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There is ‘no golden bullet’ with which to shoot down tax avoidance, concludes a new discussion paper from the Institute for Fiscal Studies (IFS), and no legislative, administrative or judicial approach will instantly solve the ‘tax gap’ problems that arise from the much-debated issue.
The document – produced by the organisation’s tax law review committee – argues that Government efforts to tackle tax avoidance too often address the symptoms rather than the root causes.
The past 11 years of tax legislation have proved inadequate and, at times, counterproductive ways of tackling tax avoidance, and have 'caused the tax system to reach a point of complexity that has had real costs for taxpayers and the Government', claims the paper, which discusses the various anti-avoidance techniques the UK has adopted.
It also considers options not yet employed, such as a general anti-avoidance rule, and principles-based drafting of tax legislation, a combination of which must be instigated to be effective, notes the report.
‘The key in deciding which [method] to deploy is to identify clearly the cause of the avoidance and not just address its symptoms’, said the IFS, adding that ‘in choosing the appropriate tool to address the problem, it is important to consider how different methods balance satisfactorily the rights and obligations of taxpayers, HMRC and government’.
As a first step, the boundaries created by the system between what is taxed and what is not need to be minimised, said the institute.
‘Political preferences and practical administration, however, are likely to ensure that boundaries will remain and some boundaries, such as national boundaries, will always remain. So, other approaches are needed.’
