What the DPT tells us about politics…

Yesterday at the OUCBT conference on Diverted Profits tax (‘DPT’), the ‘respondents’ on behalf of the government (Philip Baker QC and Mike Williams of the Treasury) were quick to point out that the DPT was aimed at contrived, artificial arrangements. If this were the case, I asked Mike Williams, then would the GAAR apply to such arrangements already, and if it does not, then why not amend the GAAR? He responded that the two instruments have separate intended uses (fine, although I’m really not sure that they do) and secondly that he wasn’t sure that the GAAR would be able to catch such arrangements in any case. This latter response is crucial. The Treasury is not sure that the GAAR would apply to the contrived arrangements at which the DPT is directed. Should it not find out?

This underlines the real motivation behind the DPT-if the Treasury and HMRC were really concerned with countering contrived arrangements, then surely they would try out the GAAR first, which appears as yet unused 1 and a half years after its introduction. The real motivation must lie elsewhere and I posit that the DPT is driven by politics.

Last year, Labour introduced the idea of a ‘Mansion Tax’ which drew serious traction with focus groups. Such a tax would ensure that the wealthiest ‘pay their fair share’. Eager not to be tarred with the ‘party of the rich’ brush, the Conservatives were in need of a tax reform aimed at the wealthiest which would ensure that they also ‘pay their fair share’. Due to obvious constraints, the Tories could not direct such a reform at housing, and chose large multinational companies instead as the target. Hence, the Conservatives scrambled for the DPT. In other words, the DPT is a reaction against Labour’s wealth tax. The rush to introduce the tax in the next Finance Bill further supports this, as this change could surely wait until after BEPS, but this would be long after the General Election.

What this episode tells us about politics more generally is quite worrying. It appears more and more today that politicians are saying simply what we want to hear. But as history has surely taught us, danger lies in reactionary legislating, as directed by focus groups and dictated by populism.

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About taxatlincolnox

Tax PhD candidate, College Lecturer and Tutor at Oxford University; Researcher at King's College London and Social Sciences Tutor with the Brilliant Club. With this blog, I seek merely to contribute to the debate. All thoughts are mine, of course.
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2 Responses to What the DPT tells us about politics…

  1. iain campbell says:

    You may be too cynical about the motivations of politicians, although a healthy dose never goes amiss.
    Cameron made his famous smell the coffee speech at Davos nearly two years ago, so he can claim some degree of consistency.
    And I think it was always assumed the GAAR would never have live cases for quite some time, given the cycle of business activity, filing a return, the HMRC enquiry process, etc.
    But I think you are asking the right question, which is why does HMG want to do this now. Mike Williams denied any lack of faith in the BEPS process, yet failed to say why HMG suddenly felt compelled to address a problem they have lived with for a long time.
    Do politicians think they will gain votes from a DPT? Will Tory voters be now more likely to stay with the party? Will wavering LibDem or Labour voters switch? I don’t see DPT as being that big an issue for voters.
    Maybe we are too suspicious!? Could it just be that politicians genuinely want to tackle the issue, and get it on the statute book before May? Stranger things have happened..

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  2. Perhaps I am being too suspicious and cynical! However, a wiser man once said ‘scratch any cynic and you’ll find a disappointed idealist’!

    The timing of this episode, for me, is wholly suspect-we are fast approaching a general election; we are still in the middle of BEPS etc. Mike Williams was also asked about diverging from HMG’s consultation principles, and justified doing so on the basis that the Treasury has always been clear that avoidance is an issue which demands immediate action. So why not try out the GAAR then, or at least make sure that the GAAR wouldn’t work?

    Is this a big issue for voters? Philip Baker made it clear last night that there was a popular case for the new tax. When you look at the statistics, it is pretty extraordinary how well focus groups respond to ensuring that the wealthiest ‘pay their fair share’.

    Thank you as always for your comments!
    Steve

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