The politics of tax

Saturday, 01 February 2014
Martyn Gowar notes that the UK government, driven by political expediency, is once again introducing tax reforms with no heed for the unintended consequences, imposing yet more complexity and uncertainty on practitioners.

John McEnroe was asked, in the first year that he commentated at the Wimbledon Championships after retiring from playing tennis, how he had found the transition. His response remains dear to me, as being the same as my feeling about cricket. He said: ‘You know, it’s a funny thing, but the more I talk about the game, the better a player I used to be.’

His words came back to me as I looked at the announcements in the UK government’s Autumn Statement in relation to the changes in tax that the Chancellor was laying out. Continued paranoia about tax avoidance – leading to yet more pages of impenetrable jargon, and new tax initiatives driven by the growing pressure that results from the fact there is to be an election within 18 months – means that the politicians respond to what will be attractive to the electors who will give or take away their power.

Apart from my reference to the Autumn Statement – a relatively new arrival in the calendar of fiscal events – I could have justifiably written the above pretty well every year since 1965. That year’s tax legislation created a new tax regime, with the introduction not just of capital gains tax, but also corporation tax.

Each year, we see tinkering at the margins of each tax, and each piece of tinkering is looked at and discussed without reference to what it may be doing to the original policy behind the tax. Is this simply development of the original policy, or is it an undermining of what was originally intended, so that the tax in due course loses its integrity?

More tax meddling

Let me give you an example. This year, on top of the recent introduction of the annual tax on enveloped dwellings (ATED), we learn that capital gains tax is to be charged after 2015 on non-residents disposing of residential property. This is to ensure, we are told, that such persons do not pay less tax than UK-resident taxpayers.

The change could be defended, I suppose, in that there are often situs rules that put land in a separate category for taxation purposes. But, if that is so, then the change should not be limited to residential property – and why should it only apply to gains after 2015? I would argue that the change undermines the policy we have had in place that non-residents are not subject to UK capital gains tax.

How can we advise our clients if we cannot speak with any confidence about the principles of, and what they can expect from, a tax to which they may be subject?

It is really here that I go back to John McEnroe. Why is it that we armchair pundits can see so much more clearly what a player should do than the player themselves? Is it not the case that, when you sit in the stands, or have a camera-eye view of the action from above, you can see shapes and patterns much more accurately than you can at ground level? And is this not clearly shown by the so often inane clichés from managers and players after the match? They need to see the replays themselves to have a clear vision of what went on.

And so the UK government delivers proposals driven by short-term political expediency, without taking any heed of the unintended consequences of what it is doing. As a consequence, those dealing with UK matters face more complexity, and more uncertainty, in the advice they can give.

Is it really any surprise that the UK has a tax system of which its practitioners should be ashamed? But, tell me, is there any country out there where it is done any better? I doubt it, but I would love to be proved wrong.

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Martyn Gowar

Martyn Gowar TEP is a Partner in McDermott, Will & Emery UK LLP and Editor of the STEP Journal.

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