The Chartered Institute of Taxation (CIOT) has raised concerns about the use of retrospective action following new legislation that is set to apply from October 2007.
This follows the ministerial announcement on 9 February by the Rt Hon Stephen Timms MP, Financial Secretary to the Treasury, amending the tax rules relating to manufactured dividends. The new legislation will apply from 1 October 2007.
John Whiting, Tax Policy Director at the CIOT, said:
“The use of retrospective legislation always concerns us greatly; we think it damages the key principle of certainty in the tax system that is so important to its reputation and is inherently unfair.
“We can understand that at times the Government wants to take action to ‘confirm the general understanding of the tax system’ in the light of questions raised. However, this needs to be used with great caution: it must not dislodge the principle that the taxpayer is taxed on the wording of the legislation in place at the time of their actions. We are taxed on what legislation says, not what HMRC thinks it says. Of course the taxpayer would have to sustain their interpretation in the Courts.”
The CIOT notes that recent case law has shone a spotlight on the issue by considering section 58 of the Finance Act 2008 – a provision that closed an apparent loophole in the law but with retrospective effect that went back 20 years.
John Whiting continued:
“We need a clear statement as to when retrospection will be used and its boundaries – and Parliament needs to consider such boundaries with care.”