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Taxation

Treasury written question – answered on 15th October 2012.

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Photo of Anne Begg Anne Begg Chair, Work and Pensions Committee

To ask the Chancellor of the Exchequer

(1) what advice he has taken from HM Revenue and Customs on whether users and promoters of schemes closed down retrospectively under section 58 of the Finance Act 2008 were informed that the schemes did not work;

(2) for what reason section 58 of the Finance Act 2008 was applied retrospectively despite HM Revenue and Customs having previously accepted claims for relief under the affected schemes; and if he will make a statement;

(3) for what reason HM Revenue and Customs waited over 15 years to abolish the tax planning schemes that were closed down retrospectively through section 58 of the Finance Act 2008.

Photo of David Gauke David Gauke The Exchequer Secretary

UK residents are taxable on their worldwide income wherever it arises—including situations where it arises by way of foreign partnerships. Section 58 of Finance Act 2008 was enacted to help put that beyond doubt and, in so doing, made it clear that a wholly artificial tax avoidance scheme involving a foreign partnership comprised of foreign trustees did not work.

As part of HMRC's policy advisory function, advice on various aspects of the introduction of section 58 has been provided, including advice on the communications between HMRC and those affected by its introduction.

The judgment in HMRC's favour following the judicial review of the introduction of section 58 Finance Act 2008 includes the finding that HMRC did not accept the legal interpretation advanced by users of the artificial avoidance scheme and indeed challenged that interpretation.

HMRC has become aware that inquiries into a small number of returns have been closed in error. HMRC does not consider that this affects the rationale for the introduction of section 58.

HMRC does not recognise the reference to a period of 15 years. As it became increasingly clear that use of this artificial and aggressive scheme was growing rapidly and that significant amounts of tax were involved in a scheme which involved a deliberate attempt to flout the intention of Parliament, the previous Government acted to introduce section 58 to restore fairness and provide certainty for all taxpayers.

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