Budget? What Budget? | KPMG | IM

Budget? What Budget?

Budget? What Budget?

Gregory Jones, Tax Director at KPMG Gibraltar reflects on the UK 2015 Autumn Statement.

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When I was learning tax, there was an annual budget (transmitted via the wireless) from the UK Chancellor in which he told the masses – waiting with bated breath – how much extra they would have to pay over the coming year to buy beer, petrol and cigarettes.  Occasionally he would use the occasion to change the tax rules.  The actual legislation was contained in two volumes – one Orange, one Yellow – published annually by the venerable Butterworths.

I was musing on this as I peered at Chancellor George Osborne on TV, delivering his third budget of the year, over the top of my 6-volume pile of Tolley’s Yellow books (mercifully, there are still only two Orange volumes).  That’s progress for you, I suppose!

From a Manx perspective, there was very little of interest in Mr Osborne’s 2015 Autumn Statement (a budget in all but name).  The £4 trillion in Government spending allocated by the Chancellor for the next five years will not benefit the Isle of Man.  Equally, the constant tinkering with the UK tax rules in an attempt to balance the books should have little impact on us.

Part of HMRC’s strategy to maintain the annual UK tax take in recent years has of course been an increased focus on anti-avoidance:  indeed, insistence on everyone “paying their fair share of tax” has become an international issue for Governments everywhere, leading to a proliferation of transparency and anti-avoidance measures.

Mr Osborne himself listed a number of new, albeit well trailed, initiatives which HMRC will be introducing imminently:

  • a criminal offence of failing to declare offshore income and gains (tax evasion is of course already a criminal offence but under this proposal would be a “statutory” offence similar to e.g. speeding, under which a crime would be committed regardless of intention, or;
  • increased civil penalties for offshore tax evaders;
  • new penalties for those “enabling” (whatever that may mean) offshore tax evasion; and
  • a corporate offence of failing to prevent tax evasion (clearly aimed at banks and others who look after people’s money).

In addition, the recently introduced General Anti-Abuse Rule (or “GAAR”) will be enforced by a 60% penalty charged on those whose artificial tax arrangements are successfully challenged under this Rule.

The Isle of Man is of course a well regulated and respected international centre and has no truck with tax evasion, so the penalties and offences listed above should be of no concern.  However, anyone involved in aggressive tax planning, whether on the Island or elsewhere, should be mindful now of the new 60% penalty proposal, which ramps up even further the risk profile of the tax avoidance industry.

Otherwise, the Autumn Statement looks like the budget which passed us by.  A far greater issue for the Isle of Man are the OECD’s recently published 15-point Action Plan in respect of the international Base Erosion Profit Shifting (or “BEPS”) initiative, and the UK’s Diverted Profits Tax regime which came into force on 1 April 2015.  These two developments represent – possibly in equal measure – both a threat and an opportunity for Manx businesses.  Watch this space...

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