One of the tolerable features of old-fashioned wars was that the military planner could proceed with his task in the reasonably secure knowledge that in the event of hostilities someone else would be killed. JK Galbraith: The Affluent Society
We are now about a decade on from the global financial crisis of 2008. Its economic impact is still felt. Some commentators predict that the prospect of aspiring to affluence for the many is dead. The less pessimistic may remember that, immediately prior to 2008, many were confidently predicting the end of history and the end of boom and bust economics. Predicting is a risky business.
Looking back rather than forwards, we can say with certainty that the last decade has seen states trying to replenish coffers by an increasing focus on taxing wealth. Methods to achieve this have included more legislation, more information exchange and more disincentives to tax plan.
This takes us to Professor Galbraith's characteristically pithy observation above. Many readers will have come across a tax planner with a similar outlook to Galbraith's military planner. Many clients, while hopefully not killed, are living unhappily with the consequences of past tax planning.
It may be scant consolation that recent legislation has succeeded in extending tax risk beyond front line taxpayers to the planners whose strategy is being followed. That strategy, in being implemented, is likely to involve a number of professional advisers and all now find themselves in the firing line.
While some may welcome the fact that tax pain is now more broadly spread, few will welcome the fact that there is more of it around to be spread. New and complex legislation means that there is more scope for tax authorities to challenge tax planning. New cross border automatic exchange of information agreements are likely to generate more enquiries. New penalties, civil and criminal, will inflict more damage on those who find themselves on the wrong side of a compliance border which seems to shift with each new salvo of legislation.
New challenges need new approaches. The ideal outcome of tax planning is to guarantee success but that is increasingly difficult in an increasingly complex world. If a challenge is anticipated, better to build defences before rather than after the challenge. If there are early skirmishes (and post CRS together with the rather less formal hackings of confidential records these are likely to become increasingly common), we need early decisions about how best to react to avoid escalation. If agreement with the authorities is difficult, the consequent campaign of serious enquiry and potential litigation needs ongoing review as to what is important to the taxpayer (Money? Time? Reputation? Certainty?). What options are available? What is the other side likely to be thinking?
So we live in a world where tax planning is more complex, more translucent and where rules shift. Tax planning is an increasingly risky business but echoing the calls of Roman senators "Summus ius summa inuria", roughly, more law less justice, will fall on the tin ear of a state which currently proceeds on the basis that more tax will flow from more legislation.
However, the alternative to planning is not planning and that is hardly prudent. Never venture never win is not a specious approach to life but, more than ever in tax, it needs to be backed by a consideration of the risks and options involved.
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This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2018