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Retrospective tax campaign warns of £528m raid on UK companies through legal uncertainty
24th May 2012. A campaign organisation which represents victims of retrospective tax legislation in the UK has warned that the Government’s enthusiasm to act retrospectively on tax issues could cost the country more than £528m as other countries adopt a similar approach and target British companies with retrospective and back dated tax demands.
Section 58(4) of the UK Finance Act 2008 closed down a series of loopholes which meant tax liabilities could be minimised through the use of offshore trusts and Double Taxation Treaties. These schemes were used by freelancers, healthcare workers and contractors to arrange their tax affairs following the introduction of IR35. Section 58(4) not only closed these schemes down prospectively, but also made them illegal for the entire period they had been in operation. As a result, thousands of UK taxpayers are now being pursued by HMRC for backdated liabilities stretching back almost ten years, despite the fact that the schemes had previously been acknowledged by HMRC as perfectly legal.
The Indian Government has cited Section 58(4) as a precedent for its decision to impose a retrospective capital gains tax on cross-border acquisitions going back fifty years, which have seen British companies such as Vodafone landed with a £2.8bn back dated tax bill. Although the Chancellor of the Exchequer has warned his Indian counterpart that the move will harm the investment climate in India, the Exchequer Secretary David Gauke recently told a group of MPs that the economic climate justified the use of retrospective tax in the UK.
The No to Retro Tax campaign has warned that, while HMRC hopes to raise more than £200m through Section 58(4), the loss to the Exchequer from foreign governments adopting similar measures against British companies could be even higher. In the case of Vodafone, the campaign has said that this example alone will cost over £528m – and that while Section 58(4) remains on the statute book, they will continue to be used to justify further tax raids on UK interests.