting (BEPS)
 OECD and G20 initiative in 2013, to address concerns
that current taxation principles are not keeping up
with the global nature of modern business – allows
for ‘tax arbitrage’.
 BEPS thus targets tax planning strategies which
exploit the gaps and mismatches between countries’
tax rules to shift profits to low or non-tax locations,
where there is little/no economic activity, resulting in
little/no corporate taxes being paid.

52
Specific means of countering avoidance
(cont.)
(vi) Base erosion and profit shifting (BEPS) (cont.)
 In October 2015 the OECD released its final report on the 15 focus
areas from the action plan (BEPS 1.0) and in 2016 established the
OECD/G20 Inclusive Framework (IF) to allow other interested
countries and jurisdictions to participate in BEPS.
 BEPS 1.0 resulted in numerous changes to international tax
systems, but it was considered that the measures did not fully
address the increasing digitalisation of the global economy.
 Thus, in July 2021, 139 countries approved a framework for BEPS
2.0 which set out a two-pillar approach for reforms to have effect
from the start of 2024.
 Some of the BEPS actions (BEPS 1.0) have been embedded in UK
legislation for several years and are already dealt with sufficiently
using current UK tax legislation, such as: CFC provisions, transfer
pricing rules (including interest deductions and various updates),
diverted profits tax, hybrid mismatch rules, and taxation of online
activities (see Workbook, Chapter 15).
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Specific means of countering avoidance
(cont.)
(vi) Base erosion and profit shifting (BEPS) (cont.)
 The main purpose of BEPS 2.0 is to address the challenges
created by the digitalisation of the global economy. BEPS 2.0
proposes two pillars of action:
 Pillar 1 seeks to address how to deal with entities that make profits
from jurisdictions in which they might not have a physical presence.
When implemented it will apply only to the largest, profitable groups
(those with turnover >€20bn p.a.). A proportion of their profits will be
subject to reallocation to other jurisdictions where economic activity
takes place.
 Pillar 2 imposes a global minimum tax rate of 15%. Pillar 2 of BEPS 2
has been introduced into UK law via F(2)A 2023, which contains two
new taxes: the multinational top-up tax and domestic top-up tax. This
legislation aims to ensure a minimum rate of tax of 15% applicable to
accounting profits, in every jurisdiction in which a business operates.
It applies to companies and groups with turnover >€750m p.a., for
accounting periods starting on or after 31 December 2023. Neither of
these new taxes is examinable in detail.
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Specific means of countering avoidance
(cont.)
(vi) Base erosion and profit shifting (BEPS) (cont.)
 Please note the issues concerning e-commerce and
digital services tax (Workbook, Chapter 1, Section
9.5.3)

(vii) Use of data analytics by HMRC

 Using data sets to draw conclusions about whether
tax return income is understated, to assess the ‘tax
gap’ – the difference between what HMRC thinks is
owed and the amount received (datasets from VAT
online returns, RTI for PAYE and more planned MTD ).

55
Suggested reading
 Key reading:
• Lecture 13: Business Planning: Taxation Workbook, Ch. 1, and the
cross references to other chs. (Please first re-read your Tax
Compliance study notes on relevant topics.).

 Practice questions:
• Ch. 1, self-test questions on pp. 40–42; interactive questions on p.
7, p. 13 and p. 22.
• Ethics – fundamental principles, threats, PCRT, QB 6, 8, 9, 11, 12,
13, 16, 19, 27, 29, 35, 39, 42, 45, 52, 54.
• Ethics – POTAS/DOTAS, QB 20, 40, 45, 56.
• Ethics – SAO, QB 23, 39, 47.
• Ethics – tax planning, avoidance and evasion incl GAAR BEPs,
disclosure, AML, QB 1k, 3d 8, 11, 20, 23, 29, 33, 35, 39, 40, 45, 47, 52,
56, 59, 62, 68, 69.
• Ethics – tax strategies, QB 3c 50.

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References for material cited in slides
Ferrier, I. (1981), The Meaning of the Statute: Mansfield
on Tax Avoidance, British Tax Review, 5: 303–308.
HMRC (2013), HMRC’s GAAR Guidance. HMRC. Available
at: http://www.hmrc.gov.uk/avoidance/gaar-part-abc.pdf
. [Accessed 7 May 2014].
Krouse, S. and Baker, S. (2012), Osborne Clamps Down
on Tax Abuse, Financial News. Available at:
http://www.efinancialnews.com/story/2012-03-21/osbou
rne-clamps-down-on-tax-abuse-in-budget
. [Accessed 29 December 2012].
Lymer, A. and Oats, L. (2012), Taxation Policy and
Practice, 19th edn, Fiscal Publications: Birmingham.
Wyman, P. (1997), Upholding the Law, Tax Journal, 10
November: 3–4.
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 QUESTIONS?

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