A Consultation on Tax Management: Analysis of Responses

9. ACCELARATED TAX CHANGES

Background

9.1 There are situations when tax changes may need to be made without extensive advance consultation. Most tax jurisdictions have in place a mechanism to enable the swift introduction of tax changes with subsequent Parliamentary scrutiny: the UK has the provisional collection of taxes regime. It is for the Scottish Parliament to determine the appropriate mechanism for Scotland.

9.2 It is proposed to make provision for a mechanism for "accelerated tax changes" that will apply to all devolved taxes, will allow for changes to rates and thresholds and other elements of tax systems where appropriate, will require statutory instruments (rather than arising from Parliamentary resolutions), and will require reimbursement of any tax measure that is not subsequently endorsed by the Parliament.

9.3 There is no intention that tax changes made under the accelerated tax changes regime would have retrospective effect.

9.4 The consultation asked:

Question 35: What are your views on the proposals for an accelerated tax changes regime?

9.5 Seventeen respondents (61% of all respondents) addressed this question.

Table 37: Respondents to Question 35

NB Percentages may not total 100% exactly due to rounding.

9.6 Whilst it was accepted by all of the respondents who provided a view that an accelerated tax changes regime will be required to be put in place, there were also acknowledgements of the associated risks for taxpayers in terms of possible unintended consequences, lack of certainty, and possibly reduced attractiveness of Scotland as a place for business.

9.7 A common view was that the proposals were reasonable, but should be used in limited circumstances only, with consultation on tax changes continuing to be the norm.

9.8 The use of accelerated tax changes was viewed by respondents as generally more acceptable for closing loopholes and addressing avoidance schemes than for changing tax rates and thresholds. Indeed, three tax professionals argued that they were not convinced that the regime should be used for tax rate and threshold changes. One legal professional body and one business respondent agreed that its use for tax rate and threshold changes should be confined to exceptional circumstances only.

Views on proposal for no retrospective effect

9.8 Eight respondents provided a view on proposal that there is no intention that tax changes made under the accelerated tax changes regime would have retrospective effect. All supported this proposal, one requesting that the wording be stronger, "to provide that it should be impossible for them to have retrospective effect" (Law Society of Scotland). However, two respondents (Tax, Tax) considered that in extreme circumstances, perhaps to protect the Exchequer, tax changes should have retrospective effect. Another respondent weighed up the arguments:

"Whilst (retrospective effect is) perhaps warranted in highly abusive situations this is a power which could dilute the overriding principle of certainty and clarity of the legislation. Better that the legislation is clear and the intended purpose behind it is easily understood using the measures proposed....in any event would there ever be a situation where retrospective legislation was required if there is a GAAR?" (British Bankers' Association).

Views on associated risks

9.9 For a few respondents (Tax, Bus), there were concerns that lack of prior consultation could lead to unintended consequences. A business view was:

"Businesses require a stable and predictable legislative and fiscal environment, the possibility of change creates uncertainty" (Scottish Council for Development and Industry).

9.10 Other risks documented by respondents were:

• Using statutory instruments could have the effect of unnecessarily complicating the legislation (Tax).
• Too many changes within a year would give very little time for proper consultation (Tax).

Views on necessary safeguards

9.11 Four safeguards were suggested by tax professionals as helping to reduce risks:

• There should be appropriate limitations on the use of the regime, for example, after demonstrating that significant amounts of tax revenue (e.g. a particular threshold) will otherwise be lost (2 mentions).
• To prevent too many changes in one year, it might be possible to define certain set periods during which accelerated changes can be made (1 mention).
• Accelerated tax changes should be permitted only after, say, consultation with members of the Devolved Tax Collaborative (1 mention)