Issued ahead of the Autumn Statement, the report Certainty in Tax notes that tax systems should be designed to minimise unfair outcomes, and it says where governments allow uncertainty in a system through administrative or judicial discretion that ‘the boundaries of uncertainty’ should be as clearly defined as possible, with clear guidance on the issues.
Large businesses – which are relatively few in number but are increasingly sophisticated – should also be able to benefit from transparent clearance mechanisms which enable them to discuss proposed transactions in advance to avoid uncertainty.
Report author Jason Piper, ACCA’s Technical Manager, Tax and Business Law, said: “Regular and constructive dialogue should be a feature of a healthy relationship between business and the state. The outcome of those discussions could be formalised and even published to aid transparency and certainty for both businesses and tax officials, and could form part of the clear guidance which we believe is vital.”
The report says that certainty, along with simplicity and stability, is one of the fundamentals of a good tax system. But it adds that every system incorporates uncertainty to some degree, with some governments even encouraging uncertainty in some cases.
The ‘most potentially devastating form of uncertainty is that introduced by the threat of retrospective legislation’, says the report.
While most governments only use such legislation to counter clear abuse, the report says it does happen and the damage done to taxpayer confidence in the system is considerable.
Uncertainty enables abuse of the system by taxpayers and, in some cases, corrupt tax officials.
Jason Piper said: “If an uncertain system allows such dishonesty to persist, it will reduce domestic confidence in the administration, and may discourage investment by businesses from other jurisdictions, which means it is in the state’s interest to reduce the scope for such developments,” said Jason Piper. The key to certainty is an underlying clarity and coherence of purpose, allied to coherent and consistent messaging from the policy makers and the tax administration itself.
“Clear communication of the aims of each tax measure will help taxpayers recognise what is expected of them, although it will impose on policymakers the burden of actually understanding what they want to do and how they are trying to achieve it,” said Jason Piper.
Press release
© ACCA - Association of Chartered Certified Accountants
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