Thread by @PJChapman74

Thread.  “Brexit was about tax avoidance!”, so the conspiracy theory goes. “The referendum was announced in 2013, just as the EU announced plans to tackle tax avoidance!!” “The referendum date was announced just after the EU announced the Anti Tax Avoidance Directive.” And…

“…article 50 was invoked so the UK would avoid the implementation of the Anti Tax Avoidance Directive in 2019!  You Brexiteers have all been conned!” Well, let’s see who’s being conned by who. Here’s a timeline. The issue of “base erosion” (eroding your tax base) was first...

…discussed at the OECD summit in Mexico in June 2012, and again at the G20 Finance Minister summit in November of the same year. At this summit the UK and Germany agreed to combat Base Erosion and corporate tax avoidance, issuing a joint statement. Later, France also agreed…

…to push for action. The EU, not surprisingly since its 3 dominant economies had all already become involved, made its own statement in January 2013 – after the UK. Clearly, a policy which was initiated by the UK and Germany, was not the reason behind the UK wanting to hold a…

…referendum. The UK happened to be President of the G8 in 2013 and so included cross-border tax on the agenda for the May 2013 G8 meeting. Immediately following that meeting the OECD BEPS (Base Erosion and Profit Shifting) Project was launched at the G20 in July 2013.

Since the UK was pretty instrumental in starting the BEPS project, it is clearly not something we’re going to jump through hoops to avoid happening, and indeed, as an OECD member in our own right and a leading advocate of BEPS, the UK is literally years ahead of the EU in…

…implementing BEPS. “Ah”, say the conspiracy theorists having not seen the ATAD, “the EU rules don’t come in until 2019 so the UK doesn’t have these rules and anyway they go much further”. Do they? Well, let’s have a look – here’s the Directive.

 eur-lex.europa.eu/legal-content/…

It’s worth nothing from the outset why the EU implemented this directive – it is quite clear from the preamble that it is implementing BEPS across the EU – you know the thing the UK helped kick off?

Anyway, whizz down, ignore all of Chapter 1, the measures themselves start with Ch II, Article 4 – Interest Limitation rule. This was in UK legislation already TIOPA 2010, Part 10, but was amended in 2017 and is now the “Corporate Interest Restriction”. Having debts means…

…you have interest deductions which you can then use against your tax liability so very basically these rules limit the deductions to 30% of your profits - or “EBITDA” if you want to be technical. It’s not illegal to have more than 30%, but it’s just that beyond this level the…

…deductions are disallowed. Next is Article 5, “Exit taxation”. This is in UK law in TCGA 1992 s185-187. This is to do with ensuring companies don’t just move assets outside the UK taking a chargeable gain with them – so you pay an Exit Charge. Now, there is an inconsistency…

…here. In separate UK legislation, TMA 1970 Sch3ZB, there is a deferral period of 10 years, whereas in ATAD Art 5(2) it specifically states it should be 5 years. Since the UK has already implemented these measures, it won’t be surprising that some EU rules are different, and…

…where they go beyond UK rules the UK would need to amend the rules to be fully compliant with the ATAD. So, an amendment in the Finance Bill 2018/19 includes a change to the deferral period – HMRC states the impact is “negligible” (which means under £5million).

Still awake? Don’t care…moving on. Article 6 is the General Anti Abuse Rule (GAAR). A GAAR means if an authority finds a scheme is designed to avoid tax, but is not contained in a specific or “targeted” rule, it can nevertheless seek to disallow the deduction under the GAAR.

The GAAR, in the Finance Act 2013 s206, was announced by George Osborne in the 2012 budget, before the EU announced anything. The GAAR isn’t in my view something that we should seek to use very often, since it would indicate our targeted rules were rubbish. It’s just a backstop.

ATAD Articles 7 and 8 are about CFC rules – “Controlled Foreign Companies”. We’ve had CFC rules in the UK since 1984, and can be found in TIOPA 2010 Part 9A. They are pretty complex, a number containing gateways your income flows through if it doesn’t meet one of the…

...exemptions. “What?” I know. Essentially, the idea is if a UK company controls a foreign company, then the profits of that foreign company can flow through a gateway and be charged to the UK company, provided it doesn’t meet an exemption. “Ah, you mean a loophole!”. Not…

…really, the idea is that these rules are only ever used to be used where the arrangement is being used to avoid tax. So a French subsidiary of a UK company would have an entity level exemption since the company is unlikely to be artificially shifting profits to its French…

…subsidiary, just so it can suffer 33.33% corporation tax! Again, there are a couple of amendments necessary to UK legislation in the Finance Bill 2018/19, to do with the definition of control including non-UK associated enterprises, but in the words of HMRC themselves…

…” We do not expect that these changes will have a significant impact on the application of the UK CFC rules”. RT if you’re still awake! I’ve dropped off a couple of times myself – don’t worry. Lastly, we have the Hybrid Mismatch rules, which are in UK law…

…TIOPA 2010 Part 6A, and appear briefly in Article 9 of 2016/1164 EU, but substantively these are in “ATAD II” 2017/952 EU. These are to prevent the use entity classification arbitrage between jurisdictions. Some people may have heard of a “Double Irish with a Dutch sandwich”…

…where you basically use a combination of domestic rules and treaty rules to create “stateless income” which doesn’t get taxed anywhere. Again, the UK is going to amend the rules we have had since 2016 to accommodate the EU variances, and again this is allowed for in the…

…Finance Bill 2018/19. Phew! In summary, was Brexit about avoiding the Anti-Tax Avoidance Directive. No it wasn’t – it’s a very silly conspiracy theory. The rules are already UK law in every material sense, and the ATAD is not primarily an EU initiative…

…but an OECD driven Project which the UK itself was instrumental in launching. Brexit had nothing whatsoever to do with avoiding the Anti Tax Avoidance Directive and any conspiracy theorists who repeat such nonsense should be forced to sit and read this…

…thread repeatedly until they learn a more sensible argument. Google anything I have just said and if you find anything to doubt the veracity of this thread I would be very interested. Congratulations to anyone who got this far. #brexit #taxavoidance