Osborne attacked over retrospective tax moves

The government should restrict its use of retrospective tax legislation to “wholly exceptional circumstances” - which must be narrow and clearly defined, the Treasury Committee said yesterday.

Publishing its response to the chancellor’s Budget last month, the committee also called on the Treasury to explain how further extension to the existing raft of retrospective tax rules “can be prevented.”

Any new backdating of tax legislation should be justified, the committee said, against the narrow and clearly defined criteria to be spelt out “as soon as possible” in a consultation with ministers and industry groups.

The urgency reflects remarks made by George Osborne in his Budget statement that he will “not hesitate to move swiftly, without notice and retrospectively, if inappropriate new ways around” fresh stamp duty rules are found.

But according to the MP–led panel, “retrospective tax legislation conflicts with the principle of tax policy recommended by this committee and with those laid down by the chancellor” himself.

It therefore urged the government to “clarify what retrospection is proposed with regard to stamp duty,” and expects “clear explanatory statements to parliament by the responsible minister”.

Stamp duty is not the only area of concern. Budget 2012 contained a total of four measures which can or will apply retrospectively, including one relating to assets held by foreign companies (paragraph 2.78) and one relating to company car benefits (para 2.156).

Elsewhere, and for his fourth measure, the chancellor launched a consultation on a general anti-avoidance rule, rechristened by him as a general anti-abuse rule, saying that this would be "legislated for in next year's Finance Bill."

“I do worry about retrospection,”  reflected John Whiting, chairman of the Chartered Institute of Taxation, in his evidence to the committee.

“It is possibly a solution for some lazy drafting of legislation, because you could in extremis get to the stage of, ‘Well, it doesn't really matter what the legislation is, because we can always correct it later, and correct it retrospectively.’”

So retrospection “really ought to be in a very tightly controlled box to avoid scaring things,” he added, in line with the committee which voiced “serious reservations about retrospection in the tax system.”

Apr 19, 2012