Tax Avoidance: Causes and Solutions - Scholarly Commons Home

similar approach to tax avoidance that has been launched in the United States in 2000,
which requires the registration with the U.S. Revenue department of certain tax shelters.
The US rule requires that the taxpayer must disclose the shelter on the tax return. Promoters
of potentially abusive tax shelters must keep a list of investors, which is available to the
IRS. 105 A proposed legislation has been introduced in Congress to clarify and increase the
penalties for failing to disclose tax shelters on returns. Under the new legislation, there will
be serious penalties if a taxpayer engages in one of these transactions and does not disclose
the transaction on its return. 106
Introduced by Finance Act 2004 and a variety of Statutory Instruments, those disclosure
rules are designed to alert the UK tax authorities to certain types of tax planning strategies
at a very early stage, by requiring promoters of the arrangements to disclose details of the
transactions within five working days of “selling” them to clients. 107 The UK provisions are
more narrowly focused than their US equivalent. The scope of the UK disclosure rules is
limited to certain employment and financial products and the tax advantage trigger is itself
restricted to income tax, corporation tax and capital gains tax. That new disclosure
approach is aimed to tackle aggressive avoidance schemes.
New Zealand had similar consideration for such pre-transaction ruling system. In the Inland
Revenue issues paper, Mass-Marketed Tax Schemes 108 , one of suggested solution for massmarketed
tax schemes is: 109
“Schemes that meet one of several criteria would have to register with Inland Revenue and
disclose that fact in a specified format on their prospectuses or "invitations to invest"”
But New Zealand didn’t go any further in this suggestion, now probably is the time to
reconsider the possibility to reinforce the anti-avoidance provision using similarly
disclosure requirement.
105 United States Internal Revenue Code 1986. sec. 6112.
106 International Monetary Fund, Tax Law Design and Drafting, volume 1, 1996.
107 Inland Revenue (UK), Tackling Direct Tax Avoidance — Disclosure Requirements, Draft Guidance,
London, May 2004, .
108 Inland Revenue, Mass-Marketed Tax Schemes: an Officials' Issues Paper on Suggested Legislative
Amendments, Wellington, January 2002.
109 Ibid.
32