Common Weal Policy look at what newly formed Scottish Government tax agency Revenue Scotland could do in response to the tax haven scandal that has rocked the world's wealthiest and most powerful people: The Panama Papers
THE Panama Papers has exposed a global regime of tax avoidance, evasion and fraud of the world's richest and most powerful people. The UK government is at the centre of this scandal: over half of Mossack Fonseca clients are registered in UK administered tax havens, most prominently the British Virgin Islands.
The focus of debate is quickly shifting from 'who is implicated?' to 'what should be done about it?'. Campaigners in Scotland, as part of the UK, should be central to pressuring David Cameron's government to shut down UK-controlled tax havens and take action to make tax avoidance illegal.
But we can do more than just get angry about UK complicity. One of the responsibilities of Revenue Scotland, Scotland's new tax agency, is "protecting the revenue against tax fraud and tax avoidance". Only the revenue from Land and Buildings Transaction Tax and Landfill Tax currently fall under its purview*.
The Revenue Scotland and Tax Powers Bill (2014) includes a General Anti-Avoidance Rule (GAAR), which is, according to tax expert Richard Murphy , a superior tax avoidance measure than the UK Government's General Anti-Abuse Rule.
"In Scotland it will simply be for Revenue Scotland to decide if avoidance subject to the Act has taken place and if a taxpayer does not like the fact for them to challenge it in Tribunal, just as it should be." Richard Murphy
Murphy states that the Scottish Government rule contains "welcome developments" from the UK Government's rule, most pertinently:
"...the effective abolition of the absurd 'double reasonableness' test that the rest of the UK rule uses and the fact that there is no GAAR advisory panel in Scotland whose members in the rest of the UK are drawn from the tax profession, which facts makes use of the rule very unlikely in England, Wales and Northern Ireland. In Scotland it will simply be for Revenue Scotland to decide if avoidance subject to the Act has taken place and if a taxpayer does not like the fact for them to challenge it in Tribunal, just as it should be."
The 'double reasonableness' test states that HMRC has to prove that the tax arrangements "cannot reasonably be regarded as a reasonable course of action". Such legal word games mean that not only do HMRC have to think that the tax arrangements are unreasonable, but they have to be confident that the dominant view in society (however that is assessed) would consider it to be unreasonable. The Revenue Scotland Act ensures that Scottish tax collectors can be confident that their position can be enacted under the law, and therefore should not fear going after tax avoiders.
The Act suggests a number of ways in which Tax Avoidance could be deemed "artificial" (and therefore unlawful), as well as stating that the examples listed are not "exhaustive". This should provide ample scope for Revenue Scotland to follow the lead of the Swedish tax agency, Skatterveket, which stated earlier today [4 April] that it would be contacting the media organisations in possession of the Mossack Fonseca files to "request access to see if these persons have accounted for taxes in Sweden or not."
"If they haven't we will launch investigations," their spokesperson added.
"A system of strict penalties commensurate with the incomes of the sort of people that are involved in high level tax avoidance would provide a real discincentive."
Furthermore, more could be done to beef up Revenue Scotland's ability to pursue tax avoiders. As Murphy argues , the Scottish system like the rest of UK one has no "proper arrangement for penalties to be imposed for taking the chance of running foul of the GAAR". This means those who want to chance tax avoidance have virtually zero financial risk: their only penalty would be to pay their taxes owed in full. A system of strict penalties commensurate with the incomes of the sort of people that are involved in high level tax avoidance would provide a real discincentive.
The resources available to tax collectors is another issue. The Tories have laid off nearly half of HMRC staff since it entered office in 2010 , actively hindering efforts at meeting government targets for clamping down on tax avoidance and evasion. PS1.05bn was the target figure for recovering hidden money in Jersey, Guernsey and the Isle of Man, but the OBR's assessment of Chancellor George Osborne's budget found that just PS270m had been retrieved.
Revenue Scotland needs to avoid such a false economy and instead invest in efforts at tackling tax avoidance among the richest Scots.
Of course Revenue Scotland is only empowered to crack down on avoidance of two taxes (and not crucial ones when it comes to offshore like dividends), but the simple fact of establishing a new tax agency in Scotland should also help undermine inertia and complicity which is fairly evident in the work of HMRC, which is so accepting of the offshore tax haven culture that its own offices are even owned offshore !
*This has been edited from original publication after updated information from Revenue Scotland