2013 Budget: Plan A gets a facelift

Practical Law UK Articles 1-525-1441 (Approx. 25 pages)

2013 Budget: Plan A gets a facelift

by PLC Tax

Looking a little rough beforehand...

Ignoring the inconvenient question of whose fault it might be, the Chancellor was in an unenviable position on Wednesday morning. Previously unthinkable, the ratings agency Moody's cut the UK's AAA rating in February, and all the fiscal forecasts and figures were looking pretty desperate. Even the Chancellor used words like "bleak" and "harsh". The situation was not promising.

Possibly only the captain of the Titanic faced a more difficult sell. Perhaps that captain might have said: "Truly, you are all going to die, but please believe me that you would die much more slowly and painfully on someone else's ship." In a similar approach, the Chancellor told us that we were all going to suffer. But not as much as our friends in the rest of Europe.

Curiously, it seemed to work. The Budget has been relatively well-received, or perhaps tolerated. A triumph of spin over fact? It may be that the media has exhausted all the possible permutations of describing the trillions of pounds of debt and has moved on to other stories. Or perhaps it really is worse in the rest of Europe.

Cut in headline rates: a good entry-level procedure

The government's announcement of a further reduction in the corporation tax rate was clearly meant to grab the headlines. And it did. More commentators referred to this than any other measure. Heather Gething (Herbert Smith Freehills) referred to it as a "stroke of genius". Tony Beare (Slaughter and May) also noted that it had "the incidental consequence of reducing the value of carried forward losses for those entities which are already in the UK and discouraging future avoidance".

Others were slightly more qualified in their praise. Mike Lane (Slaughter and May) described the reduction as "good news as long as you are not a bank hit by the double whammy of a consequent reduction in deferred tax assets and the increase in bank levy". Elaine Gwilt (Addleshaw Goddard LLP) cautioned that "in assessing the UK's attractiveness as a place to do business it is hard to get away from the fact that the tax regime is dense, difficult to navigate and can throw up unexpected and unwelcome results". Kate Habershon (Morgan Lewis & Bockius) thought that "the real question is whether the low headline rate outweighs the increasing complexity of the UK tax system generally, including the new GAAR, the compliance headaches associated with the new CFC regime and the uncertainties surrounding concepts that ought to be fundamental to the tax efficiencies of multinationals".

David Harkness (Clifford Chance LLP) made a similar point, commenting on the "interesting contradiction in the government's approach to company taxation" and noting that "Multinationals will not be attracted to the UK if the tax system is not stable or if low headline rates are accompanied by threatening rhetoric regarding the unacceptability of tax planning." Susan Ball (Clyde & Co), too, commented that it "takes more than a low headline rate to make a business-friendly tax environment".

Andrew Loan (Macfarlanes) put it thus:

"The rhetorical condemnation of international businesses that arrange their affairs with an eye on the tax position - and implicit criticism of the benign tax regimes in other jurisdictions - sits uncomfortably alongside with the Government's aspiration for the UK tax system to be attractive as possible to international business."

But is the UK now a tax haven?

A presumably unintended consequence of the further rate reduction is the risk that the UK is now considered to be a potential tax haven by other jurisdictions. Colin Hargreaves (Freshfields Bruckhaus Deringer) said "We're now firmly into the territory where the UK can be viewed by other countries as a potential CFC jurisdiction". Eloise Walker (Pinsent Masons LLP) specifically mentioned that "Japan, in particular, a major investor in the UK, regards a country with an effective tax rate of 20% or less as a tax haven which triggers their anti-avoidance rules for income attribution".

The war against avoidance

The current media-fuelled obsession with tax avoidance, and in particular tax avoidance by multinationals, shows no signs of abating. Ashley Greenbank (Macfarlanes) referred to it as a "crusade" and Paul Hale (Simmons & Simmons LLP) talked of the "Age of the New Morality where public opprobrium may induce a business to pay tax it does not owe". Adam Blakemore (Cadwalader, Wickersham & Taft LLP) also talked of the "the current public and media rejection of tax avoidance as a socially acceptable and economically viable activity".

GAARs and TAARs

Unsurprisingly, the government is looking to capitalise on the political impetus lent to it by the public outcry against avoidance. As a result, the Budget included a whole host of anti-avoidance measures. (A rather bleak comment from Daniel Lewin (Kaye Scholer LLP), who thought that "HMRC's growing focus on anti-avoidance above all else is turning into an industry of itself".)

The Budget package included both the confirmation of the general anti-abuse rule (GAAR), to have effect from Royal Assent, and the announcement of a series of targeted anti-avoidance measures (TAARs).

Despite an increasing mood of acceptance amongst advisers in relation to the GAAR, concerns remain. Helen Buchanan (Freshfields Bruckhaus Deringer) thought that the "GAAR may be old news but is probably the measure that will have the biggest practical impact on business. It's inherently uncertain so a lot will hang on the guidance, which remains a work in progress." Mathew Gorringe (Eversheds LLP) thought it would result in a "great deal of uncertainty"

The introduction of a number of diverse TAARs as well as confirmation of the GAAR provoked a mixed response. On the one hand is the view put forward by commentators such as Sandy Bhogal (Mayer Brown International LLP) who thought that "one would have hoped that a benefit of introducing the GAAR would be that volumes of anti-avoidance legislation would not be necessary". This view was shared by Chris Bates (Norton Rose LLP), who stated that "hopes that the GAAR would lead to simpler principles based legislation have been scotched". Nikol Davies (Taylor Wessing LLP) also described the move as "disappointing". Michael Flesch QC (Gray's Inn Tax Chambers) said "one might have expected, or at least hoped, that the introduction of the GAAR would obviate the need for new TAARs".

By contrast, other commentators have interpreted these developments as good news. James Bullock (Pinsent Masons LLP) said:

"The extent of the proposed "TAARs" was interesting, having regard to the introduction of the GAAR. It rather suggests that the GAAR is envisaged as being used (as intended) to target abuse, whilst TAARs will continue to target avoidance. This can be interpreted very positively. Not much hope for those of us who wanted less tax legislation though!"

Hartley Foster (Field Fisher Waterhouse LLP) put it this way:

"It will be interesting to see how many cases are authorised for counteraction. This will demonstrate whether HMRC consider that the GAAR is a "broad spectrum antibiotic" or, alternatively, is a measure focussed on counteracting only the most egregious examples of abusive structures."

For a truly shocking pun in this context, see comments made by Colin Hargreaves. (I cannot bring myself to repeat them here.)

There were also concerns in relation to the content of the TAARs themselves. Vimal Tilakapala (Allen & Overy LLP) was in particular concerned by the proposal to introduce "targeted loss-buying rules" in Finance Bill 2013. He commented that:

"While HMRC grouped these changes under an anti-avoidance heading, they would appear at least in part to have an element of revenue-raising, and will need to be considered in any commercially-driven M&A transaction where the target has unrealised losses."

Richard Carson (Taylor Wessing LLP) also thought that the TAARs addressing loss-buying were the "most striking" of the measures, and would "add further uncertainty and unpredictability".

Multinationals (Can I get it done abroad, more cheaply?)

Clearly there's only one thing worse than tax avoidance, and that's tax avoidance by large multinationals. But Murray Clayson (Freshfields Bruckhaus Deringer LLP) thought that "given the amount of political and media noise about multinational tax avoidance in recent months, the Budget content on that front was muted". Paul Hale (Simmons & Simmons LLP) made the point that in fact the government has "a rather good compliance record. Its tax gap - the difference between the amount of tax that should be due to the government and what is received - is small - and cannot all be blamed on generous transfer pricing in the coffee shop".

However, the OECD will report in the summer on its review of international taxing rights, and much could yet turn on that. Erika Jupe (Osborne Clarke) concluded that there was "a bumpy road ahead" for multinationals. Shiv Mahalingham (Alvarez & Marsal Taxand UK LLP) thought that there was an "opportunity for the UK to help shape the debate on base erosion through profit shifting and ensure that legitimate, commercially based planning is not tarred with the same brush as aggressive, artificial tax avoidance".

Also in the international context, Louise Higginbottom (Norton Rose LLP) commented in particular on the "vastly increased access tax authorities across the globe are gaining to information about the tax affairs of businesses and their customers".

Property

The great British love affair with home ownership continues, with new government plans to assist in home ownership. This was an astute political move, looking to appeal to the huge swathes of Middle England unable to afford to get onto the housing ladder. But woe betide you if you don't pay your SDLT, of course.

There was, however, sensitivity surrounding the potentially retrospective nature of the announcements relating SDLT mitigation schemes. In particular, Nick Beecham (Field Fisher Waterhouse LLP) warned that "anyone who used a subsale-based SDLT mitigation scheme, on or after 21 March 2012, will have to consider very carefully whether it has been blocked retrospectively by [the] Budget announcement." Simon Yates (Travers Smith) was not happy. He said:

"On the downside, as a rule of law vigilante I despair at another deployment of retrospective legislation, this time against SDLT sub-sale schemes. It really doesn't make it alright that they announced that they might do it. Doubly so when the schemes in question existed prior to that announcement and could easily have been stopped prospectively if they'd done their job properly last year. Not good enough on so many counts."

Tom Scott (McDermott, Will & Emery UK LLP) thought that "the tone of the Budget's SDLT measures on the transfer of rights schemes is almost proud in carrying through the threat of retrospective action".

Radiance and glow restored and revitalised

There is no getting away from it. Advisers have been positive about more than one of the Budget measures. John Barnett (Burgess Salmon LLP) said:

"The government made a commitment in 2010 to a new framework for making better tax law and that is now starting to show fruit. The statutory residence test and the GAAR have both benefitted from a long gestation period and, although neither will be perfect, they are a lot better than they might otherwise have been."

There was also love for the proposal to abolish stamp duty reserve tax (SDRT) on the redemption of units in a unit trust. It was described by John Challoner (Norton Rose LLP) as "good news". Martin Shah (Simmons & Simmons LLP) agreed that the measure would "increase the attraction and marketability of UK based fund products".

The proposed abolition of stamp duty on shares listed on AIM and other growth markets was also received positively by commentators, although Dominic Stuttaford (Norton Rose LLP) wondered "why delay for a year?". Elliot Weston (Lawrence Graham LLP) described it as a significant "shot in the arm" for the funds industry (in a good way, I think). Martin Walker (Deloitte LLP) noted that the measure runs:

"counter to the trend in other parts of Europe to introduce financial transaction taxes (FTTs) ... The UK voted against the EU FTT proposal, so it is consistent with its stance on FTTs that it is constructively re-examining its own stamp taxes".

In relation to the seed enterprise investment scheme (SEIS), Robert Young (Taylor Wessing LLP) thought it was "great news that the special break ... is being extended - this is one of the most generous reliefs in the UK code and has been of great interest to the start-up community".

For the oil industry, too, the news was all good. Michael Thompson (Vinson & Elkins LLP) described the changes, which included the introduction of the decommissioning relief deed and the introduction of special reliefs for shale gas, as "all both expected and generally welcome".

Even one of the most dependable of angry and outraged tax practitioners, Simon Skinner (Travers Smith LLP) had this to say:

"I must be unwell. I have a small amount of sympathy for HMRC. It makes me feel uncomfortable."

Hello? What about me, Simon? This article depends upon vitriol and outrage.

Particularly good results for procurement

The word is "delighted". There is no other word for it, I am afraid. Commentators have been delighted with the response of the government to comments made about the proposals relating to government procurement and bidder tax behaviour. I am quite nonplussed.

David Taylor (Freshfields Bruckhaus Deringer) said that "Government has listened ... what could have been ghastly now isn't". The resulting amendments have been described by both Ian Hyde (Pinsent Masons LLP) and Geoffrey Kay (Baker & McKenzie) as "welcome" and by Michael Cant (Nabarro LLP) as "the biggest change". Brenda Coleman (Weil Gotshal & Manges) thought that the resulting proposals would result in "a more workable regime and focus on the government's objective of influencing future behaviour rather than trying to judge past behaviour". Heather Corben (SJ Berwin) concluded the requirements would be "less onerous and more practical".

Darren Oswick (Simmons & Simmons LLP) concluded that the changes would result in the government still meeting its political objectives, but "without now placing on [the bidders] a large and somewhat uncertain additional administrative burden". Charlotte Sallabank (Jones Day) too, in this context described the government's response as "encouraging".

I know. Who would have thought?

But partnerships and loan relationships under threat?

Not all of the Budget announcements, however, were welcomed. In particular, a number of practitioners were unsettled by the announcement that the government would be consulting on the tax treatment of partnerships. Emma Bailey (Fox Williams LLP) talked of her "concern"; Caspar Fox (Reed Smith) agreed it was "worrying". Jonathan Cooklin (Davis Polk & Wardwell LLP) referred to a "potentially unwelcome spotlight on LLPs". In a similar vein, Nick Cronkshaw (Simmons & Simmons) thought that "given the successful adoption of the limited liability partnership as a flexible vehicle of choice for a broad range of businesses ... the uncertainty caused by today's announcement is far from welcome".

Richard Sultman (Cleary Gottlieb Stein & Hamilton LLP) also noted that "Groups with LLPs will also be keen to follow the consultation aimed at tackling the disguising of employment relationships through LLPs".

Karen Hughes (Hogan Lovells International LLP), however, responded positively to the proposed OTS review of the taxation of partnerships, commenting that "the taxation of partnerships is an area riddled with uncertainty and inconsistency so this can only be a good thing".

There was also concern over the announcement that there would be a review of the loan relationships legislation. John Christian (Pinsent Masons LLP) said:

"We need to know as soon as possible which areas are likely to be under review in the proposals to modernise the loan relationships and derivatives regime. Business - including the international investors which the Government is so keen to attract - need certainty around their post-tax finance and hedging strategies."

Iain Scoon (Shearman & Sterling (London) LLP) was more optimistic, stating that the "proposed review of the legislation relating to loan relationships and derivative contracts could be helpful, provided the emphasis is genuinely on improving things rather than anti-avoidance".

Employee share ownership

The government's tinkering with employee share ownership continues. In particular, the Budget included further details about the proposed new "employee shareholder" status. This was despite what Barbara Allen (Stephenson Harwood LLP) described as the "lack of enthusiasm from business".

Judith Greaves (Pinsent Masons LLP) thought it was "good to see that employee share ownership in all its forms remains firmly on the agenda for our Aspiration Nation". Isabel Pooley (CMS Cameron McKenna LLP) also welcomed the "government's continued support of employee ownership". David Pett (Pett, Franklin & Co LLP) was particularly complimentary. He thought that:

""The package of measures amending HMRC-approved plans and EMI options, previously announced, together with the raft of new measures described yesterday will mean that, taken together, we shall – when eventually all such changes take effect - have the most attractive, and flexible regime for enabling independent companies, particularly private and unquoted companies, to encourage their employees to acquire ‘own company’ shares in a tax-efficient manner."

Was it worth it?

Apparently so.

It's remarkable, really, the effect this little procedure has had, given how frankly rather bloated and saggy the government looked beforehand, and given the raw material. On the basis, really, of very limited substantive measures (what Michael Hunter (Addleshaw Goddard LLP) called "classic tinkering around the edges") and a great deal of cosmetic procedure, it seems the government really has emerged looking rejuvenated. A little.

Charles Goddard (Rosetta Tax LLP) talked of "skilful presentation". Peita Menon (White & Case LLP) thought that the government's rhetoric of "open for business" might in fact be more accurately summarised as "welcome but behave". Andrew Prowse (Field Fisher Waterhouse LLP) thought that a Budget "setting free the aspirations of the nation" might be overstating it a bit!". (#cynicaltaxadviser).

The 2013 Budget may not have saved this coalition government, but it may have bought it some time, or at least not damaged it further. Presumably, the government will now be hoping that a royal baby will do everything else required to stimulate investment, growth and prosperity before the next election.

Comments in full

Barbara Allen, Stephenson Harwood LLP

"Despite the lack of enthusiasm from businesses for the new employee shareholder status, the Government is pressing on, albeit the implementation date has been postponed until Autumn 2013. The Budget has addressed the outstanding issue of the income tax treatment of shares offered. No income tax or national insurance contributions will be payable on the minimal share value which can be provided of £2,000 where shares are acquired on or after 1 September 2013. It is not clear whether employers will be discouraged from offering more than £2,000 of shares in return for employees giving up certain employment rights even though the capital gains tax benefit applies to gains on the first £50,000 of shares acquired."

Emma Bailey, Fox Williams LLP

"The Chancellor's "tax off jobs" Budget will be welcomed by SME's, in particular the single rate of corporation tax from April 2015 and the introduction of the new "employers allowance", reducing employer NIC liabilities by £2,000 per annum. As expected, in the context of the new "employee shareholder" employment status, the first £2,000 worth of shares received by employee shareholders will be exempt from income tax and NICs; but it remains to be seen whether this clarification (and the other changes to the legislation introduced following consultation) will enhance the "take-up" of the new status or achieve the government's desired outcome "to reduce regulatory burdens on business, promote business and employment growth and increase the choices available to businesses and employees.

Of more concern to many will be the proposal to consult on the various measures in the context of partnerships. Given the prevalence of partnerships in many of the schemes which HMRC perceive as involving tax avoidance, and the continuing use of partnerships in many remuneration structures, this may be an interesting time for those advising on partnerships!"

Susan Ball, Clyde & Co LLP

"The changes in the corporation tax rate are intended to be a key attraction to business, but it takes more than a low headline rate to make a business-friendly tax environment. There are also some other helpful proposals, but all small-scale. The Chancellor clearly did not have much room for manoeuvre, and seems to have decided that the incentives available to him are best allocated a little bit here and a little bit there. The risk is that none individually has the impact necessary to change or dictate a business strategy."

John Barnett, Burgess Salmon LLP

"Perhaps the best thing about this Budget was that there were few surprises. The government made a commitment in 2010 to a new framework for making better tax law and that is now starting to show fruit. The statutory residence test and the GAAR have both benefitted from a long gestation period and, although neither will be perfect, they are a lot better than they might otherwise have been.

The one unexpected announcement relates to how liabilities are deducted for inheritance tax purposes. They will now only be deductible (broadly) where the loan is genuinely repayable and was not used to acquire IHT-free property. While the aim of this measure is understandable, I envisage significant complications in both the tracing of the use of loan proceeds and the commencement provisions. There may also be arguments about EU fundamental freedoms as, ostensibly, borrowing to buy UK assets will attract inheritance tax relief, but borrowing to buy (say) French assets will not.

As ever, measures like this may also lead to perverse incentives. Government policy has been to encourage non-doms to “de-envelope” their high-value residential property from offshore corporate structures. This new measure may well have the opposite effect as it removes one means by which non-doms might have mitigated the resultant IHT exposure."

Chris Bates, Norton Rose LLP

"Hopes that the GAAR would lead to simpler principles based legislation have been scotched with two new TAARs one extended TAAR and three sets of highly technical provisions designed to close "loopholes" in the loss relief rules. The concern is that these TAARS may not be that well targeted and may cause collateral damage to ordinary commercial transactions. The paper outlining these changes have been drafted with the GAAR in mind setting out more explicitly than in the past the underlying policy behind the changes. Unfortunately this is a one way street. HMRC can use the GAAR to put right mistakes in the legislation that fail to meet the policy aims but there is no protection for the taxpayer where the mistake in legislation works against the policy in HMRC's favour."

Tony Beare, Slaughter and May

"The Budget was somewhat more interesting than might have been expected. The highlights would seem to be:

The further reductions in the rate of corporation tax to 21% from 1st April 2014 and 20% from 1st April 2015 - this is clearly an attempt to encourage the tax tourists to come to the UK. It also has the incidental consequence of reducing the value of carried forward losses for those entities which are already in the UK and discouraging future avoidance.
The changes which have been announced in relation to funds - these are designed to improve the competitiveness of the UK fund management industry. They include the abolition of SDRT on surrenders of units in UK funds, the provision of greater certainty between trading activities and investment transactions and a consultation in relation to allowing UK bond funds to make interest distributions without withholding tax.
A concerted attempt to clamp down on the purchase of losses, both in cases where the losses have already been realised and in cases where the losses are just anticipated to arise in the future. This isn't entirely surprising given the recent economic conditions.
The extension of first year allowances at 100% for expenditure on ships and railway assets could provide a boost to those industries. In particular, the availability of first year allowances of 100% on ships, coupled with the generous tonnage tax regime, looks attractive although there may be insufficient tax capacity within the UK to take advantage of that measure.
Two changes have been made to the new investment trust rules which should be welcome to the industry. The first makes it clear that an investment trust can carry on a de minimis amount of other business without prejudicing its investment trust status and the second means that an investment trust with carried forward revenue losses will not need to make distributions of income to satisfy the condition that relates to income retention.
The changes to the exit charge regime look overly complicated. I suspect that most will choose to adopt the somewhat simpler method of paying in 6 annual instalments. Frankly, the fact that interest will continue to accrue on the unpaid amounts under both methods means that this isn't really a beneficial change for the taxpayer.
There is a welcome extension to the previously-announced change which required companies with a non-sterling functional currency to calculate their chargeable gains on shares in the relevant non-sterling currency. Those rules will now also apply to ships and aircraft.
The proposal to include legislation in the FA 2014 that allows HMRC to name and shame banks that aren't complying with the Banking Code of Conduct is an interesting development, as is the announcement of a proposed consultation on modernising the loan relationships and derivatives codes.
It appears that the Government has listened to the various points that were raised in relation to procurement and tax compliance. The changes that have been announced in that area should make the regime much more manageable."

Nick Beecham, Field Fisher Waterhouse LLP

"Anyone who used a subsale-based SDLT mitigation scheme, on or after 21 March 2012, will have to consider very carefully whether it has been blocked retrospectively by today’s Budget announcement. If it has, the SDLT will have to be paid (and any return filed, if applicable) by 30 September 2013. Penalties will not be charged provided this deadline is met, although interest will still be charged."

Sandy Bhogal, Mayer Brown International LLP

"This years Budget continues the trend of reducing the corporation tax rate and increasing sector specific taxes like the bank levy to address any shortfall. The trend of piecemeal anti-avoidance legislation continues as well. I suppose you have to congratulate the Coalition Government for consistency, if nothing else!!

In addition to the various measures which were announced during the Autumn Statement, corporate loss buying is a new target for HMRC’s wrath, as well as partnership structures where losses are shifted artificially or where employment is disguised to save on national insurance contributions. The detail on such proposals is awaited but there is a sense of déjà vu about the process. One would have hoped that a benefit of introducing the GAAR would be that volumes of anti-avoidance legislation would not be necessary. The concept of the rule of law in the tax code continues to be eroded by overlapping anti-avoidance legislation which is drafted so widely that only guidance can bring any kind of clarity as to its intent and scope.

The Government will consult on a rewrite of the loan relationships and derivative contract rules (as well as legislating on certain income tax rules on interest which were announced as part of the legacy consultation). One hopes rather than expects that could be an opportunity to reverse previous trends and have clearly drafted and targeted legislation, as this is a very important area.

This year, the Government has sought to seduce the investment management sector with a series of proposed measures designed to onshore aspects of the fund industry from traditional locations like Cayman and parts of Europe. Whether the proposals will be successful remains to be seen, but it is good to see that HMRC are finally beginning to listen to various bodies who have advocated the benefits of having investment funds (and not just fund managers) located in the UK and that offering them tax efficient options for their structures will ultimately increase and not decrease overall tax collections."

Adam Blakemore, Cadwalader, Wickersham & Taft LLP

"One eye-catching announcement in the Budget was the confirmation that the Government will, following the conclusion of Capital Requirements Directive 4, legislate to “clarify” that interest coupons on banks’ Additional Tier 1 debt capital instruments already in issue or yet to be issued will be deductible for corporation tax purposes. The clarification will be warmly welcomed by the UK’s beleaguered banking sector, particularly since publicised statements made by HMRC in June 2012 gave little comfort that the Government was persuaded of the technical arguments as to why tax deductibility of Additional Tier 1 instruments should be preserved for going-concern and gone-concern instruments.

No Budget is complete without a raft of anti-avoidance measures, and yesterday’s Budget was no different. If anything, the measured statement by the Exchequer Secretary to the Treasury in the Budget document “Levelling the Tax Playing Field: Compliance Progress Report – March 2013” that “there is a strength of public feeling against tax avoidance and evasion” understates the current public and media rejection of tax avoidance as a socially acceptable and economically viable activity.

Taken on their own terms, the detailed and intricate new anti-avoidance provisions relating to “targeted loss buying” and “loss loophole closure” are perhaps unsurprising. However, the timing of their proposed introduction, coterminous with the introduction of the GAAR, does raise questions of whether the GAAR will ever offer opportunities to simplify the UK tax system, as its proponents have always claimed vigorously."

James Bullock, Pinsent Masons LLP

"Quite a bold Budget in many ways, particularly the "shot in the arm" for the housing industry which rather harked back to the 1980s. The "elephant in the room" is whether the UK's balance sheet is strong enough to support such an ambitious project.

The extent of the proposed "TAARs" was interesting, having regard to the introduction of the GAAR. It rather suggests that the GAAR is envisaged as being used (as intended) to target abuse, whilst TAARs will continue to target avoidance. This can be interpreted very positively. Not much hope for those of us who wanted less tax legislation though!

Not much new on the compliance and enforcement front, other than a fair amount of "trumpet blowing". However, a lot of the £1 billion of resource is evidently being spent on technology and there will be a big focus on "naming and shaming" promoters and the non-compliant in the future."

Helen Buchanan, Freshfields Bruckhaus Deringer

"The GAAR may be old news but is probably the measure that will have the biggest practical impact on business. It's inherently uncertain so a lot will hang on the guidance, which remains a work in progress. The new loss-buying rules were more of a surprise - they take effect immediately and are broad and potentially punitive so will cause headaches for corporate acquisitions and restructurings. Looking to the future, the consultations on partnerships, loan relationships/derivatives and tax litigation test cases look particularly interesting."

Michael Cant, Nabarro LLP

"For me the biggest change is the Governments response to the informal Tax and Procurement consultation. They really seem to have taken on board what people said. In particular the fact that the measure is prospective and does not require tax payers to look back at what they may have done 10 years ago is to be welcomed."

Richard Carson, Taylor Wessing LLP

"What the Chancellor described as one of the largest ever packages of tax avoidance measures included both the now familiar GAAR itself (with no indication of any improvements to the December draft) and announcements on topics as diverse as close company loans to participators, an imminent consultation on the misuse of partnerships (both by corporates and by individuals) and the threat of a fundamental overhaul of the corporate debt and derivatives codes. The various announcements concerning so-called "loss buying" are probably the most striking of the immediate changes. On the one hand, the extension of the longstanding legislative restrictions upon the carry-forward of trading losses on a change of ownership of a company - to ensure that those restrictions cannot be side-stepped by a subsequent hive-down of the trade to another member of the acquirer's group - may well be regarded by some as overdue. On the other hand, however, the proposed extension of the limitations currently imposed upon the utilisation of plant and machinery allowances following the acquisition of a company is quite deliberately crafted so as to impact on ordinary commercial transactions that are unmotivated by tax planning considerations; while the other new "loss buying" TAARs just seem to add further uncertainty and unpredictability to the UK tax system".

John Challoner, Norton Rose LLP

"The abolition of SDRT on redemption of units in a unit trust and shares in an open-ended investment company is good news. The compliance costs for affected funds, largely caused by the complexity of the legislation, far outweighs the tax generated and it is just a shame that this change will not be introduced until next year."

John Christian, Pinsent Masons LLP

"We need to know as soon as possible which areas are likely to be under review in the proposals to modernise the loan relationships and derivatives regime. Business- including the international investors which the Government is so keen to attract- need certainty around their post–tax finance and hedging strategies.

It would be good to have seen a consultation on further changes to the REIT rules to deal with the long standing issues for residential REITs and to allow REITs to invest in debt secured on property . Mortgage REITs would provide a means of aligning institutional funding with the need for banks to refinance their property debts and it is disappointing that despite requests from the industry, there seems to be no engagement in this area."

Murray Clayson, Freshfields Bruckhaus Deringer LLP

"Given the amount of political and media noise about multinational tax avoidance in recent months, the Budget content on that front was muted. We were reminded that the UK is "leading international action on tax avoidance", and also that the Government wants "the global rules governing the taxation of multinational firms to be updated from the 1920s when they were first written, and made relevant to the global internet economy of the twenty first century". We know that HMRC is leading the transfer pricing stream of the OECD's BEPS project, but of course we must wait for the consensus report to be published in the summer to see how the established international norms and conventions are proposed to be reformed. But the expectation must be that some meaningful changes to treaty terms or interpretation will be proposed.

In "Levelling the tax playing field" HMRC say they have raised more than £1.5bn since March 2010 through increased efforts in tackling transfer pricing. And "a planned increase in transfer pricing specialists" will "demonstrate our commitment to tackling multinational tax avoidance".

In the same document it is apparent that, adopting a transfer pricing analogy, HMRC are undertaking some tax efficient supply chain management of avoidance schemes, the chain being: promoters, intermediaries, and facilitators (including, bizarrely, solicitors). The objective is to "reduce the supply of schemes to the market place"."

Brenda Coleman, Weil Gotshal & Manges

"As expected the Chancellor focussed on tackling tax avoidance and evasion. However following extensive representations , proposals to restrict a company's ability to bid for government contracts if they had a history of tax avoidance were dropped in favour of proposals focussing on future behaviour. This should help achieve a more workable regime and focus on the government's objective of influencing future behaviour rather than trying to judge past behaviour."

Jonathan Cooklin, Davis Polk & Wardwell LLP

"Overall the usual host of technical measures and focus on anti-avoidance and evasion. There are some welcome proposals, including the decision to go ahead with the employee shareholder CGT exemption slated for September 2013 and associated income tax and NICs benefits. The proposed abolition of stamp duty on shares listed on AIM (and other growth markets) along with proposed ISA treatment and existing IHT benefits make AIM a very tax efficient market. However, the announcement of a consultation on partnerships and anti-avoidance measures relating to loans from close companies throws a potentially unwelcome spotlight on LLPs."

Heather Corben, SJ Berwin

"The Government has clearly listened to representations made about its proposals to use the procurement process to encourage tax compliance. Its response to comments made during the informal consultation has been to make the requirements less onerous and more practical."

Nick Cronkshaw, Simmons & Simmons

"As trailed in the Autumn Statement, the use of partnerships in avoidance schemes has become a focus of HMRC, and the Government has concluded that the tax rules applying to partnerships represent a high risk area of the tax code. Since then, there have been a series of "settlement opportunities" offered to resolve long-standing disputes between taxpayers and HMRC concerning the use of partnership loss relief and allowances schemes. The Government has, in addition, now announced a consultation this spring, with a view to legislation in Finance Bill 2014, on two further, much broader aspects of partnership taxation: the removal of the presumption of self-employment for LLP members, to tackle what is viewed as the "disguising" of employment relationships through LLPs; and measures to counter the "manipulation" of profit and loss allocations by LLPs and other partnerships to secure tax advantages.

The scope of what may be proposed to address these issues is far from clear. However, given the successful adoption of the limited liability partnership as a flexible vehicle of choice for a broad range of businesses including professional partnerships and asset management firms, and the widespread use of LLPs and other partnerships as investment fund vehicles, the uncertainty caused by today's announcement is far from welcome, not least given the Red Book prediction that the proposals are anticipated to raise over £1 billion to 2017/18. Watch this space…"

Nikol Davies, Taylor Wessing LLP

"Whilst the Budget has brought a few welcome surprises including the reduction in the main rate of corporation tax to 20% from 1 April 2015, the abolition of stamp duty on transfers of shares listed on AIM and the introduction of the above the line R&D credit of 10% for large companies, it is again accompanied by a number of targeted anti-abuse provisions affecting such diverse areas as the use of losses by companies after a change of ownership, stamp duty land taxes on sub-sales, loans to participators and the use of liabilities to minimise inheritance taxes. These targeted anti-abuse rules are particularly disappointing in light of the introduction of the General Anti-Avoidance Rule and merely add to the ever-increasing complexity of the tax legislation. It is also concerning that a new relief from the transfer of assets abroad legislation, necessitated to ensure compliance with EU law, is only available to transfers effected after 5 April 2012, leaving taxpayers with uncertainty as to how arrangements which would otherwise qualify for this relief but which were put in place prior to that date are to be treated."

Michael Flesch QC, Gray's Inn Tax Chambers

"The new draft GAAR legislation is due to be published on 28 March. It will apparently contain some amendments to the December 2012 draft legislation. One might have expected, or at least hoped, that the introduction of the GAAR would obviate the need for new TAARs. But if the Chancellor’s Budget Statement and accompanying HMRC Notes are anything to go by, any such hope will not be realised. It seems that TAARs – including new TAARs – will be with us for a good while yet."

Hartley Foster, Field Fisher Waterhouse LLP

Budget 2013: TAARs, GAAR, Procurement and Pillorying

"Tackling avoidance remains a key message.

GAAR

As anticipated, legislation will be introduced in Finance Bill 2013 for a General Anti-abuse Rule to “counteract tax advantages arising from abusive tax avoidance schemes”. The measure will apply to tax arrangements entered into on or after Royal Assent to Finance Bill 2013. It will apply to most taxes in the UK, but not VAT which has its own abuse doctrine. Separate NICs legislation will be introduced after the Royal Assent to Finance Bill 2013, when parliamentary time allows.

No details of any changes to the previously published draft legislation have been indicated; it is likely that the relevant clauses of the Finance Bill will be at least consistent with the December 2012 draft. The effectiveness of the measure will be monitored through, inter alia: "the number of potential GAAR cases identified, how many of those cases are authorised for counteraction under the GAAR with a separate record of cases successfully litigated or settled by agreement using a GAAR challenge." Guidance notes are in the process of being approved by the interim advisory panel.

It will be interesting to see how many cases are authorised for counteraction. This will demonstrate whether HMRC consider that GAAR is a "broad spectrum antibiotic" or, alternatively, is a measure focused on counteracting only the most egregious examples of abusive structures. If the latter, then no cases being authorised for counteraction would demonstrate the effectiveness of the measure (as a deterrent).

Public procurement

A requirement for certification of tax compliance as part of the public procurement process will be introduced, in order to encourage tax compliance by Government suppliers. Any "occasion of non-compliance" needs to be declared and mitigating factors set out. Suppliers will be required to certify only where an occasion of non compliance occurs on or after 1 April 2013, and in respect of tax returns submitted on or after 1 October 2012. Occasions of non-compliance will include:

A tax return being found to be incorrect by reason of (a) the GAAR or (b) the Halifax abuse principle.
The supplier being involved in a failed tax avoidance scheme to which the DOTAS rules applied.
The supplier’s tax affairs having given rise to a criminal conviction for tax related offences which is unspent or to a penalty for civil fraud or evasion.

Foreign economic operators bidding for UK central government contracts will be required to self-certify their tax compliance against the equivalent tax rules, where these exist.

Penalties

There will be a consultation on whether a Tribunal or court decision in favour of HMRC in an avoidance case should have filing consequences for other taxpayers, with the intention that measures will be included in the Finance Bill 2014. A taxpayer who has used an avoidance structure will be required to consider whether a decision in favour of HMRC in another taxpayer's case means that his return must be amended to reflect that decision. This would impose an ongoing obligation on taxpayers to have regard to jurisprudential developments. This raises a number of issues. Many avoidance cases are fact specific; and it will be difficult to conclude that a tax geared penalty for not taking reasonable care should be imposed on a taxpayer who has undertaken a detailed comparison of the particular facts and circumstances of both cases and concluded (even if erroneously) that the decision in the other case does not apply to him. Secondly, if the decision in the other taxpayer's case is overturned on appeal, must the taxpayer re-re-assess his filing position and amend the return back again?

Pillorying

Section 94, Finance Act 2009 bestowed on HMRC a power to publish details of individuals who are described as "deliberate tax defaulters" (individuals who have received penalties either for deliberate errors in their tax returns or deliberately failing to comply with their tax obligations and the potential lost tax revenue in relation to the penalty exceeds £25,000). HMRC resisted making use of this power until February 2013. In that month, possibly influenced by the urgings of the Public Accounts Committee, and presumably pour encourager les autres, it published the first list. There were 9 individuals "named and shamed", many of whom just scraped over the £25,000 threshold.

The Government indicated that it intends to consult on the naming and shaming of promoters of tax avoidance schemes, with a view to introducing legislation in Finance Act 2014. The impression is that HMRC (perhaps mindful of its duties of confidentiality) is rather more reticent than the Government is regarding the use of this, irretrievably vulgar, 21st century equivalent of the stocks. Whether this power, in time, will become an important weapon in HMRC’s arsenal that is used to ensure that everyone pays their fair share of tax, remains to be seen."

Caspar Fox, Reed Smith LLP

"After years of teasing, the Chancellor has now finally announced the 20% corporation tax rate. Surely the rate will not continue down any further, and so he will have to come up with another way of making his future Budgets corporate-friendly.

Partnerships seem to be being viewed nearly as suspiciously as trusts in the eyes of HMRC/Treasury. This is a worryingly development, and the consultation on the tax treatment of partnerships will need to be used to emphasise that any changes must not create uncertainty for the tax treatment of commercially-driven partnership structures.

I see that stamp duty on AIM shares is being abolished. It would be great if the Chancellor had also abolished the quirk of SDRT being payable on the transfer of UK depositary interests representing non-UK shares listed on AIM, since I have never understood the rationale for this charge when there is none for depositary interests for shares on the Main Market."

Heather Gething, Herbert Smith Freehills

"The introduction of field reliefs for shale gas and the confirmation of the decommissioning relief for North Sea assets is good news – providing certainty and releasing cash for investment to increase extraction. The proposal to name and shame promoters of schemes is long overdue. The move to reduce the corporation tax rate to 20% is a stroke of genius, the UK is moving in the direction of HK."

Charles Goddard, Rosetta Tax LLP

"Skilful presentation means that the good news for business in this Budget may hog the headlines – the 20p rate of corporation tax, £2k off NICs, help for employee shareholders, innovative industries, even good old-fashioned brewers. But this Budget is less than the sum of its parts, and those headlines will camouflage what amounts principally to a lot of tinkering at the edges. There is also a worrying trend towards bullying tactics, with the threat of naming and shaming of banks and others for perceived aggressive tax avoidance, without those named even having the right of reply (let alone taxpayer confidentiality). The Government should be very wary of seeking to sway public opinion against businesses which operate entirely within the law. Being open for business is about more than low tax rates."

Mathew Gorringe, Eversheds LLP

"Whilst the budget contains some welcome confirmations, including the simplification of the approval process for HMRC approved share incentive schemes which will certainly aid businesses in terms of their employee share arrangements, the introduction of the GAAR (General Anti Abuse Rule) will create a great deal of uncertainty amongst businesses and their advisors as to whether certain arrangements for employee incentives which are prevalent in the market will be counteracted."

Judith Greaves, Pinsent Masons LLP

"It’s good to see that employee share ownership in its different forms remains firmly on the agenda for our Aspiration Nation. From the headlines, you might think the biggest issue is employee shareholder shares. It isn’t. The changes that will make the most difference to the most people are the improvements to EMI, SIP, SAYE and CSOP, the majority of which have been trailed already. Big shame the Government hasn’t been able to raise the limits for SIP and SAYE- although not a surprise."

Ashley Greenbank, Macfarlanes

"The Government is continuing with its crusade against tax avoidance and evasion. Two papers published at the time of the Budget, “No Safe Havens” and “Levelling of the Tax Playing Field”, seek to pull together the disparate strands into a co-ordinated strategy. They reflect some of the seismic changes that have occurred in the past few years and in particular the massive increase in international co-operation on tax matters such as the expansion of disclosure facilities (now to include Jersey and Guernsey), the increased use of tax information exchange agreements, and increased multi-lateral work on tax shelters. As I have heard argued at a conference earlier this week, there may not be much left of the old principle that one country will not assist the collection of another’s taxes.

They also confirm that the Government will continue to pursue, through the OECD and G20, its efforts to address base erosion and profit shifting. Following the OECD report, an action plan is expected for the G20 meeting in July, which could have profound effects for the transfer pricing of intangibles and multi-national enterprises operating in the digital economy."

Elaine Gwilt, Addleshaw Goddard LLP

HMRC's approach to this Budget and the heavy sprinkling of TAARs seems to underline their potential lack of confidence in the much touted GAAR.
There feels like there is an element of moving desk chairs on the Titanic: the Chancellor gives with one hand (a future further corporation tax rate reduction) and continues to take with the other (a further increase to the Bank Levy).
It will be interesting to see how far HMRC will go in rebutting the presumption that a partner in a LLP is self employed given recent non tax case law. One can only imagine this measure will be one of many to help the Chancellor raise three times as much in National Insurance contributions in comparison to the benefit for small businesses of the £2000 exemption from NICs.
The further reduction in the corporation tax rate is welcome but in assessing the UK's attractiveness as a place to do business it is hard to get away from the fact that the tax regime is dense, difficult to navigate and can throw up unexpected and unwelcome results.

Kate Habershon, Morgan Lewis & Bockius

"This Budget does seem to contain a number of measures to support the stated aim of supporting business, growth and jobs. However, I can’t help wondering whether the repeated reductions in corporation tax rates, while undoubtedly welcome to businesses, really achieves the Government’s goal of making the UK more attractive to multinational businesses. To my mind the real question is whether the low headline rate outweighs the increasing complexity of the UK tax system generally, including the new GAAR, the compliance headaches associated with the new CFC regime and the uncertainties surrounding concepts that ought to be fundamental to the tax efficiencies of multinationals, including the UK’s substantial shareholding exemption. It will be interesting to see the extent to which the GAAR interferes with normal business and tax planning; although it is stated not to be aimed at the “centre ground of tax planning” that of course begs the question of what is the centre ground and what is artificial and abusive. Will businesses need to be concerned that instructing tax advisers in relation to a business transaction appears to be evidence that unacceptable tax planning is going on? This is coupled with the unsatisfactory position of being taxed by overly wide legislation then untaxed by guidance or practice. The concern is that the additional work involved in understanding the precise scope of the GAAR and its potential application to any particular transaction will deter multinationals from staying in, or expanding in or into, the UK, despite the fact that the rate of corporation tax will, by 2015 be the (joint) lowest in the G20 countries."

Paul Hale, Simmons & Simmons LLP

"In this Age of the New Morality where public opprobrium may induce a business to pay tax it does not owe, the Government is keen to show what steps it is taking to counter evasion and avoidance and to enable miscreants to resolve their tax affairs. To this end, it published two documents – “No safe havens” which sets out HMRC’s offshore evasion strategy and “Levelling the tax playing field” which is a compliance progress report. These recognise that the UK actually has rather a good compliance record. Its “tax gap” – the difference between the amount of tax that should be due to the Government and what is received – is small - and cannot all be blamed on generous transfer pricing in the coffee shop sector.

On avoidance, more resources are being devoted to identifying abuses so that they can be addressed earlier. The general anti-avoidance rule is to be enacted which is intended to counter the worst cases. Businesses tendering for public sector contracts worth at least £5 million will have to disclose serious failures of tax compliance and may be disqualified from the bidding process. It would also be desirable if tax legislation were better drafted in the first place, and it is welcome that the Government seems to be more inclined to consult in advance of acting. The policy is clear – to be more effective with the big stick against evasion and avoidance but use that as a carrot to encourage those who have strayed to make good their position of their own accord."

Colin Hargreaves, Freshfields Bruckhaus Deringer

Much was already in the pipeline following the Autumn Statement. Of the new news:

there are to be further cuts in the corporation tax rate, down to 20% from April 2015. We're now firmly into the territory where the UK can be viewed by other countries as a potential CFC jurisdiction. Combined with the Government's more measured approach to the OECD process on BEPS it might even be enough to offset the harm done by the approach to StarbAmOoglegate. Time will tell whether the confused messages really add up to Britain being viewed as open for business.
The combination of new measures on corporate loss buying will add to the hoops to be jumped through on entirely commercially driven transactions, including the many debt restructurings which involve changes in ownership. The changes include a couple of TAARs, even as the GAAR is brought through - will HMRC have kicked the habit altogether in a year's time or will they still be stuck on a lower-TAAR brand?

David Harkness, Clifford Chance LLP

"There is an interesting contradiction in the Government's approach to company taxation. On one hand there is a continuing and welcome drive to make the UK corporation tax system one of the most competitive in the world by reducing the rate of corporation tax to 20% from April 2015. On the other hand the Government committed to ensuring that companies "pay their fair share of tax" and announced a raft of anti-avoidance rules (including the GAAR, the new rules on Government procurement and new loss relief rules). Multinationals will not be attracted to the UK if the tax system is not stable or if low headline rates are accompanied by threatening rhetoric regarding the unacceptability of tax planning. It remains to be seen if international agreement on what is "a fair share of tax" is possible. Tax is a purely legal concept and tax law and fairness do not make easy bedfellows. Those calling for fairness need to be careful what they wish for. "

Louise Higginbottom, Norton Rose LLP

"The issue the stands out for me is the vastly increased access tax authorities across the globe are gaining to information about the tax affairs of businesses and their customers through Tax Information Exchanges Agreements, FATCA agreements etc. If corporates, especially those in regulated sectors, cannot respond in a timely and complete manner to information requests, or are perceived to be participating in or facilitating tax avoidance, reputational damage may occur, customers may seek alternative suppliers and access to Government contracts may be affected. Ensuring that the business is not damaged by the way in which it, or its customers, conduct their global tax affairs now needs to be a concern up to the very highest levels of an organisation."

Karen Hughes, Hogan Lovells International LLP

"What a relief not to have the wodge of paper that arrived last December!

Generally, the Budget has provided modest fare with a light appetiser of helpful measures, a balanced main course of TAARS and a small but promising dessert of reviews and consultations.

One of the most interesting reviews announced is the OTS review of partnerships. The taxation of partnerships is an area riddled with uncertainty and inconsistency so this can only be a good thing.

Having worked hard to make the UK more attractive for corporates, the Government is clearly now looking also to make UK funds more competitive in the international arena, with various welcome proposals in this respect. We know, in particular, that the potential reform to enable UK funds to make interest payments gross will be very welcome to the UK funds industry.

Also noted is the consultation on the structure and operation of the tax charge on loans from close companies to participators. Being based on the old ACT regime, this area is long overdue some modernisation."

Michael Hunter, Addleshaw Goddard LLP

"I felt there were few surprises on the tax front and the headline further cut in corporation tax to 20% was a natural (and predictable) step. Most of the more interesting changes for tax professionals have already been announced and/or consulted on although, in itself, this is a good thing.

Most of the new announcements on tax looked like classic tinkering around the edges. The £2,000 employer NICs exemption will only be a real benefit to the very smallest of businesses and extending it to all employers makes little sense. I fear that the new CGT exemption on sales of controlling interests to employees will be so restricted as to be practically worthless - particularly when taken in the context of an overall annual budget for supporting employee ownership in general of only £50m."

Ian Hyde, Pinsent Masons LLP

"I welcome HMRC’s response to the consultation on the new rules requiring bidders for government contracts to certify their tax avoidance history. They have narrowed the scope of the new rules, most importantly relieving bidders from the immediate need to review tax history going back more than 10 years. The new £5m threshold should also keep small businesses out of the new regime. These narrower rules which will be starting 1 April won’t help the Government clear historic tax schemes but should encourage Boards to think before engaging in future tax planning."

Erika Jupe, Osborne Clarke

"The proposed review of international tax rules has signalled a new era of uncertainty – a bumpy road ahead for MNEs."

Geoffrey Kay, Baker & McKenzie

"Although the Government would no doubt prefer this Budget to be referred to as a Budget for growth, the main emphasis, so far as it related to business tax measures, seems to have been on avoidance. There continues to be an unhelpful conflation by the Government of evasion, avoidance (abusive or otherwise) and planning. For example, the HMRC compliance report entitled 'Levelling the tax playing field' published on Budget day covers, as if they were all part of a single theme, issues as wide-ranging persistent tax evasion and the current OECD review of international taxing rights.

The annex to that report contains a long list of anti avoidance measures which will be contained in the Finance Bill, including a number announced on Budget day relating to the use of losses and to loans to participators of close companies. It is somewhat surprising that one of these measures, relating to the interaction of the change of ownership rules and the reconstruction rules, was not introduced much earlier, as the issue has been well publicised for many years.

The changes announced to the proposals on Government procurement and tax non-compliance are welcome, particularly those relating to the definition of "occasion of non-compliance" and the look back period."

Mike Lane, Slaughter and May

"Overall a mixed budget for business. A further reduction in the mainstream corporation tax rate is headline good news as long as you are not a bank hit by the double whammy of a consequent reduction in deferred tax assets and increase in bank levy and the application of a good dose of common sense to the new procurement rules is welcome. The publication of a raft of new TAARS alongside the GAAR just goes to confirm what we already strongly suspected, namely that the GAAR will be an added layer of complexity and uncertainty for business, it will not lead to simplification of past or future legislation. It is disappointing that HMRC are making one sided changes to the loss buying rules, tightening them to prevent perceived avoidance without making the changes many had hoped for to remove the pitfalls that await the unwary on genuine commercial takeovers or situations where a new holding company is put on top of a group. Finally, some interesting future changes flagged including comforting noises on Tier 1 debt for banks, abolishing stamp taxes on unit trusts, OEICs and AIM listed shares and a potential modernisation of the loan relationships and derivative contracts regime. It will be interesting to see whether the latter grips the fundamental question of whether taxation of such items should be tied to their accounting treatment given that a lot of the complexity in the existing regimes has resulted from changes made to stop tax following accounting developments such as derecognition. Given the importance of those regimes to the taxation of most companies it will be important to ensure that the proposals for any such modernisation do not themselves generate further material uncertainty for business. No repeat of the ill-fated 2008 foreign profits consultation please!"

Daniel Lewin, Kaye Scholer LLP

"The investment funds industry received a welcome boost with the abolition of the much-maligned Schedule 19 and the announcement from HMRC of improving the English limited partnerships for private equity purposes. Whether the consultation on the so-called abuse of LLPs will be a step in the contrary direction remains to be seen when the Consultation comes out in the Spring, but there are strong arguments that ordinary LLP member taxation in the industry is in compliance with UK tax law. Nevetheless, HMRC’s growing focus on anti-avoidance above all else is turning into an industry of itself, and while abuse should be shut down, care will need to be taken to ensure that no collateral damage will ensue from the LLP Consultation process otherwise."

Andrew Loan, Macfarlanes

"The current lengthy process for formulating new tax legislation means that there are now relatively few surprises on Budget day, with legislative changes announced repeatedly at Budgets and Autumn Statements and subject to several rounds of consultation. In recent years, key policies have often been trailed in the press in the days leading up to the Budget, but the publication of many Budget announcements on the front page of the Evening Standard this year shortly before the Chancellor stood up in the House of Commons was a glaring breach of the (now seemingly abandoned) doctrine of Budget purdah.

Perhaps the most significant and unexpected announcement was the new restriction on the deductibility of loans and other liabilities from estates for inheritance tax purposes, which will complicate the "de-enveloping" steps that many non-domiciled individuals are currently taking to reorganise the way they hold high-value UK residential property. While many European jurisdiction are considering the introduction of a financial transactions tax, akin in many ways to a stamp duty, the investment funds industry will be celebrating the long-advocated abolition of 0.5% stamp duty reserve tax on surrenders of interests in unit trusts and open-ended investment companies, and companies listed on AIM and other "junior" markets will benefit from an abolition of 0.5% stamp duty or SDRT on transfers of their shares, both from April 2014.

The rhetorical condemnation of international businesses that arrange their affairs with an eye on the tax position - and implicit criticism of the benign tax regimes in other jurisdictions - sits uncomfortably alongside with the Government's aspiration for the UK tax system to be attractive as possible to international business, with a single simple 20% corporation tax rate in sight from April 2015, and favourable regimes such as the 10 per cent patent box about to come into force. It remains to be seen whether the "shares for rights" regime will produce a significant level of employee share ownership, particularly given the trenchant criticism and vote against the Growth and Infrastructure Bill in the House of Lords yesterday

New consultations on the taxation of partnerships, and on the corporation tax regimes for loan relationships and derivative contracts, will keep tax advisers busy into 2014 and beyond."

Shiv Mahalingham, Alvarez & Marsal Taxand UK LLP

"The Chancellor delivered today's budget with a number of references to a competitive tax system and the headline corporation tax rate was reduced further to 20% to try to stimulate investment. However, many international groups in high tax locations (such as the US) are resisting investing in the UK due to the uncertainty and reputational risk associated with tax planning and tax rate arbitrage. There is an opportunity for the UK to help shape the debate on base erosion through profit shifting and ensure that legitimate, commercially based planning is not tarred with the same brush as aggressive, artificial tax avoidance. The UK General anti-abuse rule (GAAR) does in fact concentrate on aggressive structures with commercial planning unaffected. However, reputational damage is a grave concern for business as customers may not be aware of the key distinction between substantive planning and artificial schemes. If this opportunity to end the uncertainty around planning is not grasped by policy makers, businesses and advisers then the positive changes to the UK tax system in recent years will have been in vain."

Peita Menon, White & Case LLP

""Open for business" can neatly be summarised as “welcome but behave” – the announced reduction in the corporation tax rate to a single 20% rate (in 2015) combined with the other recent reforms of corporate tax policy (e.g. dividend exemption, patent box, etc.) undoubtedly makes the UK a very attractive corporation tax jurisdiction. However, the price for this benevolence is greater scrutiny in the form of further anti-avoidance measures. Not only will the UK Government have a GAAR as well as TAARs in its arsenal, it will also have public naming and shaming of tax avoiders and now promoters of schemes. Thomas Jefferson is supposed to have said “the price of freedom is eternal vigilance” – one wonders whether the price being extracted is too steep for the apparent "freedom" an attractive corporation tax regime offers?"

Graeme Nuttall, Field Fisher Waterhouse LLP

Major tax and financial boost for employee ownership and Nuttall Review recommendations in Budget 2013

"The employee ownership business model got a major tax and financial boost in the Budget 2013 announcements. The Government has announced it will introduce a new CGT relief (I would expect this to be a complete exemption from CGT) on qualifying disposals of a controlling interest in a business into an employee-owned structure from April 2014. The Government will provide £50 million annual funding from 2014-15 to support employee ownership, which will include the cost of this relief. The Government has therefore again confirmed its support for employee ownership as envisaged by Sharing Success: The Nuttall Review of Employee Ownership (BIS, 2012). Also, the Government will look at further incentives in this area.

The Chancellor’s 2013 Budget Day statement said: "Employee ownership helps create an enterprise culture. So we’re ... introducing CGT relief for sales of businesses to their employees."

The full detail from the Budget Report is:

"The Government supports employee ownership as a business model and welcomes work by the Implementation Group on Employee Ownership to take forward the recommendations of the Nuttall Review. In order to further incentivise growth of the sector, the Government is providing £50 million annually from 2014-15. This will be used to respond to recommendations from the Nuttall Review and other relevant organisations who aim to encourage employee ownership. It will also be used to fund the introduction of a capital gains tax relief on the sale of a controlling interest in a business into an employee ownership structure. Consultation on this measure will take into account the progress of work by the Department for Business, Innovation and Skills and the Implementation Group to develop an ‘off the shelf’ employee owned company model, with the intention that the new capital gains tax relief will be introduced in Finance Bill 2014. The Government will also look at further incentives in this area, including measures targeted at employees through indirect ownership models."

The new CGT relief will help overcome all the obstacles to promoting employee ownership as identified in the Nuttall Review: it will clearly raise awareness, it will help increase resources by providing a tax relief and will simplify converting an existing business into to employee ownership."

Darren Oswick, Simmons & Simmons LLP

"The Government's original proposal to use the central government procurement process to encourage tax compliance by bidders and reduce abusive behaviour by requiring bidders for central government contracts to self-certify that no "occasion of non-compliance" has occurred within the previous 10 years contained a number of troubling aspects. Following an exceptionally short consultation period of two weeks, the Government has now published details of welcome revisions to those proposals, making it considerably less onerous for bidders and more obviously focussed on changing businesses' behaviour in the future. In particular, the new rules are now narrower in scope. For example, they will only apply to contracts having a value in excess of £5m, the definition of "occasions of non-compliance" has been narrowed and bidders will only need to look back a maximum of six years to identify occasions of non-compliance. In addition, only occasions of non-compliance recognised on or after 01 April 2013 and in respect of returns submitted on or after 01 October 2012 will need to be taken into account, removing the retrospective, essentially punitive, aspects of the original proposal. As a result, these measures should still meet the political objective of encouraging businesses competing for large central government contracts to avoid entering into, at least, the most egregious forms of tax avoidance in the future, without now placing on them a large and somewhat uncertain additional administritive burden."

David Pett, Pett, Franklin & Co LLP

"The package of measures amending HMRC-approved plans and EMI options, previously announced, together with the raft of new measures described yesterday will mean that, taken together, we shall – when eventually all such changes take effect - have the most attractive, and flexible regime for enabling independent companies, particularly private and unquoted companies, to encourage their employees to acquire ‘own company’ shares in a tax-efficient manner. However, many of the consequences of these changes have to be carefully thought through. For example, the proposed increase to £10,000 in the limit on tax-free employee beneficial loans (from 2014) will allow companies to issue shares on deferred payment terms, but care is needed to avoid close companies falling foul of the penal charge in s455 if such a loan or extension of credit is made to an employee who is or becomes a ‘participator’. A new relief from CGT for a disposal of a controlling interest in shares to an employee-ownership structure (such as the model we are currently developing with BIS) will encourage existing proprietors to take seriously the employee-ownership model as an alternative to a trade sale on succession.

Although the Chancellor’s proposals for “employee shareholder status”, was ‘given legs’ by the announcement of restricted income tax relief for the subscription for new or treasury shares, the proposals in the Growth and Infrastructure Bill have since (thankfully?) been thrown out by the Lords!

Removing the presumption of self-employed status for LLP partners, and countering the use of LLPs to avoid tax and NICs will hit hard the many businesses which have transferred to LLP status over recent years, although it seems that, as yet, the government remains unclear as to exactly how to tackle this abuse."

Isabel Pooley, CMS Cameron McKenna LLP

"The increase in the de minimis threshold for tax-free beneficial loans from £5,000 to £10,000 is good news for nil and partly paid share schemes because employees will now be able to acquire up to £10,000 worth of shares (after taking into account any other beneficial loans the employee already has, such as season ticket loans) on deferred payment terms without triggering the annual income tax charge.

The announcement that only the first £2,000 of shares acquired under the Government's "employee shareholder" proposals will benefit from income tax and NICs relief will do little to appease critics of the scheme, which suffered a further setback yesterday when the House of Lords rejected the proposals. Early indications are that the Government will reinstate the scheme when the Growth and Infrastructure Bill returns to the Commons, although it remains to be seen in what form.

The Government's continued support of employee ownership, including the announcement of CGT relief on the sale of a controlling interest in a business into an employee ownership structure from 2014, is to be welcomed, although the details will need to closely scrutinised."

Andrew Prowse, Field Fisher Waterhouse LLP

"The cash-strapped Chancellor did not have much room for manoeuvre, leading to the inevitable compromise in which some gained and some lost. Most gains were only modest, but overall it was a reasonable Budget. A Budget "setting free the aspirations of the nation" might be overstating it a bit!

There was the 1% reduction from April 2015 in the main rate of corporation tax, effectively doing away with the small profits rate and marginal relief, achieving "major simplification of our business tax system" (although small companies might be a bit put out that their larger brethren get a reduction while their rate stays the same). On the other hand there was the usual raft of specific (and in the case of SDLT, retrospective) anti-avoidance measures to complicate the business tax system again.

Amidst the changes a couple of stamp duty measures caught the eye.

The more important one, although it may not grab the headlines, is the proposed abolition of the schedule 19 SDRT charge on dealings in UK unit trusts and OEICs from 1 April 2014. Stamp duty has long been perceived as a block on the UK's competitiveness in the international investment funds arena. This proposed abolition, as part of a wider package of positive changes for that sector, is very welcome.

The second change is the proposed abolition, again from April 2014, (subject to consultation) of stamp duty on UK share transactions on AIM and other "growth markets". This is intended to encourage equity investment as an alternative (or addition) to debt finance. It gives AIM and other qualifying markets an advantage over a main listing. Whether it will make a material difference to fundraising and liquidity of itself remains to be seen, but it is a welcome move in the right direction. A broadening of capital gains reliefs (such as entrepreneur's relief) might have a greater impact in this area, but austerity will not allow that - we live in hope (or aspiration)."

Charlotte Sallabank, Jones Day

"I am surprised that the loans to participators legislation has not come under anti-avoidance fire sooner - the legislation has been manipulated for quite some time, particularly the bed and breakfasting of loans.

The softening of the "Tax and Procurement" proposals is very welcome and it is encouraging that the responses to the informal consultation have been noted and acted upon by HMRC - the reduction in the look back period to 6 years and only in respect of post 30 September 2012 tax returns and the reduction in scope of the anti-avoidance rules to be considered when looking at non-compliance are very positive changes.

The introduction of the GAAR has not deterred HMRC from introducing new TAARS, it seems!"

Iain Scoon, Sheaman & Sterling (London) LLP

"The Chancellor's Budget cupboard was pretty bare in terms of items of interest. Clearly the further reduction in the rate of corporation tax to 20% will be welcome news to business. The proposed review of the legislating relating to loan relationships and derivative contracts could be helpful, provided the emphasis is genuinely on improving things rather than anti-avoidance. The same can be said for the review of transactions benefitting from the investment management exemption. Other than that, there was not a lot to cheer or cry about."

Tom Scott, McDermott, Will & Emery UK LLP

"The continuing war on tax avoidance is the most interesting aspect of the Budget, with the majority of the specific measures already well trailed.

What we are seeing develop is a defensive PR strategy on the part of HMRC and Government. This is nowhere clearer than in the tone and approach of the Compliance Progress Report " Levelling the tax playing field", which is required reading for those wishing to understand the current landscape in this area. While the public and the tax protest groups may have hoped that the GAAR would be a panacea, it will not be, and in an effort to manage expectations in the attack on avoidance the approach which has developed is effectively to combine a number of themes in an effort to produce an equivalent broad spectrum antibiotic.

There are five themes in particular which one can identify and which can be seen in the Budget on this front:

The continued blurring of the battle lines between evasion and avoidance.
The use of attempted behavioural change as part of the attack-- as well as the GAAR, see for instance the Government procurement proposals and the " name and shame" concept, as well as the more sophisticated view (set out in the Compliance Report) of the tax avoidance " supply chain".
A sanguine attitude to collateral damage where avoidance proposals are brought in--- the SDLT package last year, and ( one fears) the consultation on the use of partnerships.
Increased use of immediate or retrospective counteraction--- the tone of the Budget's SDLT measures on the transfer of rights schemes is almost proud in carrying through the threat of retrospective action.
The strangling at birth of the notion that a GAAR would lead to fewer TAARs and/or simpler legislation.

But even taking all this medicine in one gulp, the problem remains that, like most broad spectrum antibiotics, the most harmful--and high-profile-- corporate avoidance is largely unaffected. While the Amazon, Starbucks etc structures are to be considered further in the OECD report on base erosion and profit shifting, the options available in the UK to render those structures less effective are both limited and difficult. The MNE planning in this area rests almost entirely on three tax principles-- location of profit in a low tax area, leveraging from a definition of profit which looks not to customers but to trade, and the erosion of the remaining base through either royalty or interest payments, often intra-group. A redefinition of profit location is impossible without widespread concerted action, and an attack on royalty payments-- either via a disallowance where the receipts are not taxed at a high enough rate, or via a fuller withholding regime-- is again fraught with difficulty. If there is a realistic candidate in the UK for further action in this area, I would predict that it will be interest deductibility--- where the recent changes within other European countries have made the UK regime look (arguably) unnecessarily competitive."

Martin Shah, Simmons & Simmons LLP

"Budget 2013 was accompanied by the Chancellor's unveiling of his new investment management strategy for the UK. Reflecting a commitment to seek to grow and develop the UK's investment management sector, in particular to improve the UK's position as a domicile of choice for funds as well as asset managers, the strategy involves a three-pronged approach, addressing taxation, regulation and marketing. On the taxation front, a number of measures were announced, some more significant than others. Most notably, after many years of lobbying by industry, the Government has accepted that the much-maligned stamp duty reserve tax regimefor UK authorised funds (often referred to as "schedule 19"), which raised little tax, can be removed from the statute books. Finally acknowledged as "complex and burdensome", the abolition of schedule 19, to take effect in tax year 2014/15, will level the playing field with other fund domiciles such as Ireland and Luxembourg, and is to be welcomed as a measure that will increase the attraction and marketability of UK based fund products."

Simon Skinner, Travers Smith LLP

"I must be unwell. I have a small amount of sympathy for HMRC. It makes me feel uncomfortable.

Faced on one side by the bewilderingly ill-conceived "employee shareholder status" (which, with apologies for going on about it, will inevitably be used (quite reasonably) by groups of people it is probably not intended for and so result in wailing and gnashing of teeth, and withdrawal of the legislation) and central government procurement and, on the other, by further details of continued aggressive tax planning, as shown by some of the examples in the various TAAR announcements, HMRC must feel under attack from all sides. Their responses seem a little more sensible this time – for example, the significant movement on the central government procurement is a real improvement and a proper injection of common-sense.

Two consultations stood out:

First, the OTS review of partnerships. One may wonder how a body charged with simplification of legislation may react to being handed the legislation on partnerships (both sections of it, with a Statement of Practice, of course): would they be justified in saying the letter of the law doesn't get simpler? (There is of course a more serious point here.)
Second, there is the dark references to a review (again) of loan relationships and derivative contracts. If this is looking at a number of the inconsistencies in, or concessions applied to, the legislation, that should be welcomed. A wider review sounds more troubling.

So much depends on getting the GAAR, and GAAR guidance, right. If HMRC fail in that task, sympathy will be in pretty short supply."

Dominic Stuttaford, Norton Rose LLP

"A welcome to the decision to abolish stamp duty on AIM shares, but why delay for a year? The choice of whether to use an English incorporated company is seldom driven by stamp duty or SDRT but this is one less issue to explain to those (especially based outside the UK) looking to list. Is there a hope that the Government will not seek to include a TAAR if companies look to move down from the official list?"

Richard Sultman, Cleary Gottlieb Stein & Hamilton LLP

"Some of the most interesting items in the Budget are not for Finance Bill 2013, but areas due to be the subject of review or consultation. Both the review on the simplification of taxation of partnerships and the consultation on the modernisation of loan relationships and derivative contracts could have a significant impact for business -- simplification and modernisation in these key areas are to be welcomed, although it raises the initial prospect of new legislation to get to grips with (and inevitably new anti-avoidance rules). Groups with LLPs will also be keen to follow the consultation aimed at tackling the disguising of employment relationships through LLPs."

David Taylor, Freshfields Bruckhaus Deringer

"Tax and procurement has produced a huge amount of debate over the last few weeks after the rushed HMRC consultation process. But the process has been a notable success for those involved. Government has listened. With retrospection largely removed and scope narrowed, what could have been ghastly now isn't, even if some uncertainties remain. The standout feature though is the gap between public expectation and political presentation, given the mood against avoiders, and the (legally constrained) reality of what is delivered. It is natural to wonder whether similar gaps will be seen with the GAAR and with what can be done about international planning by multinationals."

Michael Thompson, Vinson & Elkins LLP

"No surprises and nothing to grab the headlines so far as the oil industry is concerned (and that’s probably much the same across the board for this Budget: too steady-state for those seeking radical change, but comforting to the “keep calm and carry-on” brigade). What has been announced in relation to oil and gas taxation is all both expected and generally welcome. The introduction of the “Decommissioning Relief Deed”, by which government will bind itself and its successors to give tax relief at certain rates for the huge future costs of dismantling North Sea installations, seems likely to have a real effect in stimulating more North Sea investment. The special reliefs for shale gas are also welcome, but are no guarantee in themselves that we will see anything like the US shale gas boom in the UK."

Vimal Tilakapala, Allen & Overy LLP

"The announcement that additional tier 1 capital will be tax deductible will be warmly welcomed by the banking sector. It should remove the tax road block that had discouraged the market from issuing such instruments. Although this policy decision has been a long time in the making, its announcement yesterday is unsurprising now that agreement on CRD IV is reaching a conclusion and the terms of additional tier 1 are being resolved. Tax deductibility will apply to both future additional tier 1 instruments and those already in issue and will be implemented under secondary legislation.

A worrying aspect of this Budget was the proposal to introduce with effect from yesterday some "targeted loss-buying rules" in Finance Bill 2013. While HMRC grouped these changes under an anti-avoidance heading, they would appear at least in part to have an element of revenue-raising, and will need to be considered in any commercially-driven M&A transaction where the target has unrealised losses. The changes have been proposed without the benefit of any consultation process, and details in the Technical Note published yesterday are relatively sketchy, so all eyes will be on draft legislation which is due to be published next week."

Eloise Walker, Pinsent Masons LLP

“The Budget this year is as always a mixed bag, but overall it looks to help small business and bash big business. It was good to see stamp duty abolished on AIM shares, which can only help liquidity on that market, but that only helps 1,000 smaller businesses. Contrast the TAARS (yet more TAARS? Do HMRC have no confidence in their GAAR?) on corporate losses, which may have a wider impact on commercial deals than their “anti-avoidance” name-tag would suggest. Even the further reduction in the headline corporation tax rate (to 20% from April 2015) is not all good news, because it will make the UK a tax haven under other countries’ controlled foreign companies rules: Japan, in particular, a major investor in the UK, regards a country with an effective tax rate of 20% or less as a tax haven which triggers their anti-avoidance rules for income attribution. So, unless Japan changes its law, any Japanese entities owning UK subsidiaries will have a problem from April 2015 and the UK will find itself persona non grata. A classic example of the law of unintended consequences in action.”

Martin Walker, Deloitte LLP

"The proposal to abolish stamp duty reserve tax on AIM-listed shares and on UK unit trusts and UK open-ended investment companies (OEICs) from April 2014 is a welcome step to enhance the UK’s competitiveness in relation to growth markets and the funds industry. This runs counter to the trend in other parts of Europe to introduce financial transaction taxes (FTTs): France and Italy have recently introduced their own FTTs on shares and certain other financial instruments, and the European Commission has proposed a far broader FTT across 11 EU member states from 1 January 2014. The UK voted against the EU FTT proposal, so it is consistent with its stance on FTTs that it is constructively re-examining its own stamp taxes."

Elliot Weston, Lawrence Graham LLP

"The abolition of stamp duty on shares quoted on AIM and of stamp duty reserve tax on UK open-ended funds from next year will be a significant "shot in the arm" for the UK funds industry. This will make it more attractive for open-ended funds and closed-ended funds listed on AIM to be established in the UK."

Simon Yates, Travers Smith

"Despite the claims to be promoting an Aspiration Nation (is that a character from Viz?) it is hard to find much of a coherent theme behind this year's tax measures. Also – perhaps mercifully given the extraordinary bulk of the material dropped on us in December – there is not that much new of significance.

Some good news - one cheer is due for the delay in the introduction of employee ownership (two more held in reserve for if it is dropped altogether or thrown out by the Lords). That said a chorus of boos is again due for the admittedly inevitable persistence with the almost equally stupid residential property wrapper provisions.

The prospective abolition of stamp duties on shares traded on growth markets was a welcome surprise, though at this stage we wait to see whether the already anomalous result that transfers of shares in overseas companies represented by CREST depositary interests attract SDRT will become more anomalous still or whether those transfers will be exempted as well.

Less welcome, though perhaps not surprising or unmerited given that a number of extremely aggressive structures have been marketed in this area, is the promised upcoming consultation on avoidance using partnerships. We can only hope that when any proposals come they are proportionate and well-targeted, which given recent experience may be quite a lot to ask. This will be of particular significance to the investment manager community, and given other measures designed to make the UK more competitive for this industry it would be most unfortunate if there was significant collateral damage from anything resulting from the consultation.

On the downside, as a rule of law vigilante I despair at another deployment of retrospective legislation, this time against SDLT sub-sale schemes. It really doesn't make it alright that they announced that they might do it. Doubly so when the schemes in question existed prior to that announcement and could easily have been stopped prospectively if they'd done their job properly last year. Not good enough on so many counts.

Finally I am delighted to see that in a presumably satirical measure I will soon be contributing in some small way to the childcare costs of many highly paid colleagues. I hope they each buy me a pint to say thank you. At least that will be cheaper now."

Robert Young, Taylor Wessing LLP

"The Budget was billed as very much "fiscally neutral", and this seems to be borne out when considering its impact on SMEs. On the one hand, it is great news that the special break under the seed enterprise investment scheme (SEIS) to encourage the re-investment of capital gains in start-up companies is being extended - this is one of the most generous reliefs in the UK code and has been of great interest to the start-up community.

On the other hand, it is disappointing that tax proposals include little in the way of immediate or prospective change to encourage greater institutional and larger business engagement with the SME sector. Government schemes and the VC and angel community can only go a small way to plugging the gap in funding available to growth business; incentives to encourage broader and higher value private sector investment, whether directly or via suitable investment funds, would be welcome and sit squarely within the stated intention to broaden support for entrepreneurship."

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2013 Budget: Plan A gets a facelift | Practical Law