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Anti-Avoidance A-Go-Go...

Kitty Miv, Editor
13 April, 2022

Having looked last week at various recent VAT developments, this week we will be focusing on anti-avoidance initiatives, starting - unsurprisingly - with the OECD, which is seeking public comments on its Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy.

The newly announced consultation aims to gather views (by April 20) on the Draft Model Rules for Domestic Legislation on Scope under Amount A of Pillar One.

The purpose of the scope rules is to determine whether a Group will be in scope of Amount A. The rules are designed to ensure Amount A only applies to large and highly profitable Groups. The OECD explained that they have been drafted to apply "in a quantitative manner, such that they are readily administrable and provide certainty as to whether a taxpayer is within scope."

Then later in the week, on a more domestic note, the UK tax agency, HM Revenue and Customs used new legal powers to name tax avoidance schemes and their promoters for the first time.

HMRC warned that taxpayers involved in equity participation schemes offered by two newly named providers should withdraw immediately to avoid building up a large tax bill.

Mary Aiston, HMRC's Director of Counter Avoidance, explained that: "These schemes are cynically marketed as clever ways to pay less tax. The truth is they rarely work in the way the promoters claim and it's the users that end up with big tax bills."

Both schemes involve individuals agreeing an employment contract and working as a contractor. The schemes pay contractors the National Minimum Wage with the remainder of their wage paid through a loan to try to avoid National Insurance and income tax.

HMRC said, by releasing the details of these schemes, the agency is seeking to let taxpayers know as early as possible so they can steer clear of them or exit them. HMRC intends to regularly update the list by publishing the details of other tax avoidance schemes and their promoters.

While back on the international anti-avoidance front, the Government of Jersey has set out its plans with regard to the OECD's broader initiative.

On April 12, the Jersey Government published a policy paper that outlined proposed changes to ensure that Jersey remains an internationally competitive and attractive place to do business. The paper, "OECD Pillars 1 & 2 - Tax Policy Reflections", sets out the Government of Jersey's current policy thinking on the recommendations made by the OECD.

According to the Jersey Government, the changes are unlikely to affect many companies located in the island. It noted, "the introduction of the two pillar initiative applies to organizations that meet revenue thresholds of EUR20bn for Pillar One, or more than EUR750m for Pillar Two. Companies outside of these categories will remain under the existing corporate income tax regime."

The paper suggested that, "when it comes to implementing the GloBE [ Global Anti-Base Erosion Model Rules] rules, the best choice for Jersey may be to implement GloBE with a 15 percent domestic minimum tax for companies that are part of in-scope GloBE groups." It says "This is likely to offer the greatest certainty and simplicity to business."

It went on to reveal that "if Jersey decides to implement GloBE, that implementation is not likely to take place before 1 January 2024," and confirms "Jersey's domestic corporate tax regime would remain unchanged for those companies outside the scope of GloBE."

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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